How to Make Solar Powerful

Editor's note: This is the first post from guest contributor Richard Feldman, executive director of the Worker Center, the economic and workforce development division of the King County Labor Council, AFL-CIO; and regional organizer for the Washington arm of the Apollo Alliance.

This Friday, Governor Gregoire will sign a number of environmental and clean energy bills passed during Washington State’s stellar legislative session, including SB 5101. Denis Hayes, former director of the federal Solar Energy Research Institute and current President of the Bullitt Foundation, describes SB 5101 “as the most important solar legislation ever introduced in any American state legislature.”

SB 5101 is modeled after an energy policy first passed by the German government in 1990 that required utilities, among other things, to purchase any renewable energy electricity at fixed, minimum prices. This German law, also known as the feed-in tariff law, renewable tariff law or pricing law, has gone through several changes and is currently known as the German Renewable Energy Act (EEG).

Several other European countries including Spain have adopted similar policies. Under the German system, the prices paid for renewable electricity are higher than the retail cost of electricity and guaranteed for a set period of time. The prices are set in relationship to the cost of the renewable resource or may be set to spur investment and industrial development in renewables. The prices can account for improvements in technology and economies of scale by establishing a schedule that lowers the price over time for successive producers. The costs of higher payments to renewables are covered by a small additional per kilowatt-hour (kWh) charge on all consumers according to their level of use. Having the revenue source come from ratepayers instead of taxpayers has insulated the program from the vagaries of legislative renewal.

SB 5101 establishes a similar system of payments for kWh generated by wind, solar and anaerobic digesters except that the revenue source is a credit against a fixed percentage of utility taxes instead of a charge to ratepayers. In Washington State, a homeowner with a solar photovoltaic (PV) system will receive up to $2,000 per year, depending on how much energy is generated by their system.

Janet L Sawin of the Worldwatch Institute in a study of renewable energy policies notes that:

When the 1990s began, Germany had virtually no renewable energy industry and, in the view of most Germans, the country was unlikely ever to be in the forefront of these alternative energy sources. Yet, by the end of the decade, Germany had transformed into a renewable energy leader, with a new, multibillion-dollar industry and tens of thousands of new jobs.

For example, most of Germany receives less solar irradiation than Western Washington yet in 2004 it installed six times more PV than the entire US.

The reason Germany has been so successful? According to Sawin:

"[Several] policies have played an important role, but the pricing law has had the greatest impact on Germany’s renewable energy industries. It ended uncertainties regarding whether producers could sell their electricity into the grid and at what price, and provided investor confidence, making it easier for even small producers to obtain bank loans, and drawing money into the industries. Increased investment drove improvements in technology, advanced learning and experience, and produced economies of scale that have led to dramatic cost reductions. The average cost of manufacturing wind turbines in Germany fell by 43 percent between 1990 and 2000, and the cost of total PV systems has declined 39 percent over the past decade."

Like much in the renewable energy field this policy too has U.S. roots. California in the 1980s implemented the U.S. Public Utilities Regulatory Act of 1978 (PURPA)--which required utilities to interconnect with and buy energy from independent power producers--by requiring long term contracts combined with fixed energy prices assuring energy producers (including renewable producers) a market for their product and enabling bank financing. Wind farms sprouted in the hills and for a time, California became the world’s leader in renewable energy production.

In the U.S., energy advocates have pressed for Renewable Portfolio Standards (RPS) at the national and state levels. This policy requires utilities to purchase a set quota of renewable energy for their power portfolio. The two approaches to renewable energy policies differ around the role of the market and political decisions:

	Quota (RPS)	Pricing Law
Amount of Renewables	Political	Market
Price of Renewables	Market	Political

An RPS tends to end up supporting mature renewable industries, which are able to deliver electricity at rates competitive with wholesale prices. Corporate-developed wind power is a big beneficiary of RPS. In contrast, the pricing system has the ability to build markets, encourage investment, and force the price curve down on emerging technologies as well to enhance mature technologies.

An intriguing aspect of the pricing system approach is the ability to fine-tune the prices for different technologies at different scales thus broadening the geographic and constituency support for the policy. Want to bring in the agricultural industry? Establish an attractive price for biomass-fired generation and increase the price for smaller scale producers.

Both Washington State Houses passed SB 5101 unanimously with utility support. In contrast, RPS has received a cold reception from both the legislature and the state’s public and private utilities. A weakness of SB 5101 is that its scale is limited and it depends on taxpayer revenue instead of ratepayer revenue subjecting its continuation to the will of future legislatures. With the state’s structural deficit, this type of expenditure will have to compete with funding for schools and healthcare.

In determining the best energy policy for Washington State it makes sense to look at an RPS but it also makes sense to look at building on the outstanding results of the German pricing law and the political support for SB 5101 to put in place a Washington ratepayer funded pricing law. After all, if the objective of regulating utilities is a means to the ends of transforming our economy and creating new jobs by developing clean energy industries, shouldn’t we follow the lead of one of the most successful examples?

Side note: Unfortunately, the chair of the House Energy Committee added an unfriendly amendment to SB 5101 that holds up the implementation of this groundbreaking legislation until there is general agreement by most utilities in the state on a common set of standards for interconnecting electrical generation equipment to the grid. Three steps forward. One step back.