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Why California Doesn't Have a German-Style Solar Feed-In Tariff

It’s a question we hear all the time: Why doesn’t California have a German-style feed-in tariff for the solar industry? German utilities pay a high price for any solar electricity fed into the grid, with the cost distributed among the country’s ratepayers. The much-esteemed policy made Germany a huge solar market, with 1.5 gigawatts of new capacity installed last year. For comparison, the United States would need 6 gigawatts of annual solar installations, 20 times more than it has today, to reach the same level of market penetration.

But at a luncheon Wednesday to discuss solar trends in advance of the Intersolar North America conference next month, some California solar insiders voiced skepticism about whether a German-style feed-in tariff would be the end-all policy for the state.

In fact, California already has a feed-in tariff, but it’s ineffective because the price is low, based on prices for natural gas. The state also has a net-metering program in which solar customers use the electricity they generate for their own use, then feed excess electricity into the grid, running their meters backward. In addition, California has a solar incentive program, which offers declining rebates for solar projects, and a renewable portfolio standard, which requires utilities to get 20 percent of their electricity from renewable sources by 2010.

So how about it: Why hasn’t California copied Germany for its much-lauded feed-in tariff? Here are some of the reasons California solar insiders have put forth:

1). A feed-in tariff doesn’t factor in where and when the electricity is generated:
Because a feed-in tariff pays the same price for any kilowatt-hour of solar electricity, it doesn’t encourage generation when and where the electricity is most needed, said Sheldon Kimber, vice president of development for Recurrent Energy, which installs and finances solar projects. “One thing the feed-in tariff doesn’t do is expose everybody to different market signals on the grid, such as time-of-use and location,” he said, and these are important factors for a sustainable policy.

2) Germany’s feed-in tariff led to higher panel prices:
Because the tariff offered such a high price for solar electricity, it created a shortage of panels that led to much higher prices. “On the one hand, Germany absolutely built the global manufacturing base, but on the other hand, it built the manufacturing base around the $4-a-watt panel,” Adam Browning, executive director of solar advocacy group Vote Solar, told me last month. “We will always have the German program to thank for what it did – it saved the world, as far as I’m concerned – but it also had some policy ramifications that haven’t been entirely positive.”

3) California’s many utilities, each with their own unique conditions, make it more difficult to create a feed-in tariff:
Getting a German-style tariff in California would be more difficult than it might seem, Sue Kateley, executive director of the California Solar Energy Industry Association, told me in an interview last month. For one thing, the state has more than 30 vastly different utilities. Some are legally prohibited from increasing some of their rates, for example, and others have very low prices for conventional electricity. Los Angeles’ utility, for example, has rates of about 5 cents per kilowatt-hour. “If solar’s going to cost 20 cents a kilowatt-hour and customers pay 5 cents, will customers tolerate that kind of rate increase?” Kateley asked. Meanwhile, prices — and peak demand — in Germany don’t vary as widely.

4) The feed-in tariff only addresses wholesale electricity sold to utilities, and doesn’t encourage energy efficiency:
California’s mix of policies encourages a wider range of solar projects than Germany’s feed-in tariff, which is focused mainly on wholesale electricity, Adam Browning, executive director of solar advocacy group Vote Solar, said in an interview last month. Overall, the policy mix “gives California a unique robustness, a lot of different ways to capture the value of solar,” he added Wednesday. Kateley put it another way: “We need it all,” she said, including both a retail-electricity program to help consumers reduce on-site demand, a utility-scale program, and a wholesale-electricity program like a feed-in tariff.

8 Responses to “Why California Doesn't Have a German-Style Solar Feed-In Tariff”

  1. Compared to incentive policies that prevail in North America, Feed-In tariffs are less expensive per unit of capacity installed. Here’s a recent NREL study to back that ;

    They also lead to faster declines in local installation costs – and that must be the goal for the industry and policymakers alike: cost-competitiveness. In Germany today it is about 20% cheaper to install solar than it is in the U.S. Here’s a L.Berkeley Labs study to back that up. T

    Also, reasons 1 and 2 above make for pretty weak criticisms. reason 1 because current incentive programs in California also do not account for time of use, and more significantly, we know when solar is productive, on average – during the day, when wholesale rates are the highest, and when demand is greatest. An FIT for solar is a stronger incentive than real time pricing. Reason 2, because it suggests that the policy itself causes the price of panels to inflate, and that it does so permanently – this is simply incorrect: in the long-term, FITs mature the market and drive down costs. The reason why prices spiked globally after the German FIT was launched was because the strength of the incentive sucked all of the panels out of other markets. The price went up because of scarcity – too little production capacity. While that hurt in the short term, it ultimately sent a clear signal to manufacturers to expand their capacity, which, in turn, created larger economies of scale, greater competition and ultimately lower prices per watt. When the history of solar is written, a large chapter will be dedicated to the leadership of places such as Japan (no FIT), Germany and other countries with aggressive market development policies because the escalated the growth and scale of the industry and produced declining costs, not rising ones.

    Also, criticisms that point to the small overall contribution that PV makes to Germany’s electricity supply seem to always neglect to point out that the technology has seen a year after year 30% growth rate for about a decade – a 3 year doubling period. If that continues, you can be certain that PV will not remain such a small fraction for very long. Also, such criticism fundamentally misunderstands the most important distinguishing characteristic of PV and distributed generation: it is a consumer technology that is easily implemented on a variety of scales in short periods of time. This means that in the developed world it can simply grow much faster than conventional, centralized sources, like power plants. When the price crosses below that of conventional sources – and FITs efficiently and permanently nudge the numbers in that direction – then we will see penetration rates grow at an exponential rate. Really, PV – as a consumer technology – will expand more like the computer or the automobile, rather than like the conventional power plant.

  2. Craig Lewis

    Even on the issue of price and cost-effectiveness, FITs are significantly superior to any other policy mechanism. Note that a PV rate of 45 cents per kWh in Germany is only worth 15 cents in California. This is due to the effects of tax incentives in the US (ITC and accelerated depreciation) that are worth at least 50% of the installed cost; so conservatively 45 becomes 22.5 cents. Then because the solar resource in California is at least 60% better than in Germany, you need to but the 22.5 cents by at least a third. Hence, Germany’s 45-cent FIT rate for PV is equivalent to less than 15 cents in California.

    The FIT Coalition has performed a sophisticated ratepayer impact analysis for a comprehensive FIT. The analysis, and the underlying model, have been reviewed by senior personnel at the CPUC, CEC, and CAISO; and both are freely available at the FIT Coalition website:

  3. The article clearly states that is is effective and that “it saved the world”. It created a network of renewable energy but had a couple of unwanted effects. So that’s the reason why some Americans rather would prefer to do nothing? Well, I guess the undesired effects of that would be far worse….
    It’s the old argument: The cost.
    At the end of the day, you cannot eat money, money won’t clean the air you breathe or the water you drink. It will not free your kids from asthma and cancer and will not make your car go on air.

  4. Craig Lewis

    FITs are the most effective policy in the world, by far, for bringing cost-effective renewable energy online. There are 10 reasons to have a FIT in California for every reason against. California policymakers are finally understanding this reality, and California will have a comprehensive FIT signed into law this year! Get the details at the FIT Coalition website:

  5. abarrelfull

    A feed in tariff is probably the worst way to go as it encourages very inefficient practises.

    On a per dollar basis, this of how much further the German cash would have gone, if the same panels had been placed in a more sunny climate.