The following VERDEXCHANGE News interview of Paul Gipe—renewable energy advocate, author, and California resident—is complimented by three others in this newsletter who cite the benefits in renewable energy production brought to their country since implementing aggressive feed-in tariff programs. If and when California and other U.S. jurisdictions follow suit, they would be wise to seek Paul Gipe’s counsel. For more of Paul’s compelling research in support of comprehensive system of renewable energy incentives—feed-in tariffs—like those adopted by Ontario, Canada, and Germany, visit www.wind-works.org.
VerdeX: In your remarks from the VERDEXCHANGE Green Marketmakers Conference in January, you spoke about the necessity for California to adopt and implement a feed-in tariff in order to achieve its goals of 33 percent renewables. What lead you to that conclusion?
Gipe: I emphasize that I am talking about a real feed-in tariff, a program that has a comprehensive system of feed-in tariffs designed to get results. The last thing I want to see is another FIT INO (Feed-In Tariff In Name Only) that allows politicians, environmental groups, and renewable energy activists to greenwash proposals in California that won’t accomplish the objectives that we all seek.
First of all, what are feed-in tariffs? Feed-in tariffs are a very simple idea: payment for generation. That is, you produce electricity and you are paid for it. You are paid a fair price for the cost of generating the electricity, plus a reasonable profit. It is the same way we have regulated electric utilities in North America for 80-some years: a utility would build a power plant, then go to a regulatory commission and say, “This plant has cost us this much, our cost of capital is such-and-such, and our desire for a profit is such-and-such. Therefore, you must allow us to be paid a certain rate per kilowatt-hour.” It is exactly the same principal, except that we set the feed-in tariff rates first, as advertised publicly so that all comers can participate. It says, “We calculate this price. This is what you will be paid if you connect a solar panel on your rooftop. This is what you will be paid if you build a solar power plant. This is what you will be paid if you build a wind farm. This is what you will be paid for your electricity. You will be paid this price for 20 years.” The certainty that you’ll be paid that price for a period of time—typically 20-25 years—allows you then to finance that solar panel, wind turbine, or wind project.
Currently we have feed-in tariffs in California. You wouldn’t know it. Most Californians don’t know it, because the feed-in tariffs don’t work. We need feed-in tariffs that work. The kinds of policies that we have had in California are not intended to work.
VerdeX: Where have feed-in tariffs worked around the globe?
Gipe: Almost everywhere that renewable energy is being developed at a rapid pace is where you will find feed-in tariffs. The leaders are Germany, France, and Spain. Ontario, Canada, launched a program last fall. Germany is the world leader in wind and solar energy development. Feed-in tariffs have powered renewable energy development. Currently Germany gets 17 percent of its electricity from renewable energy, and nearly all of that has been developed with feed-in tariffs.
VerdeX: What is it about the design of their program that makes it work?
Gipe: The most essential element is that the tariffs themselves are based on the cost of generation plus a reasonable profit. When you make that intellectual leap—that you are willing to pay what it costs to develop renewable energy—it immediately leads to what we call tariff differentiation. The British call this banding. It means that solar, because it is more expensive, gets one price, wind, because it is different, gets another price, and bio-gas, because it is different from the other two, gets another price. Within each of those technologies there are different applications. If you want solar energy on rooftops or solar energy on the ground, they have different cost structures. Tariffs have to reflect that.
In the case of Germany and wind energy, they had two types of tariffs—one for offshore and another for onshore. In the case of solar photovoltaics, they have a set of about four tariffs for those mounted on rooftops and a separate tariff for solar projects built on the ground. It is even more complex for wind energy, because in wind energy, the tariffs vary by wind resource intensity. The intent there was that they didn’t want to have the kind of development that we see in California, where all the wind turbines are concentrated in the windy passes. The Germans said, “We have a big country. We have 80 million people. We don’t want all our wind turbines on the Baltic Coast. We don’t want all our wind turbines on the North Sea Coast. So we have to create a tariff structure that allows the farmer in the interior of Germany and communities in the Mittelgebirge and the Central Highlands to develop wind energy profitably.” The only way you can do that is with differentiated tariffs based on wind resource intensity. You can build a wind turbine on the North Sea Coast and you’ll be paid one price for 20 years. You can build a wind turbine in the interior of Germany, where it is less windy, and you will be paid a higher price.
