Feed-In Tariff Proposal for Saskatchewan

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Introduction

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.

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” ¹. A large number of jurisdictions in the world have implemented feed-in tariffs for this reason.

Case Studies

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. ². 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. ³.

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 ⁴.

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 ⁵.

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):

Type of Generation	Subsidized price in ¢/kWh
Solar PV	80.2
Wind	13.5
Waterpower	13.1
Biomass	13.8
Biogas	16.0
Landfill Gas	11.1 6

FIT guarantees the following prices (note that different sizes of projects are paid differently):

Type of Generation	Size range of power plant	Subsidized price in ¢/kWh
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 kW	64.2
Ground-mounted	>10 kW ≤ 10 MW	44.3
Wind
Onshore	Any size	13.5
Offshore	Any size	19.0 7

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 ⁸.

A Feed-In Tariff for Saskatchewan

In order to propose a viable feed-in tariff scheme for Saskatchewan, we must first consider the quality of the renewable energy resources in Saskatchewan. Saskatchewan is blessed with abundant yearly sunshine and areas with 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 ⁹. This value can be compared to average capacity factors around the world ¹⁰.

Country	Capacity Factor
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. ¹⁰ )

It is good to keep in mind when looking at this list that the United States has the most installed capacity in the world, and Germany has the second most. Denmark has the largest percentage of wind capacity on its grid of any nation in the world. For additional reference, Ontario’s capacity factor has been calculated as 27.5% ¹¹.

The Small Power Producers program in Saskatchewan currently buys power at 8.42 cents/kWh ¹². 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. For a true policy proposal, the tailoring of this incentive to the specifics of Saskatchewan’s resources and needs would be much more complicated than this relatively simple example. It is hoped however that this will help illuminate some key points about customizing a solution of this sort to the needs of Saskatchewan.

Solar

Similar calculations should be conducted for our solar resources, since Saskatchewan receives the most hours of sunshine per year of all the provinces in Canada ¹³. 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 primarily to their increased need for 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 large subsidy for Saskatchewan’s solar industry considering its reduced effectiveness in meeting our energy needs.

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 ¹⁴. 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 in Ontario.

Our FIT Proposal for Saskatchewan

In conclusion, 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 Power ( <100kW)

Technology	Price in ¢/kWh
Hydro	13.1
Biomass	13.8
Biogas	16.0
Landfill Gas	11.1
Solar PV	32.4
Wind	11.7

Large Scale Power

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. Additionally, it has been historically true that SaskPower owns all of the major power production facilities in the province. A feed-in tariff structure would apply to a relatively open market, a very different situation than what has existed in the past 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 ¹⁵. 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) ¹⁶.

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 ^{17 18}. Some of this reduction in costs of total energy is due to indirect market effects such as a reduced demand for natural gas leading to reduced costs for peaking energy, natural gas cogeneration, and home heating. It is very important to note that this study indicates that the society is wealthier as a whole due to its implementation of a feed-in tariff. With their needs such as energy consuming less of their money, they have freed capital for other uses. Freeing capital for other uses is a definite indication of a more prosperous society.

A useful reference for studying this subject is the Wind-Works Table of Renewable Tariffs in the World.