Vermont made history last week, becoming the first state to offer “feed-in tariffs” for electricity generated from renewable energy sources.

Feed-in tariffs have been used since the early 1990s in Europe, most notably in Germany, to jump-start the photovoltaic (solar electricity) industry. In a nutshell, they are government-mandated, long-term power purchase contracts for electricity generated by renewable energy systems at rates that are significantly higher than the market rate for wholesale power.

In Germany, feed-in tariff rates have been as high as $0.60/kilowatt-hour (kWh)–far above either the going wholesale rate that power producers are paid or the retail price of electricity. With such a power-purchase structure, all of the utility customers pay slightly higher electricity bills to subsidize the payments to the renewable energy producers.

The higher price provides a strong incentive for power producers to build renewable energy systems–and thus helps to achieve goals for increasing use of renewable energy. The feed-in tariffs in Germany have succeeded in making the country the world leader in photovoltaic installations–even though the climate is far from ideal for solar energy. The higher power-purchase rates paid in Germany are scheduled to gradually decline as the renewable energy technologies become more accepted and more cost-effective.

Closer to home, the Vermont Energy Act of 2009, which was passed this past May by the Legislature and became law (without Governor Douglas’ signature), created the feed-in tariffs as one of the important ways to achieve the state’s goal of producing 20% of its electricity using renewable energy by 2017.

The “standard offer” rates have been tentatively set as follows: $0.12/kWh for electricity generated by landfill gas; $0.12.5/kWh for power from biomass, hydropower, or larger wind systems (over 15 kW); $0.16/kWh for power generated with farm methane; $0.20/kWh for small wind systems (less than 15 kW); and 30¢/kWh for power from photovoltaic systems. Projects can be no larger than 2.2 MW in rated (peak) output.

The idea with the variable power-purchase pricing was to provide higher subsidies to technologies that were less cost-effective today, but should nonetheless be promoted. With the Vermont program, administered through SPEED (Sustainably Priced Energy Enterprise Development), these power purchase agreements are guaranteed for 20 years.

A total of 50 megawatts (MW) was allocated to this program, with the stipulation that no one technology (solar, wind, farm methane, landfill gas, hydropower, or biomass) could make up more than 25% of the allocation. For example, only 12.5 MW are available for photovoltaics (solar).

On Monday, October 19th, the “standard offer” was opened for proposals. Observers expected interest to be high, given the very attractive power purchase prices–especially for solar–but just how popular they would be was a surprise to many. A total of about 200 proposals were submitted for 172 MW of electrical generation capacity. Proposals for solar projects outstripped the 12.5 MW allocation for that technology by almost 14-to-one, which meant that the solar projects went into a lottery for selection. Biomass projects were also modestly oversubscribed; other technology proposals were not.

Vermont’s feed-in tariff program for renewable power production is the first state-wide effort, but other states are following quickly. In California, Governor Schwarzenegger has just signed similar legislation into law that allocates 1,000 MW to the program (with a more modest price of $0.15 – 0.17/kWh for solar projects), and Hawaii is working out the details on another version. Other programs are being considered in Oregon, Washington, Michigan, and Indiana. Such legislation in Maine was vetoed by the governor. At the municipal level, in February 2009, Gainesville, Florida became the first place in the U.S. to adopt a feed-in tariff program, offering $0.32/kWh for solar electricity, with 4 MW allocated to it.

As a pioneer in this area, Vermont may have made some mistakes. Some argue that the rates offered–at least for solar–are higher than they need to be to encourage renewable power generation (and the evidence presented by the large oversubscription to the offering for solar supports that contention). There is also some criticism that it was too easy to submit proposals, leading to widespread “speculation” (by companies that haven’t done their homework about the complexity of such systems). There is also no screening done for technical merit or feasibility, meaning that projects were submitted that may not have been thought through very carefully–just to get them into the queue.

These issues aside, though, the reality is that Vermont has–once again–secured its role as a leader in progressive thinking and progressive policies. Feed-in tariffs, including Vermont’s, will be an important route to greater reliance on renewable power generation nationwide.

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