VerdeX: Leaders in Ontario, Canada, not only wanted to change the energy mix and encourage renewables, they also wanted to incent economic development. What are the important provisions of Ontario’s new feed-in tariff program? Gipe: Ontario is representative of those jurisdictions that have aggressive renewable energy programs. They are not just “electricity programs.” They are comprehensive policies—what we would call in the United States industrial policy. That means energy policy, renewable energy policy, economic development policy, industrial policy, and job creation policy.
There are two driving forces in Ontario. First is the massive loss of jobs in the auto industry. They need to replace those jobs with something. What will that something be? It will be the new industry of the next generation, renewable energy. They hope to create 50,000 jobs in the next three years.
The second driving force is that the current government in Ontario came to power on the promise of closing all coal-fired power plants. It is the only jurisdiction in North America that has made this promise and put it into law. When they came to power, coal provided 20 to 25 percent of the electricity in Ontario—not an insignificant amount. They have to replace them with a mix of natural gas and renewables. They are hoping to develop renewables as fast as they can so they don’t have to use as much natural gas.
VerdeX: When we talk about a feed-in tariff and bands, what are they looking for in Ontario—rooftop solar? How are they breaking down their objectives and pricing the incentives accordingly?
Gipe: Ontario has two tariffs for wind energy—one each for onshore and offshore. No other state or province in North America provides a tariff for building offshore. Because offshore is more expensive, it is paid a higher price—approximately 19 cents per kilowatt hour versus 13.5 cents for kilowatt hour.
In the case of solar photovoltaics, they particularly want to encourage residential participation. They want to encourage people—homeowners, farmers, and small businesses—to participate in renewable energy by investing in solar energy on their own rooftops. As a consequence, they have a micro-generator tariff—what they call the “Micro FIT.” It has an expedited approval process for connecting to the grid anything less than 10 kilowatts. It has among the highest feed-in tariff rates in the world—some say too high. Their intent is to get as many individuals in distributed applications across the province putting solar PV on the rooftops as possible and, by doing so, lure manufacturers to Ontario.
VerdeX: They have a right to adjust those rates in two years, not for the contracts but for new applications, isn’t that correct?
Gipe: Correct. When Ontario proposed the PV tariffs, they proposed a degression. After stakeholders—the industry, consumer groups, and so on—provided feedback, they removed the degression and said, “We are having a review in two years. That gives us enough time to reduce the tariff if there are advances in the technology.” There have been advances in the technology, and the price is coming down. In 2011, when the new tariffs are announced, they will be substantially lower. In the mean time, however, almost 80 megawatts of applications have been accepted for residential scale rooftop solar.
VerdeX: Ontario has a domestic content element in its initiative. What should our readers know about that provision?
Gipe: They have a domestic content requirement that is phased in over a period of two to three or four years for solar photovoltaics and wind energy. The intent is to create jobs in Ontario—not for China, not necessarily for Germany or the United States. This is a program that is being paid for, after all, by the consumers of electricity in Ontario. This is a provincial program in the interest of the people of Ontario, and they expect some of that manufacturing to take place in Ontario. It appears to have resulted in the kind of progress that they targeted. There have been a series of announcements by PV and inverter companies locating manufacturing operations in Ontario.
VerdeX: What explains the resistance by utilities to such initiatives? Aren’t there 20-some countries in Europe, Ontario, Great Britain, and some states in the United States that have adopted like initiatives? What explains the opposition?
Gipe: Distributed power is an American idea. This is an idea that brought many of us to California back in the early 1980s when we had a renewable energy policy in this state. Unfortunately, like many good ideas developed in California, we threw up our hands and said, “It’s not for us,” and we left it to other countries to develop this idea to the high degree that we see today.
The resistance that we see in North America is the resistance to the change of any program, particularly when it gores the incumbents’ ox—that is, in the end we are talking about producing a lot of electricity, not five percent, not 10 percent, not even 20 percent. The goal in California is 33 percent, and there are proposals to do 80 to 100 percent of electricity generation with renewables. If you are talking about a policy that liberates electricity generation from the grip of the incumbent electric utilities, it is natural that they resist it, particularly if in many states in the United States their profits are directly linked to the generation of electricity. That isn’t so in California, but California is an exception. In many states where we are talking about large renewable energy programs the resistance is natural. Those utilities want that market for themselves.
