Solar’s Faceoff: Feed In Tariff Versus Net Energy Metering

With the Gainesville FIT suspended, should solar rally around NEM?

The first and most famous U.S. feed-in tariff has been suspended and rooftop solar advocates are calling for the industry to rally instead around net energy metering.

The Gainesville Regional Utilities (GRU) program “came to a screeching halt, it’s over,” said The Alliance for Solar Choice President Bryan Miller. “This shows that FITs don’t build a long term durable market,” added Miller, a VP for the residential solar installer and third party ownership fund manager Sunrun. “Real people are losing real jobs because there is no Gainesville feed-in tariff anymore.”

Gainesville’s City Commissioners voted in December to suspend the tariff for 2014. GRU will not provide the over-retail rate for solar-generated electricity that has driven the installation of fifteen-plus megawatts of capacity since 2009.

The FIT currently increases residential rates by around $3 per month per 1,000 kilowatt-hours, according to GRU. Since 2009, the utility has paid some $11.4 million, at an average solar-generated electricity price of $287 per megawatt-hour. Its contracted twenty year obligation is $74 million to $84 million.

Western Europe’s landmark FITs were “tremendously important in the development of the solar industry,” Miller acknowledged. “Germany’s FIT jumped started the industry and we give them credit for that. But we’ve outgrown those infant days when you needed to deliberately over-pay to get solar built.”

There is a contraction in the German market and market turmoil in Spain, Italy, Portugal, the Czech Republic, Bulgaria, and France, Miller added.

“The turmoil in Europe was not a problem with FITs,” renewables analyst and leading FIT advocate Paul Gipe objected. “It was the result of the fossil fuel and nuclear industries’ opposition to renewable energy. If there were renewables mandates or net metering, they would have attacked those.”

click to enlarge

FITs can work in places where the cost of retail electricity is low and the cost of electricity from solar systems is high but they don’t suit the U.S., Sunrun Supply Chain Manager and Treasurer of the German Energy Storage Association Dirk Morbizter.

With a FIT, Miller said, either the price is set too high, driving irrational demand, or it is set too low, forcing regulators to raise it until it is too high. “Either way, the market doesn’t find equilibrium. Net Energy Metering allows that to happen.”

NEM “is about respecting and protecting the rights of individual homeowners to generate their own power,” Miller said. The FIT “forces the homeowner to sell to the grid but 75 percent of the power generated by net metered systems never touches the grid.”

NEM, Miller added, “is in 43 states and, according to D-SIRE data, there have been 150 expansions of it over twenty years and not a single contraction. That is the model of a durable public policy.”

The FIT is far more stable than NEM, Gipe responded, because FITs are contracts with a binding term on both parties. “Across the U.S., where utilities can’t push regulators to repeal net metering, they are going to try to limit the number of years it applies.”

The FIT is also more fair, Gipe added. NEM is “anti-choice” because the renewable energy builder has to already be a utility customer. With a FIT, a person or a community “can install renewable energy at a greenfield site and be paid for the electricity even if there is not a metered connection.”

Solar “leasing companies” oppose the FIT because it is “more bankable,” Gipe explained of third party owner fund managers like Sunrun and SolarCity. “Who needs a leasing company and all their fees and their profit when you can go to the bank and get a loan to do it yourself? In Germany, they don’t have leasing companies. They have community banks and credit unions. Loans are available. There is no need to sell the right to develop solar energy to a leasing company.”

But with FITs, Morbizter said, solar customers often build excessively large systems to maximize their return.  “This approach is unsustainable, especially in high-growth solar markets where solar costs continue to drop. Net metering ensures that customers match their system size to their electricity usage,” he explained.

click to enlarge

The suspension of the Gainesville FIT “is a blow,” Gipe said. “But the City Council said it is because Gainesville reached its solar targets. Germans would have concluded the targets were too low and increased them. Will Gainesville set new targets? I don’t know. Will they implement net metering instead? I doubt it. They introduced FITs to avoid NEM because it took revenues away from the municipal utility’s base. That hasn’t changed.”

“Net metering has proven an effective policy for deploying retail distributed generation (DG) projects,” Clean Coalition Executive Director Craig Lewis wrote recently at Huffington Post. Net metered systems were 99 percent of those installed in 2012 and are almost half of the installed U.S. solar capacity.”

But FITs, along with streamlined interconnection procedures, “are the world's most effective policy for bringing wholesale DG online,” Lewis added. And though over 70 percent of the world’s installed solar PV capacity is wholesale DG, it has been “largely overlooked in the U.S.”

“Net Energy Metering is most appropriate for residential-scale renewable energy projects while Feed-In Tariffs are unparalleled at unleashing the commercial-scale market segment," Lewis said. "FITs, along with proactive grid planning, are the most significant drivers for commercial and community-scale renewables going forward.”