According to Bill Campbell of Equilibrium Capital Group at a recent meeting of the Oregon Energy Forum, most forms of energy are generated with large capital investments, and sold to consumers who buy only what they need, when they need it. This financial structure is quite common, from stored energy delivered as gasoline or AA batteries, to real-time energy delivered over the electric or natural gas grids. Investors are accustomed to making large, safe, long term investments in energy. Consumers are accustomed to making small purchases, which in aggregate support hundreds of billions of dollars in transactions.

A Feed-In-Tariff (FIT) fits this business model very well. For instance, a business can make a large capital investment in solar PV (photovoltaic) equipment, sell electricity on a long term (e.g. 20 year) contract at a guaranteed price to a utility, and pay individual building owners regular royalty fees for the use of their rooftops. In short, a FIT provides a very bankable investment in PV. In the present economic downturn, a business that sends building owners monthly checks, is likely to find more clients than a business that charges building owners for new PV systems—even PV systems with partial subsidies and tax credits.

In comparison, a program that provides first-cost incentives plus net metering is incongruent with the conventional energy business model. In many cases, the investment decisions are made by individual building owners who have minimal investment capital on hand. If large investors enter the market, they often receive low electricity prices.

FITs are popular in Europe to promote renewable energy, and are gaining traction in the US. In Florida, the Gainesville Regional Utilities (GRU) recently switched a renewable energy program, from “Incentive plus Net Metering” to FIT. The 2 programs are comparable, in terms of the net present value per kWh of the cost over the program lifetime. This comparison is important, because some Americans dismiss successful European FIT programs as too expensive.

In the GRU service territory, 365 KW of new solar capacity was installed or committed in the final eighteen months of the “Incentive plus Net Metering” program – versus 8 MW in the first eighteen months of the FIT. That’s more than twenty times the investment, jobs, energy, carbon reduction, and community value in the same span of time – at essentially the same net present value cost per kWh to the utility.

With an energy efficiency power purchase agreement (eePPAtm) or related “pay for delivery” transactions, the FIT financial model can be applied to energy efficiency, in addition to renewable energy. The Gainesville experience suggests that government bodies and utilities can grow their local clean energy economies much faster, by investing in FIT energy programs.

Source: Pike Research.