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Federal Decision Encourages States To Build CLEAN, Green Economy

A new opportunity has arrived for states to take charge of America’s green economy. After the Federal Energy Regulatory Commission (FERC) gave states the green light in 2010 to authorize contracts securing investment in renewable energy, progressive legislators have taken swift action to accelerate the production of renewable energy, consequently spurring economic growth, creating jobs, and lessening our dependence on foreign fossil fuels.

Clean Local Accessible Energy Now (CLEAN) contracts, also termed feed-in tariffs, are a financial mechanism that has sparked explosive growth in green energy across Europe and in several places of the United States. Essentially, they are agreements between a green energy producer and a public utility where the renewable energy producer is guaranteed a rate for the power supply to the electric grid. Because the contracts typically last 15-20 years and guarantee grid connectivity, they stabilize the green energy market and spur investment. In 2010, the National Renewable Energy Laboratory reported that feed-in tariffs were responsible for the production of 75% of solar photovoltaic energy and 45% of wind deployment globally.

Just this past month, Iowa introduced SF 225 to authorize CLEAN contracts. In the past 5 years, California, Hawaii, Vermont, and Gainesville, Florida have invested in their states’ economic security by implementing CLEAN contracts. Smart states will follow their lead because investment in renewable energy creates more jobs per dollar of investment than fossil fuels.

CLEAN contracts have benefited the economy and the environment in California. The state allows for the development of up to 480 megawatts of renewable capacity from qualifying facilities producing energy from solar, wind, geothermal, biomass, biogas, small hydro, and fuel cells. Its program offers 10, 15, 20, and 25-year contracts for small facilities producing 1.5MW of power or less. Renewable energy producers are paid between .08 and .10 cents for each kilowatt hour of energy produced. A 2010 study from the University of California-Berkeley estimated that California’s move to enhance their RPS with a “robust” CLEAN contract will triple the program’s expected job creation, which translates into 28,000 more jobs per year. The study also anticipates an increase of over two billion dollars in tax revenue and tens of billions of dollars of investment.

Vermont’s program was enacted through the Vermont Energy Act in March 2009. The program pays producers of solar photovoltaic, hydro, landfill gas, farm methane, wind, and biomass (up to 2.2MW in capacity) between $90 and $240 per megawatt hour of energy produced. Solar facilities can receive CLEAN contracts of up to 25 years, while all other renewable energy producers have contracts between 15-20 years. Vermont’s Division of Energy Planning studied the economic impacts of the the legislation and determined that the program will create almost 900 jobs and boost Vermont personal income by $55 million.

FERC’s recent approval of CLEAN contracts sets the agreements on a firmer legal foundation. Until October 2010 CLEAN contracts were not illegal per se, but were strictly limited by FERC’s avoided-cost structure for public utilities. In setting rates for the purchase of electrical energy by utilities, federal law mandated that utilities pay no more for energy than the cost they would avoid by producing the energy themselves. This effectively meant that utilities had to measure the production cost of renewable energy against that of fossil fuels. Consequently, “avoided cost prices” were fossil fuel prices, making it hard for renewable energy to compete.

FERC’s recent ruling clarified that avoided costs must be based on the costs available to the utility. For example, if a public utility is required to get 10% of its energy from a renewable source, then other renewable sources are the only sources available to the utility for that 10% of its energy portfolio. Fossil fuels are not available to be factored into that calculation. Energy analysts are predicting this ruling could have a “profound effect” on the amount of renewable energy generation states can produce.

Full Resources from this Article

Federal Decision Encourages States To Build CLEAN, Green Economy

National Renewable Energy Laboratory – A Policymaker’s Guide to Feed-in Tariff Policy Design
Center for American Progress – CLEAN Contracts: Making Clean Local Energy Accessible Now
California Public Utilities Commission – Summary of Feed-In Tariffs
University of California, Berkeley – Economic Benefits of a Comprehensive Feed-In Tariff
VermontSPEED
Vermont Department of Public Service – The Economic Impacts of Vermont Feed in Tariffs
Legal Planet, the Environmental Law and Policy Blog – The Perks of FERC’s Work

This article is part of PSN's email newsletter, The Stateside Dispatch.
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