Time to get FIT?

This is indeed a time to get fitter for me, but since when did I start talking about my personal stuff in this space.

So, here it is. FIT, Feed-In Tariffs, are the darling of European clean energy strategy. While the US has been gung-ho about the Renewable Portfolio Standards (RPS) and Cap and Trade, primarily because of their success with their Acid Rain program, EU has scored tremendous success with FIT. So what is FIT and what makes it tick when Cap and Trade and RPS seem to losing out so far.

A well designed FIT program includes some of the following attributes:
- Guaranteed grid access to renewable energy producers of all size
- Long term contracts for purchases of energy produced;typical contract may be of 15-20 years
- Renewable energy priced at a set premium to encourage initial investment, based on cost generation plus a reasonable profit. The tariff usually declines periodically at a set rate
- Feed in cost is distributed through electricity pricing
- There is no cap on the amount of power generated through different renewable sources
- The tariffs are technology dependent. So they vary for solar, wind, biomass etc.

A cursory reading of the provisions above brings out a set of positives for this policy tool. First that it is independent of the size of the power generator. Usually RPS hinders the participation of small players as only the large players can have the deep pockets to take the risks associated and still make a profit. This FIT will pay at a fixed price, no matter what the size of generation. Also, each generator is assured of access to the grid. A major plus, I would say.

The second factor in favor of FIT is that it fixes a price for the technology and does that long term. Hence, the project developers can plan their assignments and be assured of a fixed stream of revenue. This, I believe, is a major plus for FIT for we have seen numerous cases where the prices governed by Cap and Trade or RPS are not sufficient to promote project development.

I am not trying to promote FIT here. Obviously, it has its own shortcomings. Who fixes the price for different technology could be a major bone of contention. How is the decline rate for prices set? What will the time period of decline be? These are all some issues about FIT. However, one on one this scheme has been more successful than Cap and Trade, as shown by a few countries in Europe, viz. Germany. The growth of renewable capacity in those countries have been tempered lately by the financial bungling seen in Germany and Spain. The power prices set by the government were so lucrative that all solar development happened in these countries and also played its role in bringing about the financial crisis.

So, the ball is in your court. FIT or RPS or Cap and Trade or Command and Control. To be or not to be....:)

Update on the smart grid post

There is a study done on Smart Grids by US Association of Energy Economics, which gave some interesting insights about the Smart Grid deployment. The report claimed huge benefits of implementing the smart grid infrastructure, something to the order of $20-$30 billions in the next 2 decades, if my memory serves me right. Its one humongous number, anyway. The major point of the report was that just implementing the smart meter will serve us no good. That the smart meters, by themselves, are really dumb meters. Touche!

But its an interesting point! The whole idea of the smart grid, or the smart part of it anyway, is the two way street of communication. Of enabling the user to decipher his/her electric bill and make those changes to reduce consumption. A smart meter that just stands at a home and spits out a electric consumption number periodically does no good. The consumers have to be educated on their consumption patters, on the best way of reducing that. Some IT companies, guess what Google and Microsoft, have the relevant power meter softwares that helps you decipher the maze for you. It will be interesting to watch this space.

Food for thought!

http://www.nytimes.com/2010/08/15/science/earth/15climate.html?_r=1&scp=1&sq=in%20weather%20chaos&st=cse

Something to think about, this Independence Day!