A Feed-in-Tariff is a policy mechanism designed to provide an incentive for development of a desired type. Typical implementations of feed-in-tariffs for power generation usually involve guaranteed long term prices for electricity generated and guaranteed grid access. This means that if a person or company builds this type of desired generation, they are guaranteed to be able to sell their power, and guaranteed a minimum price for their power[1].
A 2008 analysis conducted by the European Commission stated that “well-adapted Feed-in tariff regimes are generally the most efficient and effective support schemes for promoting renewable electricity”[2] A large number of jurisdictions in the world have implemented feed-in tariffs for this reason.
Germany:
Germany instituted a law in 1990 which guaranteed wind and solar producers energy rates that were 90% of the residential retail price of electricity. Similarly, other renewables were guaranteed rates between 65% and 80%. This law remained in effect until 1999.[3] This law was very effective at stimulating private investment in renewable energy sources. By 1999, Germany had approximately one third of the world’s wind generation capacity.[4]
Ontario:
Ontario introduced the Renewable Energy Standard Offer Program on November 22, 2006 with the intent of stimulating growth in the development of renewable energy in the province. The program exceeded expectations with 1400MW of contracted projects since its inception.[5]
On May 14th, 2009 Ontario passed into law the Green Energy and Green Economy Act, 2009. The act is intended to help phase out the last coal generation in Ontario, boost the economy, stimulate research into renewable technologies, and create environmentally friendly industry and jobs.[7]
The act is divided into Feed-In Tariff (FIT) and micro FIT section. The micro FIT is designed for projects that are under 10kW, with all other projects falling under FIT.
Micro FIT guarantees the following prices per kilowatt hour (kWh):
Solar PV ¢80.2
Wind ¢13.5
Waterpower ¢13.1
Biomass ¢13.8
Biogas ¢16.0
Landfill Gas ¢11.1[8]
FIT guarantees the following prices (note that different sizes of projects are paid differently):
Biomass <10MW ¢13.8
>10MW ¢13.0
Biogas
On-Farm ≤ 100 kW ¢19.5
On-Farm > 100 kW ≤ 250 kW ¢18.5
Biogas ≤ 500 kW ¢16.0
Biogas >500 kW ≤ 10 MW ¢14.7
Biogas > 10 MW ¢10.4
Waterpower ≤ 10 MW ¢13.1
> 10 MW ≤ 50 MW ¢12.2
Landfill gas ≤ 10MW ¢11.1
> 10 MW ¢10.3
Solar PV
Any type ≤10 kW ¢80.2
Rooftop > 10kW ≤ 250 kW ¢71.3
Rooftop > 250 ≤ 500 kW ¢63.5
Rooftop > 500 kW ¢53.9
Ground-mounted ≤ 10 MW ¢44.3
Wind
Onshore Any size ¢13.5
Offshore Any size ¢19.0[10]
All prices are based on 20 year contract terms except for waterpower projects which have a contract term of 40 years. All projects except photovoltaics are subject to price escalation. Twenty percent of the price will be indexed to inflation as per the Consumer Price Index. The act also includes a requirement that a certain percentage of the goods and services for each project is produced within Ontario.[9]
A Feed-In Tariff for Saskatchewan
In order to propose a viable feed-in tariff scheme for Saskatchewan, we must first consider the unique properties of Saskatchewan. Saskatchewan is blessed with abundant yearly sunshine and strong steady winds.
Wind
The capacity factor of the Centennial wind project during its first year was 42.4%, a tremendously high capacity factor for a wind installation. [10] This value can be compared to average capacity factors around the world.[11]
United States 28.8%
U.K. (off shore) 28.7%
U.K. (on shore) 27.2%
Denmark 24.1%
Spain 21.8%
Portugal 19.8%
Netherlands 19.3%
Germany 16.9%
India 15.9%
Italy 15.6%
Poland 14.6%
France 14.5%
World 19.6%
(All numbers drawn from The Capacity Factor of Wind Power, Lightbucket, 2008. [11])
It is good to keep in mind that Germany has the most installed wind capacity in the world, and Denmark has the largest percentage of wind capacity of any nation in the world. Ontario’s capacity factor has been calculated as 27.5%.[12]
The Small Power Producers program in Saskatchewan currently buys power at 8.42 cents/kWh[13]. If we emulated Ontario and paid 13.5¢/kWh for wind installations, we would be subsidizing the wind industry by about 5.08¢/kWh. Since our wind resources have a higher capacity factor than Ontario’s, we do not need to provide as large a fiscal incentive as Ontario to create an equivalently profitable wind industry here. This means that we can scale back the incentive portion of the Feed-in tariff by an amount proportional to the difference in capacity factors between Saskatchewan and Ontario. If we compare the capacity factors, we find that Saskatchewan gets on average about 1.54 times the energy from wind as Ontario does. If we divide our subsidization of 5.08¢/kWh by this amount, we arrive at a subsidization of 3.30¢/kWh. Adding this to the current rate for the Small Power Producers program leads us to a price of 11.72¢/kWh.
