WOW! California’s Solar Program Costs More Than German FIT 0

Newly installed solar photovoltaic (solar PV) projects in Californianwere paid an average of approximately $0.34/kWh last year, according to a privately-commissioned study. Germans paid substantially less, takinginto consideration the amount of solar energy their country receives.

Germans paid an average of €0.26/kWh ($0.38/kWh) for the first sixmonths of 2011, according to data from the country’s grid manager, the Bundesnetzagentur.

If the Golden State applied German feed-in tariffs to solar PV under its bright, clear sky, Californians would only pay the equivalent of$0.24/kWh.

Data on the cost of German feed-in tariffs is from publicly availablesources and is adjusted for California’s sunnier climate relative tocloudy Germany.

Unfortunately, data on the total cost of solar PV in California is moredifficult to analyze, as it derives from numerous sources.

The study on California’s solar program, by private consultant RobertFreehling, examined the cost of the California Solar Initiative, federal tax credits, depreciation deductions, and the value of electricityoffset from net-metering. Freehling is an expert in the arcane world ofCalifornia renewable energy policy.

California Solar Initiative

The California Solar Initiative (CSI) is one of the state’s premierrenewable energy programs, even though it only governs solar PV. CSIissues an up-front payment or "rebate" for residential solar systems and a payment per kWh for commercial systems, from a pool of moneycollected from ratepayers. The CSI funds are being rapidly depleted andin 2011 most of the funds for the program will be exhausted.

Because payments under the CSI, federal tax credits, and depreciationdeductions necessary for investments in solar PV in the US are all ofshort duration, it was necessary for Freehling to pro-rate thesebenefits over the typical 20-year life of a solar system. Only bypro-rating these benefits over 20 years and including the value of theelectricity offset from net-metering was he able to estimate the totalcost of electricity per kilowatt-hour.

The average value of rebates under the CSI program in 2010 was$0.058/kWh. Residential customers were paid the least. They received$0.05/kWh while non-governmental and governmental organizations received as much as $0.09/kWh.

One unique feature of the CSI program, unlike many other such programsin the US, is that it makes special provisions for non-profits andgovernmental agencies.

Non-taxable entities cannot use the 30% federal tax credits.Accordingly, the CSI issues a higher payment for non-profits andgovernmental agencies to compensate for their inability to use thefederal tax credits.

However, Freehling concludes that "in 2010 the benefit of this higherrebate was lost due to the higher price paid for solar projects bygovernment and non-profit entities."

Federal Subsidies

In addition to the CSI, a state program, residential and commercialsolar projects in California qualify for federal tax credits anddepreciation deductions. The costs of these subsidies are borne by allUS taxpayers, not just those living in California.

Last year, the value of the 30% federal tax credit was as high as$0.096/kWh for residential customers and $0.071/kWh for commercialcustomers, according to Freehling’s study. Non-profits and othernon-taxable entities received no benefit from the federal tax credit.

Freehling estimates that commercial projects received an additional benefit worth $0.07/kWh from accelerated depreciation.

Net-Metering Value

Net-metering is not a direct payment, nor a tax deduction. Net-meteringis the ability to offset electricity consumption. Its value is that ofthe electricity offset.

The value of being able to "spin your meter backwards" varies widely across the state and by customer.

California is among the few states that use a "reverse block" ratestructure that requires consumers to pay a higher price perkilowatt-hour the more electricity they consume. Many states andCanadian provinces use the archaic "declining block" rate structure that charges less per kilowatt-hour the more electricity a customerconsumes.

Thus, in California, the value of net-metering is much higher for "energy hogs" who use the most electricity, and least to frugal consumers whoconserve electricity. The value, reports Freehling, can vary from a lowof $0.08/kWh for low-income consumers to as much as $0.38/kWh for thoseusing the most electricity. The average value of net-metering across the state was substantial–$0.18/kWh–accounting for more than half ofoverall payments.

"Frugal customers that only pay 12 cents/kWh for all their electricity," says Freehling, "will get little benefit from installing solar projects on their homes, while energy hogs that use 3 or more times the averageamount of electricity will get the most benefit because the solar willbe valued at nearly 30 to 40 cents/kWh."

Overall Payments & Value

Average payments for solar PV in California in 2010 total $0.34/kWh for a system with a 20-year life, though total payments ranged from a low of$0.27/kWh for non-profits and governmental entities to a high of nearly$0.38/kWh for commercial projects.

Germany’s Feed-in Tariffs

Freehling’s report did not specifically examine Germany’s feed-intariffs for solar PV. However, data on the cost of the German program is much more readily available than data on solar PV installed inCalifornia.

There are no tax credits, rebates, grants, or other subsidies in theGerman program. There is no net-metering, though there is a smallprogram that attempts to approximate a similar result that has notproven popular. There may also be depreciation deductions.

The posted tariffs vary from a high of €0.29/kWh ($0.41/kWh).for rooftop systems less than 30 kW to a low of €0.21/kWh ($0.30/kWh) for systemsmounted on the ground at, for example, brownfield sites.

