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GRU's feed-in tariff: a quick, closer look

As many of you solar geeks out there probably know, Gainesville Regional Utilities (GRU) recently launched a feed-in tariff, or FIT -- the first of its kind in the country. Generally speaking, FITs create two main benefits for solar buyers. First, they ensure that residents and businesses who go solar get paid a premium for all the electricity output from their solar PV system. This simple premise -- that each and every kWh generated will be purchased -- is linked to the second benefit: that of clarity. Unlike time of use schedules, or net excess generation purchasing at avoided-cost rates, the concept of a feed-in tariff is readily understood. For these reasons, FITs have been the policy tool of choice in Germany, for instance, a country that now leads the world in solar adoption rates.

Today I thought I'd take a quick, closer look at the GRU tariff schedule for roof-mounted PV systems, smaller than 25 kW in size, for both commercial and residential customers. Note that while the program has already filled its application quota for fiscal years 2009 and 2010, GRU is encouraging all potential applicants to submit their projects nonetheless. See their website for details.

OK, here we go:

In 2009 and 2010, you'll get paid $0.32/kWh. The per-kWh rate declines over time:

2011: $0.30

2012: $0.28

2013: $0.27

2014: $0.26

2015: $0.25

2016: $0.23

So far, so good. But what about the retail price of electricity -- that is, the price residents and businesses pay GRU for conventional power from the grid? Doesn't that tend to go up, year on year, because of inflation?

Starting with average 2007 GRU prices (available from the Energy Information Agency), and assuming 5% price inflation, I estimated the retail price in each year over the same time period. Put simply, I wanted to see whether the tariff, as scheduled, would still provide incentive to install a solar energy seven years from now.

By 2016, the last year in the FIT schedule, residents should expect to pay about $0.16/kWh, while businesses can expect to pay $0.19/kWh. These estimates are lower than the scheduled FIT rate of $0.23/kWh -- but not by that much. Will solar still be a good investment in Gainesville in 2016?

In my view, it's important to look also at two associated facts: PV systems of 2016 will likely (hopefully) be cheaper and more efficient than today's systems. So, while it may look like the margin between the FIT rate and the retail rates is expected to shrink, the overall effect may not be as detrimental to solar PV demands as what meets the eye.

I'm no expert, so please chime in with your insights/opinions.

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