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Michigan Eyes Europe’s Hot Clean-Energy Plan

‘Feed-in tariffs’ fuel big green job growth and shift to renewables

August 20, 2009 | By Glenn Puit
Great Lakes Bulletin News Service

Paul Gipe
  When Germany approved a fully-scale feed-in tariff program, solar power quickly became popular and profitable.
Kalamazoo resident Mike Linsea spent 30 years in the trucking industry.

When he lost his job, Mr. Linsea started a new business—Solar Winds Power Systems LLC—with his brother-in-law. Now he makes his living installing state-of-the-art, three-foot by five-foot solar panels atop homes and businesses in Michigan.

Mr. Linsea is living the American dream: He’s taking a big chance on an innovative new business that he believes in. But he says his new company needs some help from the state building a market for what he’s selling.

Some of Michigan’s leaders, particularly Governor Jennifer M. Granholm, are doing that, promoting new policies meant to expand the market for clean energy. But Mr. Linsea says he’s most interested in a bill that was first submitted to the Legislature two years ago but, until the past few weeks, hadn’t received much attention. He believes it would quickly help both his struggling company and his clean-energy competitors, and put thousands of Michiganders back to work.

That proposal, known as a “feed-in tariff,” would establish rates—or tariffs—that utilities would pay their customers for the electricity they feed in to the grid from their own smaller-scale solar panels, wind turbines, or other renewable sources. The tariffs would be set high enough so that these clean energy entrepreneurs could turn a profit on their home- or business-scale investments.

Now a new coalition of citizen groups and state House Democrats is including feed-ins in a new set of clean energy proposals it is pushing.

Reports from Europe, where several countries enacted feed-in tariffs (FITs) years ago, and Ontario, which installed a program in 2006 that quickly sold out and is now renewing and expanding the program, back up Mr. Linsea’s optimism: The tariffs provide a near-steroidal boost to job growth by establishing a huge, new market for solar panel, wind turbine, and other clean-energy equipment manufacturers, and for people trained to install such equipment.

Mr. Linsea, who attended a legislative forum about feed-in tariffs at the state Capitol in May, is convinced that Michigan should adopt the practice as quickly as possible.

“Feed in tariffs levels the playing field,” Mr. Linsea said, referring to the predicament his two-man business and other clean-energy startups around the state face: competing in a dreadful economy with big utilities that produce their energy largely by burning coal in plants that were paid off years ago.

The boost for Mr. Linsea’s favored proposal is coming from a new coalition, ReEnergize Michigan, which last month proposed expanded clean-energy legislation that includes FITs. The coalition, which lists at least 23 state House Democrats and 39 citizens groups, including the Michigan Land Use Institute, also proposed significantly boosting the energy efficiency and renewable energy mandates for utilities that Lansing lawmakers enacted last October, and installing much stronger building efficiency codes.

The Nuts and Bolts of Success
The news service interviewed some of the world’s foremost experts on energy policy about feed-in tariffs, and they described how the policy could work in Michigan.

The state, they say, would require utilities to pay a premium price for renewable energy they purchase from homeowners and businesses that install wind turbines, solar panels, methane digesters, biomass burners, geothermal systems, or other clean-energy generating devices on their properties.

The premium prices would, the experts say, spark an economic revolution in Michigan. Tens of thousands of homeowner and business would have an incentive to produce their own renewable energy and, along with it, a profit. As manufacturing and installation of renewable systems increased, prices would fall, and so would the tariffs, albeit while still maintaining a profit margin for entrepreneurs.

“Feed-in tariffs have empirically proven to be the most efficient and cost-effective policy to foster the rapid deployment of renewable energy,” said Bianca Barth, an expert on feed in tariffs and a policy officer for the World Future Council, in Germany, who traveled to Lansing in May to help introduce the idea to lawmakers. “This policy is worthy of a great nation, and it should be implemented as soon as possible.

“If Michigan is one of the first states implementing them, that will lead to many ‘first mover’ advantages, including job creation,” Ms. Barth said. “Many renewable energy companies that are looking for new manufacturing locations are asking the National Renewable Energy Laboratory [which is researching tariff economics] already today where the next feed-in tariff will be implemented.”

There are many news reports confirming that the countries that implement feed in tariffs quickly reap significant economic rewards.

In Ontario, Canada, the Ontario Power Authority implemented feed-in tariffs and quickly exceeded its goals for stimulating renewable energy production. According to the online publication Renewable Energy World, Ontario’s 2006 tariffs in their first year prompted applications for 65 wind, solar, biomass, and hydropower projects, totaling roughly 330 megawatts—the generating capacity of a modestly sized coal-fired power plant.