German tariffs are based on the cost of generation plus a reasonableprofit. If German tariffs were applied directly to California withoutadjustment to the state’s greater solar intensity, the tariffs would pay more than necessary and result in windfall profits.

German Tariffs in California

To compare Germany’s solar PV tariffs to those that would be appropriate in California, it is necessary to reduce the tariffs by an amountequivalent to the difference in the solar resource.

The solar resource in California is not uniform across the entire state. The rainy north coast, for example, has much less insolation than theblisteringly hot San Joaquin Valley. Any solar feed-in tariff programfor California would have to take these differences into account.

Nevertheless, for the sake of a simple comparison, we can assume that asimple solar feed-in tariff for California would be about 64% of thatcurrently paid in Germany.

Thus, German solar tariffs today applied to California would range from a low of $0.20/kWh for groundmounted systems on brownfield sites tonearly $0.27/kWh for rooftop systems less than 30 kW.

Average Cost of German Solar FIT in 2011

According to data from the Bundesnetzagentur, Germany installed 717 MWof solar PV from January through April, 2011. The average weightedpayments per kilowatt-hour under the German program were €0.26/kWh($0.38/kWh). Under California conditions, these payments would beequivalent to $0.24/kWh.

Germans Pay Less than Californians

A comparison between Freehling’s data on the total cost of solar PV inCalifornia and data from public sources in Germany shows thatCalifornians are paying substantially more for solar PV than Germans,despite claims to the contrary.

Excluding the benefits of the depreciation deduction to Californiainvestors in solar PV, Germans are paying $0.03/kWh less forinstallations by non-profits and government agencies than Californians,and nearly $0.07/kWh less for commercial projects.

Overall, Germany paid $0.07/kWh or 23% less for the 717 MW installed inthe first part of 2011 than California paid for 200 MW of solar PV in2010.

Germans Have Cut Solar Rates 50% Since 2004

Germany launched its Renewable Energy Sources Act in 2000. Included inthe act was provision for a solar feed-in tariff. It was a simple tariff without size differentiation.

From the year 2000, when total installed solar PV capacity across all of Germany was only 90 MW, capacity grew steadily to 1,000 MW by 2004.However, this growth was insufficient to renewable energy advocates inGermany’s House of Commons, the Bundestag. During the scheduledrevisions of the Renewable Energy Sources Act in 2004, tariffs for solar PV were increased and differentiated by size. The revisions alsoincluded annual decreases in the tariffs (degression) of from 5% to 6.5% per year.

Since 2004, Germany has revised its tariffs for solar PV several times.Today solar PV tariffs in Germany are about one-half those of 2004.

Germany has effectively reached parity for groundmounted solar PV withthe residential retail rate, though it has been at grid parity for windenergy for more than a decade.

German Costs Fell Faster than US Costs

In contrast to the experience in Germany, Lawrence Berkeley NationalLaboratory (LBL) found that during the period from 2004 through 2009,the installed cost of solar PV in the US dropped only 10%. In Tracking the Sun III: The Installed Cost of Photovoltaics in the U.S. from 1998-2009, LBL also found that the installed cost of residential solar PV inGermany was 61% of that in the US. That is, Germans were paying 40% less to install solar PV on their homes than Americans were.

Based on German experience, it could be argued that California, and theUS as a whole, would have proceeded much more quickly toward grid parity for solar PV–and saved taxpayers and ratepayers money–by simplyadopting the German feed-in tariffs and letting the industry drive downcosts for solar PV on both continents.

What’s Next for California?

As the CSI program winds down, the question becomes, "What should California do next?"

During the 2010 campaign, Governor Jerry Brown said he wants to develop12,000 MW of distributed generation with feed-in tariffs. If he carriesthrough on his campaign promise, then California’s solar program maymorph into just one of many components of a comprehensive feed-in tariff program for multiple technologies.

And if Congress carries through on its threats at belt-tightening, future solar tax credits could be at risk.

California may be wise to create a renewable energy program that’s notonly adaptable to future federal action but also fairer to allCalifornians. The state could, for example, create two feed-in tarifftracks–one for those who can use federal tax credits and another forthose who can’t use federal tax credits, or choose not to.

Should Congress eventually axe solar subsidies, California homeowners,farmers, and businesses could then simply use the feed-in tariff tracknot dependent on federal tax credits.

Adopting German Solar PV Tariffs in California

California has an international reputation for an overly bureaucraticand cumbersome regulatory process. The state’s Public Utility Commission has still not implemented SB 32, the California solar industry’s attempt at moving toward a simplefeed-in tariff in the state that was signed into law in the fall of2009.

While interminable hearings on SB 32 drag on, the PUC has insteadlaunched another bidding scheme masquerading as a feed-in tariff.

Governor Brown could short-circuit the PUC’s administrative apparatusand simply declare that as part of the state’s new feed-in tariffprogram for distributed generation, California would simply adopt German tariffs, adjusted for the Golden State’s better solar resource. Hecould do so on the grounds that the German tariffs are cheaper andfairer to all Californians than the current hodgepodge of programs.


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