Fair Is Fair: PURPA, Feed-In Tariffs and Other Naughty Words
Dan Fink
By Dan Fink
On and Off the Grid
Published Jan. 17, 2010
Just reading the acronym "PURPA" still sends chills down the spines of some utility company executives. It has terrified them since 1978, when President Jimmy Carter hatched the Public Utilities Regulatory Policy Act and Congress passed it. Carter called the energy crisis “a clear and present danger to our nation,” and similar language has been used recently by both Bush and Obama.
All PURPA actually did was require utilities to purchase electricity from independent producers, and capped the rate paid at “avoided cost.” This is the price it would have cost the utility to produce the same amount of energy that (for example) a home rooftop photovoltaic (PV) array did over a month. Since utilities can produce massive amounts of energy at extremely low cost using heat from coal, natural gas or nuclear fuels, this avoided-cost rate is only a fraction of what consumers pay to purchase electrical energy each month.
Now the renewable energy landscape in America has changed drastically. Concerns about our dependence on foreign oil, national security, carbon emissions affecting global warming, the creation of “green” jobs, and pollution have launched renewables into the forefront.
But the financial hurdles of installing a renewable energy system for a home or business are often still too high. As you round the bend into a neighboring state, the next hurdle could loom ten feet high, compared to the three-footer you just cleared. Why don't we level the playing field — or at least chop all the hurdles down to the same height? Net Metering is a Good Start
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Net metering laws are an essential first step, but the hurdles still vary widely. Net metering is simply the requirement that your electric meter runs in both directions. If you use 1,000 kilowatt-hours (kwh) in a month and your PV array produces 1,000 kwh, your electric bill should be zero. Under PURPA alone, without net metering, what you use might be billed at 10 cents per kwh, but what you produce pays you at only 2 cents per kwh — so you still have to cut a check to the utility every month. This makes net metering a big incentive for home and business owners to install PV arrays.
In fact, access to net metering was mandated federally with the Energy Policy Act of 2005 — but only for publicly owned utilities. Many more rural areas in America are served by private utilities, which are exempt unless state laws are passed requiring them to provide net metering service. Only 35 states currently have some variety of net metering laws, and not all of these apply to all utility companies. Rural cooperatives (REA) are still often exempt.
There's even more inconsistency in the exact meaning of “net metering” in any given state, municipality, or even local utility. What happens when you produce more kilowatt-hours of electrical energy in a month than you use? In some places, the buck stops right there. You don't get a dime for any energy you feed back to the utility. In other locations, the utility will pay you only at their fractional avoided-cost rate. And with some utilities, you still have to pay monthly grid access fees even if you produced as much as or more energy than you used. In more renewable-friendly areas, though, state or local law might mandate you get paid at least the same rate for energy you produce as you pay for what you use, and place limits on grid access fees.
How Can We Encourage Renewable Energy?
It's obvious that even the most conservative most Americans think that reducing dependence on foreign oil is a good thing for our nation. How to do this? Draft some simple rules, and apply them to every utility and home nationwide:
* Guarantee access to the grid for all energy you produce.
* Provide long-term contracts for the purchase of this energy.
* Base the prices paid for your energy on what it actually costs to produce it, not on avoided cost.
There's a well-established way to do this! It's called a “feed-in tariff.”
Is "Tariff" a Naughty Word?
Not really, unless you own an old-school utility and your crystal ball is covered in coal soot. Germany, Iran, Israel, Spain, the U.K., the Netherlands, South Africa and China all have national feed-in tariff laws. Australia, Canada and America have them only in certain states, territories, and municipalities. In the U.S. only California, Hawaii and Vermont have statewide feed-in tariff laws.
What makes the utilities cringe is the thought of their retail electricity business evaporating as more and more folks install PV systems on their homes and businesses — the “Million Solar Roofs” effect. But note that feed-in tariff laws are usually self-limiting in how they are drafted. The law might first require utilities to pay substantially higher rates to those who feed renewable electricity to the grid, as it does in Germany. But as time passes or after the market penetration of independent renewables reaches a certain level, the payback rates will gradually change in favor of the utility, often capped at the retail price of electricity. And of course you know the utilities will be deeply involved in drafting any such laws. The intent is for feed-in tariffs to be an economic stimulus for those who choose to invest in renewables, finally making them affordable with a quick payback time — and then drop to a sustainable payback rate for all involved.
Politics and Tax Credits
Notice that I have not mentioned the words “tax credit” until now? That's because current U.S. energy policies toward corporations, utilities and consumers are inconsistent, often wildly so. Tax credits for consumers installing renewable production are proven to increase our made-in-America “distributed generation” capacity—unless you live in a state where net metering is not required. Then you might as well forget it, unless your local utility voluntarily offers this service; your investment in PV won't pay back during your lifetime. It's absurd to offer renewable-energy tax credits to consumers who are hobbled by avoided-cost rates or a lack of net metering, or have no opportunity to feed energy into the grid at all.
PURPA, the Energy Policy Act of 2005, and the American Recovery and Reinvestment Act of 2009 were all steps in the right direction of energy independence. But fair is fair—why are the benefits from these laws not available to every American?
Politics and the big business of energy, that's why. Instead of kicking back and smoking the Hopium, contact your state and federal representatives and senators to make your views known, and demand (at the very least) consistency in federal energy policy. Equal access for all is not such a lofty goal, is it?
Renewable energy author, lecturer and consultant Dan Fink has lived off the grid, 11 miles from the nearest power line, since 1991. He is co-author of the book "Homebrew Wind Power," and his work appears frequently in renewable energy magazines such as Home Power and Back Home. You can email him at dan.fink@sunpluggers.com.