Solar
Similar calculations should be conducted for our solar resouces, since Saskatchewan receives the most hours of sunshine per year of all the provinces in Canada.[14] This again would lead to a smaller fiscal feed-in tariff to provide an equal incentive to that offered by Ontario.
We are, however, situated differently with regards to solar power than Ontario is. Ontario has a summer hot weather peak due to air conditioning. This means that the maximum demand for electricity is in the middle of a hot sunny, summer day in Ontario. The cost of generation at peak times is much higher than off-peak times. Part of the reason Ontario’s solar subsidy is so big is because they are basing its value not on the average price of generation, but on the price of peak generation. In Saskatchewan, we currently have a mid-winter cold weather peak, with a smaller peak on the hottest days of summer. Any incentive structure we propose should be weighted accordingly. It is our estimation that an incentive approximately one third the size of Ontario’s will be a reasonable subsidy for Saskatchewan’s solar industry.
Following similar reasoning to that shown above for the wind feed-in tariff, we subtract from Ontario’s small scale solar price of 80.2¢/kWh the current price paid in Saskatchewan to Small Power Producers of 8.42¢/kWh to get an estimated subsidy of 71.78¢/kWh. If we divide this number by three we arrive at our proposed subsidy of 23.93¢/kWh. Adding this to the current price paid we arrive at a proposed price for Saskatchewan-based small solar of 32.43¢/kWh.
Additional Feed-In Tariff Mechanisms
Modern feed-in tariff legislation sometimes includes provisions for a slow tapering of the size of the subsidies as the years of the contract pass. In Ontario’s feed-in tariff scheme, only 20% of the value of the feed-in tariff is indexed with inflation. In effect then, this means that 80% of the feed-in tariff is subject to the reduction in value represented by inflation. The Bank of Canada is charged with keeping the inflation rate in Canada between 1% and 3%. The average inflation in Canada since the creation of the bank has been around 3.14% per annum.[15] In effect this means that the value of the feed-in tariffs in Ontario are depreciating at approximately 2.5% per annum. This value was arrived at by taking into account both inflation and the indexing with inflation of 20% of the feed-in tariffs.
Proposed Feed-In Tariff for Saskatchewan
In conlusion, we propose that Saskatchewan implement a feed-in tariff scheme of the following form. These numbers are based on the calculations and numerical references shown above, with the mentioned modifications applied.
Small Scale Producers (under 100kW production potential)
Technology Price
Hydro 13.1¢/kWh
Biomass 13.8¢/kWh
Biogas 16.0¢/kWh
Landfill Gas 11.1¢/kWh
Solar PV 32.4¢/kWh
Wind 11.7¢/kWh
Large Scale Producers (over 100kW production potential)
The price analysis for large producers is beyond the scope of this document. The effect on consumer pricing and the grid may be notable with implementations of large scale feed-in tariffs. SaskPower is the most natural authority to consult on the details of large scale production incentives in Saskatchewan.
Costs
The costs of feed-in tariffs are reflected on the bills of consumers. With the implementation of their new feed-in tariffs, Ontario is predicting a 1% increase in the cost of power per year for ten years.[16] Germany’s Federal Ministry for the Environment, Nature Conservation and Nuclear Safety found that their feed-in tariff system had a net effect in 2008 of raising the bills of households 5%, or between two and six Euros per month ($3-$9 CAD).[17] In studies in Spain and Denmark it was demonstrated that heavy investment in renewable energy lead to a reduction in the consumer price of electricity.[18] [19] Some reduction in the costs of energy are also expected through less obvious routes, such as a reduced demand for natural gas leading to reduced costs for peaking energy, natural gas cogeneration, and home heating.
Table of Renewable Tariffs in the World
http://www.wind-works.org/FeedLaws/TableofRenewableTariffsorFeed-InTariffsWorldwide.html
References:
[1] Feed-In-Tariff. http://en.wikipedia.org/wiki/Feed-in_Tariff. Retrieved Jan 23rd, 2010.