It is a radical concept to democratize electricity generation. Most Americans are ready for that. It is part of our cultural and political heritage, and it’s time we get on with it.
VerdeX: Ontario has a public utility, yet the government came in and implemented this aggressive distributed power, feed-in tariff model. How did that happen?
Gipe: People ask me, “What did the utility company have to say about this?” My answer is, “I don’t know. Nobody asked them.” That is the way it should be. This is policy by the people, for the people. Electric utilities don’t vote. They buy legislators, but they don’t vote. It is the legislature that controls the policies of a province or a state. In the case of Ontario, the previous, conservative government had broken up the public utility into pieces. In some ways, that laid the groundwork for the current government, which is called the Liberal Party. When that government came into power the utility had already been broken up into a piece that generates electricity, a piece that transmits electricity, and a piece that carries the electricity to your door. When the government began to debate this issue, it made a really simple statement to the generating utility: “Keep your nose out of our business.” That is the way it should be. In the case of Ontario, the generating utility never had anything to say. The government had a solid majority, and in a parliamentary system like in Ontario, when you have a solid majority and your premier is behind you, this is what you get done.
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VerdeX: In California there are a number of programs, like AB 811, that incent solar power and distributed power. What is the importance of these legislative incentives? Where do they fall short, and where are they effective in driving behavior change?
Gipe: There is no current proposal in the California Legislature, recently passed by the California Legislature, or in effect in California that comes anywhere close to implementing the vision that I have for California or that we need in California. None are aggressive enough, none are comprehensive enough, and none get the job done.
AB 811 is one of those bills that activists tout but that will have very little real impact on getting renewables built. AB 811 is a financing package. The problem has never been financing. The problem has always been making renewables profitable. AB 811 solved the wrong problem. If you don’t get paid a fair price for your electricity, your project will not be profitable and you won’t do it. If you don’t do it, you don’t need financing.
VerdeX: Given the initiative in Europe and Canada, and subscribed to by the new British government, what explains California’s reluctance to embrace an aggressive, feed-in tariff system, given the State’s reputation for being on the cutting edge of climate change?
Gipe: California has a reputation that was earned 25 years ago under the Jerry Brown administration. California has been living on its laurels for 25 years. California has not had a renewable energy policy since Jerry Brown left office. We have been dabbling in renewable energy policy, but we haven’t really faced the realty of what it takes to get renewable energy developed. The people want it, but the state’s political leaders have not faced up to the reality of what it takes to get the job done. None of the regulatory provisions, none of the PUC’s proposals, and none of the pieces of legislation are aggressive enough to get the job done. The legislation is too timid.
A bill became law last year on solar energy. That bill sets the price paid for solar photovoltaic electricity based on its value to the electric utility system. Nowhere in the world has the development of renewable energy moved forward at the pace necessary when the price was based on the value of the electricity to the electric utility company. We are not asking the electric utility company what the value is; we’re determining what it costs to generate the electricity. That is what has to be paid.
California politicians have been far too timid. If you want renewable energy, you have to make a political decision: yes or no. You can’t greenwash it; you can’t be ambiguous. You have to say, “I want renewable energy.” The next question is, “How much do you want? Do you want a little (greenwashing)? Or do you want a lot?” If you want a lot, you have to pay for it. And if you have to pay for it, you have to be willing to accept the price necessary to get the job done. California politicians, including the regulators at the California Public Utility Commission and their staff, have not been willing to face that issue. Instead they have been willing to use weak programs dependent upon unstable federal subsidies with very low targets. Even Britain now has a more aggressive program than California—Britain!
VerdeX: The city of Los Angeles, a city of 4 million people and 470 square miles, has announced very high renewable energy targets and that is wishes to rid itself of its dependence on coal. Yet, the city has no provision for feed-in tariffs, and, if forced, is considering implementing a very low feed-in rate—16 or 17 cents. Will an “at Cost” tariff incent behavior change needed to get-to-goal in Los Angeles?
