Several states have been exploring an alternative to solar renewable energy credits with laws establishing feed-in tariffs (FIT). A FIT law works by requiring utilities to purchase electricity from certain sources, like solar, at a fixed rate. This rate is higher than the utilities normal wholesale electricity purchase price in order to subsidize their higher cost. Unlike SREC laws, the FIT is a relatively blunt policy instrument. By setting a fixed tariff, the state legislature must exactly calculate the cost needed to incentivize new solar installations. If the rate is set too high, ratepayers unnecessarily oversubsidize solar (remember cash for clunkers?) and if it is set too low the solar build-up is too slow. An SREC program, by contrast, allows the market to determine the exact price necessary to incentivize solar, leading to the desired amount of solar at the minimum cost to ratepayers.
State FIT laws were recently dealt a setback by the Federal Energy Regulatory Commission (FERC) who determined that a California Feed-in Tariff for combined heat and power (CHP) was preempted by Federal Law. The ruling specifically determined that FERC has exclusive jurisdiction to set rates, terms, and conditions for the sale or resale of electricity, and that feed-in tariffs are a means of setting rates for the sale or resale of electricity. The ruling goes on to state that feed-in tariffs would be allowed for certain facilities in certain circumstances, but not at rates above the utilities avoided cost. Since avoided cost is far below FIT levels, this ruling effectively ends solar FITs in the U.S.
Existing programs in California, Oregon, Connecticut, and Vermont will probably be impacted immediately, while pending legislation in several states will have to be re-examined. The good news is that most of these states have existing renewable portfolio standard laws, they only lack a solar carve-out. By adding a solar component to these existing laws, they can join states like NJ, MD, DE, DC, PA, OH, and MA using a market based approach to drive solar growth.
Some other coverage:
Full ruling can be found at FERC’s website under dockets EL10-64 and EL10-66