[2] European Commission (COM), 2008. Commission Staff Working Document, Brussels, 57, 23 January 2008. http://ec.europa.eu/energy/climate_actions/doc/2008_res_working_document_en.pdf Retrieved Jan 23rd, 2010.
[3] Germany, Stromeinspeisungsgesetz (StrEG) (1990). Germany’s Act on Feeding Renewable Energies into the Grid of 7 December 1990,” Federal Law Gazette I p.2663, unofficial translation. http://wind-works.org/FeedLaws/Germany/ARTsDE.html Retrieved Jan 23rd, 2010.
[4] Germany, Renewable Energy Sources Act (RES Act) (2000). “Act on Granting Priority to Renewable Energy Sources,” Federal Ministry for the Environment, Nature Conservation and Nuclear Safety (BMU). http://www.wind-works.org/FeedLaws/Germany/GermanEEG2000.pdf Retrieved Jan 23rd, 2010.
[5] RESOP Program Update. Ontario Power Authority. March 12, 2009. http://www.powerauthority.on.ca/SOP/Page.asp?PageID=122&ContentID=6856&SiteNodeID=412&BL_ExpandID=190 Retrieved Jan 26th, 2010.
[7] What is the Feed In Tariff Program? Ontario Power Authority, 2009. http://fit.powerauthority.on.ca/Page.asp?PageID=1115&SiteNodeID=1052 Retrieved Jan 26th, 2010.
[8] microFIT Price Schedule. Ontario Power Authority, 2009. http://microfit.powerauthority.on.ca/pdf/microFIT-Program-price-schedule.pdf Retrieved Jan 26th, 2010.
[10] FIT Price Schedule. Ontario Power Authority, 2009. http://fit.powerauthority.on.ca/Storage.asp?StorageID=10620 Retrieved Jan 26th, 2010.
[9] Feed-In Tariff Program. Ontario Power Authority, 2009. http://fit.powerauthority.on.ca/Storage.asp?StorageID=10507 Retrieved Jan 26th, 2010.
[10] Centennial Wind Power Facility Rides the Wind to a Great First Year. SaskPower, June 14th, 2007. http://www.gov.sk.ca/news?newsId=410dbb2a-3728-4373-b669-7f1404a7b1ba Retrieved Jan 27th, 2010.
[11] The Capacity Factor of Wind Power. Lightbucket, March 2008. http://lightbucket.wordpress.com/2008/03/13/the-capacity-factor-of-wind-power/ Retrieved Jan 27th, 2010.
[12] Capacity Factor of Ontario Wind Energy Generating Facilities. Wind Concerns Ontario, Jan 2010. http://windconcernsontario.wordpress.com/2010/01/07/capacity-factor-of-ontario-wind-energy-generating-facilities/ Retrieved Jan 27th, 2010.
[13] Inquiring Into Saskatchewan’s Energy Needs. Standing Committee On Crown and Central Agencies 8th Report, Dec 2009.
[14] Saskatchewan. One Stop Canada. http://www.onestopimmigration-canada.com/saskatchewan.html Retrieved Jan 27th, 2010.
[15] Inflation Calculator. Bank of Canada. http://www.bankofcanada.ca/en/rates/inflation_calc.html Retrieved Jan 27th, 2010.
[16] Can Saskatchewan’s Future Be Renewable? Tim Weis, The Pembina Institute, 2009. http://www.legassembly.sk.ca/committees/CrownCentralAgencies/Tabled%20Documents/Pembina%20Institute_Power%20Point%20Presentation.pdf Retrieved Jan 27th, 2010.
[17] Germany Federal Ministry for the Environment, Nature Conservation and Nuclear Safety (BMU) (March 2008). Electricity from Renewable Energy Sources: What Does It Cost Us? Berlin, Germany: Bundesministerium für Umwelt, Naturschutz und Reaktorsicherheit. http://www.bmu.de/files/pdfs/allgemein/application/pdf/brochure_electricity_costs.pdf Retrieved Jan 27th, 2010.
[18] de Miera, G. S.; González P. del Río, Vizcaíno, I. (2008) “Analysing the impact of renewable electricity support schemes on power prices: The case of wind electricity in Spain.” Energy Policy (36, 9) pp. 3345-3359.
[19] Munksgaard, J. and Morthorst, P. E. (2008). “Wind power in the Danish liberalized power market – Policy measures, price impact and investor incentives,” Energy Policy, Volume 36, pp. 3940-3947.
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