Fear of Flying with Feed-in Tariffs: Trying to Keep Decentralized Clean and Renewable Energy Out of the Game

In a recent Bloomberg article² Alberta’s energy minister said that “Feed-in tariffs, incentives that have helped drive renewable energy development in Germany, the U.K. and more than 40 other nations, “distort” markets and there are no plans to use them in Alberta.  We do not support feed-in tariffs,” which offer above- market rates for power generated from renewable sources, Ronald Liepert said in an interview in Calgary. “It’s clear that when you start going the route of feed-in tariffs, you start to distort the market.” 

In Ontario, the leader of the conservative opposition party has said:  “We will end the feed-in tariff program.” This is in spite of the fact that Ontario’s Green Energy Act has created over 13,000 jobs and so far has brought online 2,000 megawatts of renewable energy, about five per cent of the province's installed electricity generation.

The IEA³ concluded that feed-in renewable tariffs are both more effective at developing renewable energy as well as less costly to consumers than quota systems (known as renewable portfolio standards in North America.)

Given all the existing distortions in traditional energy market, one must wonder if it is feed-in tariffs that Alberta’s energy minister and Ontario’s Conservatives don’t like, or is it decentralized renewable energy itself that they don’t want to see have a fighting chance to compete with traditional centralized energy sources.

The big challenge for the renewable energy industry has been to make the cost of clean energy competitive with heavily-subsidised conventional energy⁴. Householders or energy companies who want to install wind turbines or solar panels are faced with lengthy pay-back times. They have been forced to make a choice based on ethics rather than economics. If in the 1950s and 1960s, the manufacturers of coal or nuclear power plants had been faced with the same barriers that the renewables industry is now confronted with, they may not have built a single power plant. Without increased consumer demand and political measures to facilitate access to the market, manufacturers of, for example, wind turbines and solar photovoltaic (PV) panels, cannot produce the unit volumes needed to bring prices down and drive technological innovation.

The Feed-In Tariff (FIT) has proven to be the most effective policy instrument in overcoming these barriers.  It may just be the effectiveness of feed-in tariffs that is the source of discontent from the traditional energy industries who like the profitability of the status quo.

The international accounting firm, Ernst & Young⁵ has concluded that Germany's system of advanced renewable tariffs delivers more renewable energy at lower cost to consumers than Britain's Renewable Obligation and its certificate trading system.  The conclusion turns on its head the common misperception that feed-in tariffs cost consumers more than so-called "market-friendly" polices, such as tendering and certificate trading systems.  Despite the significantly better wind resource in Britain, Germany produced four times more renewable energy than Britain at one-fifth the relative (per kWh) cost.

Anti-renewable rhetoric usually contains the notion that feed-in tariffs for electricity are higher than the market rates and therefore responsible for increasing electricity prices.  Electricity prices are increasing but any new generation will cost more than electricity North America’s existing generating fleet.  Albertans experienced this first hand when prices spiked earlier in the decade with the addition of new supply and the government was forced to give consumers subsidies.

In Ontario, power from the existing Niagara Falls costs about one cent per kWh.⁶  And while new natural gas fired generation plants bid into the hourly Ontario market, their capacity payments flow whether they run or not.  Solar and wind resources are only paid for when they generate electricity.

Without feed in tariffs, communities, farmers, First Nations and homeowners can never participate in the energy market.  Without their participation, the isolation of energy production from its use will continue with resulting resistance to new projects and a lack of attention to conservation – the cheapest energy resource we have.  Without their participation, the economic benefits accrue to large, mostly multi-national corporations, and resources are squandered in the name of profit.

Feed-in tariffs support decentralized energy which generates a multitude of benefits beyond the energy itself:  local economic activity, loss of leakages from the local economy, social cohesion and improved efficiencies that go far beyond the energy equation.

In the past, Canadians were known as “hewers of wood and drawers of water”, a quote that has its origins as a curse in the Holy Bible.  In the future, will we be only known as “exporters of energy”, cursed with a crumbling manufacturing infrastructure, environmental degradation and still rising energy costs at home?