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Calling All Clean-Energy Entrepreneurs!

National feed-in tariff expert heads to Traverse City, Lansing

October 28, 2010 | By Jim Dulzo
Great Lakes Bulletin News Service

  Feed-in tariffs, also known as renewable tariffs, have spurred rapid clean energy growth in Europe. Click to enlarge

It’s not often you find engineering types jumping into the maelstrom of modern American politics. But, back in 2005, Californian Craig Lewis felt so strongly about triggering a clean-energy revolution in his state and country that he set aside his electrical engineering spreadsheets and got involved in the Golden State’s gubernatorial election.

Mr. Lewis became the energy policy go-to guy for then-candidate Steve Westly. Both he and Mr. Westly wanted to make sure California remained a leader in the shift to clean energy, which Mr. Lewis calls “the biggest transition we will ever undergo.”

After Mr. Westly lost the primary, Mr. Lewis got more involved in what he calls the “smart energy” industry. His first big project was guiding California’s first mandated, utility-based solar power project through the state’s regulatory regime. Since then he’s been involved with about two dozen other, similar projects.

But Mr. Lewis is also a finance guy. Helping smart tech companies raise $100 million in venture capital taught him a valuable lesson: Even if a clean energy project raises tens of millions of dollars, he said, “it all goes up in flames unless we actually have an end market to deploy them. So we need policy to drive smart-energy deployment.”

Today Mr. Lewis’ non-profit, the FIT Coalition, is pushing for those policies. FIT stands for “feed in tariffs—the rates that utilities must pay to people who want to turn a profit by generating and selling power from their own, self-financed renewable energy projects.

FITs are now working in dozens of countries, and in most instances are proving to be wildly successful at spurring clean energy development and power production with minimal effect on local electricity rates. Mr. Lewis believes that it’s time for the United States to have federal or state FITs, too, in order to grow our country’s renewable energy industry, create thousands of jobs, increase American energy independence, and cut dangerous greenhouse gas emissions.

We caught up with Mr. Lewis by phone as he prepared for some cross-country stumping for FITs. Buoyed by a recent federal decision confirming that it’s legal for states to enact FITs for their investor-owned utilities, he will appear, among many other places, at Northwestern Michigan College in Traverse City on Thursday, Nov. 4, under the auspices of the Grand Vision Energy Network, and at the Lansing Regional Chamber of Commerce on Friday, Nov. 4, under the auspices of the Sierra Club Michigan Chapter.

FIT legislation was introduced to the Michigan House of Representatives three years ago, but has yet to receive a hearing from the House Energy & Technology Committee.

Great Lakes Bulletin News Service: What kind of reception do you receive when you address an audience about feed-in tariffs?

Craig Lewis: Whenever I get in front of an audience and talk about FITs, every single person at least moves toward the conclusion that they are the right way to go. Getting somebody on the other side, who thinks FITs are the worst thing in world—“communists are trying to infiltrate the U.S.”-type people—even those people move to “Wow, he’s telling me some things I didn’t know and showing me some ways to look at this I had not thought of.”

I have yet to find someone who moves in the opposite direction. Broadly…the more people learn about feed-in tariffs, the more favorable they are about them.

The fact that feed-in tariffs are driving 90 percent of solar power development around the world is a pretty good reason to look at them with an open mind. There would not be a worldwide solar industry if we did not have FITs.

So a municipal utility like Traverse City Light & Power has a really significant opportunity to get “first mover” advantage in their market. It will attract significant levels of investment, significant new tax revenue, and turn the company into a leader in the smart energy future.

GLBNS: But utilities in our state are resisting FITs. One local co-op utility director even called them a “sharp stick in the eye” for ratepayers because, he claimed, they would drive up electric rates very sharply.

Mr. Lewis: If we design FITs properly, ratepayers will actually benefit over a sequence of years. There are slightly higher rates in the first three or four years: 1 to 2 percent. After that, the savings are considerable, compared to moving forward without FITs. They actually provide price or rate certainty, given that the fuel costs for solar power or wind never change.

Look at the last 30 years: Solar power prices have declined 10 percent a year, on average. But fossil fuels prices have increased about five percent a year, on average. Run your numbers out, from whatever starting point and, let’s be conservative, use a 5 percent per year fall for solar prices and 3 percent rise for coal prices instead. That puts the crossover point within the next five years. That’s when ratepayers start saving money.

