Reverse auction market feed-in tariffs

California stimulating middle-scale renewable energy projects

California regulators have designed a new market system for stimulating middle-scale renewable energy projects in a competitive way. The main idea is to create a reverse auction market where renewable energy companies can offer their services for green energy projects. The company that offers to sell electricity at the lowest rate wins a particular purchase agreement. Subsequently, the state will pay the developers the feed-in tariff that is sufficient to bring that particular project online.

The system covers installations between 1 and 20 megawatts that can be built within 18 months. For installations between 1 and 10 MW, the local utility company is obliged to accept the new installations. But approval from the utility company is required for plants between 10 and 20 MW.

Up to now, California has lacked genuine incentives for middle-scale solar energy projects. Solar energy in the Golden State is currently dominated by rooftop solar panels and large-scale solar power plants in the desert.

Creating a stable and competitive renewable energy market

The new system has several advantages over conventional feed-in tariffs. It ensures that only companies that take good business decisions are going to get the contracts. Windfall profits at ratepayers’ expense are thus avoided. The new system will also create a much larger pool of valid data about the cost structure of renewable energy plants, which up to now was mostly hidden or merely theoretical or conjecture. And lastly, it will most probably create a more stable renewable energy market than that found in countries providing conventional feed-in tariffs. In the latter countries, including Spain and Germany, the creation, modification, and abrogation of feed-in tariffs have been provoking disturbing market shocks.

The new system still has to be approved by a few stakeholders. If that occurs soon, the system could be up and running early next year. So far, the only critical comment regarding the system has come from the Chinese solar giant SunTech America. It expressed its concern over the potential for a few large solar developers to dominate the auctions and skew the results in favour of bigger projects.

Hybrid systems for government incentives

This new system proposed in California confirms once again that government stimulation of renewable energy is not a choice between 'state controlled feed-in tariffs' and 'market controlled green certificates'. Many hybrid systems are possible. A feed-in tariff system can stimulate market competition just as much as a renewable energy certificate system, as this Californian example proves. And in earlier articles on LE, we have already reported that green certificates allow for market correction just as efficiently as feed-in tariffs.

Incentives are not everything

The debate over which government stimulation system for renewables is the most efficient also needs to be put into perspective. Government incentives, whether feed-in tariffs or certificates, are no guarantee of the creation of a blooming renewable energy market. As Christian Kjaer, Chief Executive of the European Wind Energy Association declares, 'You can have the highest feed-in tariff in the world. If you have other barriers, nothing will get you off the ground'. Those other barriers can be, among other things, an unnecessarily complicated procedure to receive building permits or the manner in which renewable energy projects receive access to the grid. Some countries have a well-designed system of green certificates (Belgium and Italy) or feed-in tariffs (Greece), but still have rather disappointing results in terms of the growth of renewable energy capacity.