“The Canadian feed in tariff is so successful it exceeded its 10-year anticipated target of 1,000 MW in less than two years,” Ms. Barth said.

Ontario officials are now revising the price they pay for solar panel generated energy, which they suspect will increase the demand for smaller solar projects. Under the newly proposed price, Renewable Energy Life, a clean-energy Web site, reports that a 3- kilowatt system, which costs around $30,000 and provides enough electricity to meet one third of a typical homeowner’s electricity consumption, would generate about $7 of revenue per day.

“This payment would result in approximately $2,500 in revenue per year for the homeowner, resulting in about a 12-year payback,” the publication reported.

Ontario officials also announced that at least three solar panel manufacturers—First Solar Inc., Recurrent Energy Inc., and Nanosolar Inc.—have announced intentions to open manufacturing facility in their province—the kind of results that tariff supporters are touting for Michigan.

Tweaking Rates, Generating Jobs
The money needed to pay the premium rates for renewables would come from small rate increases on individual utility bills. Feed-in-tariff experts say that the increases would be barely noticeable—one estimate places the monthly cost per household for a fully developed feed-in program would be roughly the price of a pint of beer.

And, they maintain, its effect on government budgets would be negligible.

“Unlike other mechanisms [for encouraging investments in clean energy], such as investment tax credits, research and development subsidies, or Tradable Green Certificate Schemes, feed-in tariffs cost governments very little,” said Ms. Barth.

Paul Gipe, who is widely considered a foremost expert on renewables and, in particular, wind energy, said that California had the vision a quarter-century ago to see the value of feed-in tariffs, and implemented a program that helped produce more electricity from renewables.

“California was the world leader in wind energy 25 years ago, and they have been generating more than 1 percent of its electricity for more than quarter century from wind alone,” Gipe said. “[California’s electricity market] is the size of Canada’s, and 1 percent, 4 billion kilowatt hours a year, is a lot of electricity.”

Mr. Gipe also said that Michigan could learn from the mistakes California made when it first set its feed-in tariff structure—mistakes that reduced the state’s ability to capitalize on its aggressive implementation. He said that California’s “one price fits all” policy hampered the incentives for some renewables over others, because costs, equipment efficiency, and even location can profoundly affect an installation’s output—and its profits.

“What you have to do is make feed-in tariffs differentiated by technology, by size by application,” he said.

Ms. Barth and Mr. Gipe said the best model for feed-in tariffs is Germany. The country began implementing them in the 1990s and quickly became Europe’s leader in solar energy production, even though it is further north than Michigan and, like the Great Lakes State, has relatively few sunny days.

Northern latitudes and cloudy days have not slowed down solar panel growth there. In 2007, the country’s renewable energy sector employed 250,000 people, and Ms. Barth said that about 130,000 of those jobs were attributable to feed-in tariffs.

Catching On
Michigan leaders are slowly learning that feed-in tariffs are a no-brainer.

When Consumers Energy, the state’s second-largest electricity utility, unveiled a pilot program for solar energy in southern Michigan earlier this summer, the firm encountered overwhelming demand. Essentially the same thing happened earlier this year in Gainesville, Fla., where solar panel systems can earn 32 centers per kilowatt-hour by sending their electricity to the grid. That program, which had a limited number of installation opportunities available, quickly sold out.

In Canada, Florida, and Germany, feed-in officials said they have and will continue to tweak prices for different types of energy to accommodate local markets, local sun and wind conditions, and changes in technology. Those tweaks usually further boost demand, generating still more clean-energy commerce.

Tariff proponents say that Michigan could not be more ripe for the tariff system. The state’s economic crisis has brought the nation’s highest unemployment rate—slightly over 15 percent. One study places the job losses in Michigan at 950,000 since the year 2000—20 percent of the state’s work force.

Despite the state’s dire need for new industry and feed-in tariffs’ successful track record, however, Lansing lawmakers have yet to pay close attention to the idea. Tariff proponents hope that the new ReEnergy Michigan campaign will change that.

For Mr. Linsea, feed-in tariffs cannot come soon enough. He said he hopes the state will move swiftly so that he can start installing more solar panels and hiring more workers.

“What are we waiting for?” Mr. Linsea asked. “I’m becoming half numb on the whole thing.”

Veteran reporter Glenn Puit is a policy specialist for the Michigan Land Use Institute. Reach him at glenn@mlui.org.

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