GLBNS: But coal power is so cheap in Michigan.

Mr. Lewis: Michigan has a lot of coal-based energy, and people always say it only costs 5 cents per kilowatt-hour. But that’s wrong. If you start digging into things like avoided cost, even in coal, it’s significantly above 5 cents. There are transmission line losses, transmission line congestion losses and costs, transmission line access charges, time of delivery adjustments, plus all the environmental costs.

When you figure those costs—plus things like bringing in a “peaker” power plant for hot days, when demand is high—you find that your costs may be more like 10 cents per KWh for coal. That’s the biggest surprise for utilities: They realize they haven’t looked at it in full detail. Your not getting power for five cents in peak demand.

The Sacramento Municipal Utility District now has a very comprehensive FIT program. They did a very deep analysis of what their solar program is actually costing, and it’s about 14 cents per KWh.

GLBNS: So, what about solar power in Michigan?

Mr. Lewis: We have not run any price models for Traverse City yet, but my guess is that it would be far lower than what you suggest. [The Michigan Land Use Institute and Michigan Energy Alternative Project’s white paper, 20-20 by 2020: A Clear Vision for Clean-Energy Prosperity uses a 59 cents per KWh FIT for solar power in Traverse City—editor.]

There are a lot of tradeoffs when designing a FIT. We do it every day. One tradeoff is price vs. project size. The FIT Coalition recommends that you set a price targeted toward a certain project size. We never recommend pricing that goes anywhere near even 30 cents. It doesn’t make sense, or it would mean that the project would have to be very small for those kinds of prices.

For example, the cost of doing a 50 kilowatt project compared to a 5 kilowatt project: The 5 KW project would cost about 50 percent more per kilowatt than a 50 KW project.

GLBNS: So what kind of pushback do you see from utilities?

Mr. Lewis: Utilities get concerned about the standard “must take” feature, which is fundamental to FITs. As long as a developer builds a project within the tariff guidelines, the utility has to buy it. That takes the negotiation out of the picture, and utilities are very much accustomed to being in total control in terms of which projects and how much they pay.

Feed-in tariffs provide total visibility to developers. There might be restrictions on where a project can be built, but the situation is completely transparent, so developers know how much they are going to be paid, and what the conditions of their power purchase agreement are.

And that means developers can do stuff for a whole lot less money, because they don’t have to price in risk. You end up with a more cost-effective solution for ratepayers. But utilities are used to having 100 percent control.

GLBNS: What do you say to people that complain that FITs are a violation of free-market principles?

Mr. Lewis: There are some ideologues out there who will say that, because FITs set a defined price, it is not really a market-based solution. But the nice thing about ideologues is that they actually get it, once FITs are properly explained.

FITs change the competition from one over price to one over market share. Instead of competing directly on price, developers compete on how much they can build, given the price. If I’m good and get my costs down, I will be very successful personally. There is no definition of free markets anywhere in the world that says markets can only compete on price. As long as there is competition, there is a free market. It’s all about which dimension that competition is in.

GLBNS: Do you see different attitudes about FITs in different states?

Mr. Lewis: Well, the FIT Coalition is active in both state and local efforts in California, Hawaii, Texas, Arizona, Colorado, New York, and Michigan. We have a team of 16 people; 10 are paid.

Mostly we see different levels of familiarity. Our mission is to implement the global best practices to install feed in tariffs. We are primarily about unleashing the wholesale distributed-generation market. FIT is the most effective policy devised by mankind to advance clean energy solutions with distributed generation.

We focus on projects up to 20 MW in size. Above that, you are forced to put your power onto the transmission grid [instead of distributing it over the local, smaller power lines]. Once you are on those big lines, you don’t have the benefit of avoiding transmission build-outs and the costs associated with using that infrastructure. Transmission is not cheap.

The market that FITs unlocks is the wholesale distributed-generation market. It’s close to where the load is [i.e., where the power is actually being used] and is not dependent on transmission and its extraordinary cost.

Jim Dulzo is the managing editor of the Michigan Land Use Institute. Reach him at jimdulzo@mlui.org.

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