Gipe: Once again, the city’s leaders must make a fundamental decision. I say this wherever I am, whether it is in L.A., San Francisco, or Toronto, you have to make a determination: Do you want renewables or not? L.A. has not made that decision. L.A. has made the kind of decision that is typical and you would expect from L.A. Hollywood is a part of L.A. You can write great press releases in Hollywood that don’t mean a thing. This is a part of the charges laid against Los Angeles: it talks a good game but it doesn’t walk the talk. In the case of Los Angeles, they will have to clean house at the Department of Water and Power. They will have to replace the senior management with people who will follow orders and get the job done if they really want renewable energy. Renewable energy is not cheap. It is a good value; it is the right choice. But it is not cheap. It will be cheaper over the long term than fossil fuels, but you have to pay for it up front.
VerdeX: Is Ontario a good model because they melded into their renewables initiative both economic development and job creation goals?
Gipe: Ontario is the best example in North America. It is the model for other states and provinces to follow. They made a political decision. Even more important and more powerful than the commitment to renewable energy was the decision to close coal plants and put that into law. After being elected, they were accused of greenwashing—having been elected they would do whatever they want to do. But they have put this into law. They are obligated to close those coal-fired power plants by 2014. Let’s see Los Angeles do that. Let’s see the council members put their names on a law that says DWP is obligated to close those plants come hell or high water. Then the next decision is what you do to replace it. We shouldn’t grow more dependent on natural gas. The state is too dependent on natural gas. You can’t build a nuclear power plant in Los Angeles. You certainly can’t build it fast enough to meet the need of electricity for closing those coal-fired power plants. You have to develop renewable energy.
If you are going to develop renewable energy you have to make a decision. Do you want those jobs to be in the basin or in the state? Do you want those jobs among your own people, or do want those jobs to be created in China, Germany, or Canada? Ontario has made this decision based on its industrial policy.
VerdeX: What about a company like Applied Materials, which has 14 plants around the world for solar, most in Germany and China, where there are feed-in tariffs, but none in California. There was an article, “Have a Nice Day”, by Thomas Friedman, in which he talked about the necessity of changing the regulations in California to attract global companies like Applied Materials. What would it take to get Applied Materials into a jurisdiction like L.A.?
Gipe: I don’t think you can do that in a region like L.A. Not all the jobs are in manufacturing. Yes, you want manufacturing, and, yes, you do what you can to get the manufacturing. But a lot of the jobs are for the people who put the stuff together and put it on your roof. There are more jobs in solar photovoltaic development in residential rooftop installation than there are in building giant solar farms in the Mojave Desert because it takes a lot more people to put a soar panel on your roof than it does to build a solar farm in a desert.
If Los Angeles wants to develop renewable energy, it can’t go do it on the backs of the people in Kern County. It should be developing renewable energy in its own backyard, in Los Angeles County. Then you create the jobs, and that kind of commitment will encourage other manufacturers, whether it is Applied Materials or not, to consider Los Angeles, the Los Angeles Basin, or California for manufacturing. Or you can do what Ontario did and require local content and local labor. It may be that is has to be the IBEW. Those things are all possible. It is a new world. The kind of restrictions and inhibitions that we had just a few years ago are gone.
VerdeX: That is a good answer, but let me ask it in a different way. For the firms being sought by jurisdictions that build off the industrialization of the solar business, what kind of certainty and what kind of feed-in rates would make sense?
Gipe: If you are going to have rates in California, I strongly recommend two tariff tracks : one for those who use the federal subsidies and one for those who do not. Not everyone qualifies for federal subsidies, therefore you have to have two tracks. The rate for those who don’t use federal subsidies is going to be a lot higher than the rate for those who do use federal subsidies. You are going to have to have a system of tariffs that reflects the cost structure of residential systems, commercial systems, large, warehouse scale systems, as well as some ground-mounted systems. I know UCLA is working on that right now, and I want to see what their proposal looks like.
VerdeX: If we do an interview a year from now, what will we be talking about?
Gipe: A year from now we will be talking about what Los Angeles did right and what it did wrong. We will be talking about why Los Angeles became a center for renewable energy development or why it did not. And we will be talking about the latest effort, at least in California to pass a real renewable energy policy. On July 12, there will be a meeting in San Francisco to discuss a real renewable energy policy for California based on real feed-in tariffs with international experts, and the following day, on July 13, we will set down and work through the tariffs we need to make feed-in tariffs work in California.
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