FeedIn Tariff (FIT) Proposal Submission

Kevin Cox
22 Yirawala St
Ngunnawal ACT 2913

This submission supports the concept of a feed in tariff but recommends it as part of a broader approach. The broader approach overcomes issues of social equity and uses a market to allow the system to adjust to changing technologies and so obtain the greatest reduction in greenhouse gases for a given expenditure. This submission recommends

  1. Give Monetary Rewards to those whose lifestyle and home technologies produces less greenhouse gases.
  2. Require the Rewards they obtain to be spent on infrastructure for devices eligible for the Feed In Tariff or other greenhouse reducing technologies.

The proposed system can be implemented for no cost to the government.

Difficulties with FIT

The concept of a FIT that gives a fair price for renewable energy input into the grid is a good one. However, setting a fixed price does not encourage the most efficient and effective investment in ways to reduce greenhouse gases for the following reasons:

Pricing Energy at a proportion of Market Rates

A feedin price aligned more closely to the instant wholesale price of energy, rather than a fixed price, would be a more effective approach and will lead to better allocation of resources. For example it will encourage systems that store energy and release it into the system at times of peak loads. The ability for prices to vary according to demand creates systems that lead to efficient resource allocation. The feed in price can be higher than the market rate but it is likely to have the most benefit if it reflects the underlying price of other sources of energy.

Reduction Incentives should be Technology Agnostic

Setting a price that is above the cost of producing renewable energy from other renewable energy systems will divert resources away from other effective renewable methods of reducing greenhouse consumption. For example a feed in tariff above the cost of green energy from the grid will divert people from subscribing to green choices and will divert resources from installing solar hot water systems. Energy saving investment can be viewed as the same as generating renewable energy in terms of reducing green house gases and a fixed high feedin price will divert resources from more effective (in terms of greenhouse gases saved) forms of investment such as insulation.

Any Proposal should be socially equitable

A feed in tariff that subsidises those who can afford the capital to purchase an energy generating system will divert money from the poorer members of society to the richer. A high feedin tariff is ultimately paid by other consumers who do not have an energy generating system. While auxiliary schemes can be invented to help overcome these inequities it is better to have systems that do not need auxiliary schemes to overcome inequities as these auxiliary schemes themselves can be problematic.

Any Proposal should result in genuine reductions in greenhouse gases

A fixed feed in tariff on the generation of electricity does not encourage people to reduce their consumption of energy. In a perverse way it may even increase the total consumption of energy. The psychology of a feedin system for some people – particularly the rich – is that because they have a feedin system they feel entitled to consume more energy. Thus they consume the energy they generate and continue to consume the same amount of non renewable energy. While this does not apply to all people there will be enough to make the system less effective.

A Socially Equitable FeedIn Tariff Approach

The following proposal gives a financial benefit from the FeedIn Tariff but returns the most benefit from the reduction of greenhouse gases saved by the installer. A principle for any socially equitable system with respect to greenhouse gas reduction is that those consumers who cause the least damage to the environment should pay the least and, if possible, should be rewarded for their constraint. In the case of electricity this can be achieved by diverting money from those who pollute to those who generate less pollution. Thus as well as increasing the price of feedin renewable energy above a market price, in addition, we can Reward people who install such systems through their reduction in polluting energy consumption.

This can be achieved in the following way.

  1. Calculate the net greenhouse emissions for each person for domestic electricity consumption.

  2. Price FeedIn renewable energy as a percentage of the price of non renewable energy.
  3. Put a surcharge on all energy in proportion to the greenhouse emissions generated when the energy is produced.

  4. Distribute the money collected from the surcharge as Rewards to all consumers in inverse proportion to their net greenhouse emissions as calculated in (1)

  5. Require Rewards to be spent on approved ways to reduce greenhouse emissions. Existing installations of renewable energy systems can qualify as an approved way.

A person whose feedin results in a net low greenhouse emissions will receive more Rewards and receive money from the market price adjusted feedin power they generate. The approach is equitable because it rewards those who have already installed systems, it rewards those who consume less energy who are often the less well off members of society and it rewards people who invest in ways to reduce greenhouse emissions in whatever way they deem appropriate for their situation.

This approach addresses the issues raised from a straight fixed Feedin approach. The approach can be tuned by the government to achieve any desired reduction of emissions through changes to surcharge amounts and to the formula for distribution of Rewards.

It can be implemented efficiently with the system for efficient delivery of Rebates called Edentiti Rebates. The system can be implement for NO COST to the government as the running costs come from the Rewards recipients and merchants using the system. A government can obtain any level of greenhouse emission reduction desired from household electricity consumption through this approach by simply varying the surcharge added to electricity prices of non green energy..

Answers to Questions Raised in Discussion Paper

The following specific questions have been asked in the discussion paper. In the following these questions are answered if the above proposal of a variable FIT and Energy Rewards is implemented.

Is there a need to limit the size of systems that are entitled to receive the FiT?

There is no need to limit the size of the system. The system can be applied to both residential, community and commercial systems as it gives a market based pricing structure for payment. The payments could be based on the instantaneous wholesale price of electricity from other sources or some other demand calculation..

Is it appropriate to set a maximum net investment in a PV system?

No

Is a ten year payback period appropriate?

The payback period depends on the Rewards or carbon emissions saved rather than the amount of energy generated. The payback period is likely to be shorter than ten years for those people whose lifestyles consume little polluting energy.

Is an annual review sufficient/excessive?

An annual review should be made of the surcharge and of the rates at which Rewards are paid. However, changes will be made on the basis of whether the community rate of reduction in greenhouse gas emissions is “satisfactory” or not. If the rate is too low then the surcharge can be increased and Rewards also increased.

What options are available to ensure that there is no unacceptable impact on those less able to pay or install network connected renewable energy systems?

A system that Rewards people for generating less greenhouse gases will be socially equitable. Because the Rewards system is technologically agnostic with respect to method of reducing greenhouse gases then people who cannot pay to install systems can achieve reductions in other ways. Most people for whom an installation is not an option will obtain Rewards. As Rewards are transferable people who cannot use them can sell them – at a discount – to people who can use them. Others may choose to donate their Rewards to community groups who may install systems on community facilities like schools or churches.

Is a FiT a cost effective and/or efficient method of reducing greenhouse gas emissions?

A FIT combined with Rewards will be cost effective and efficient because people will have a choice on how they decide to invest or change their behaviour to reduce greenhouse emissions. That is Feed In Installations will compete in a market place of greenhouse gas reducing alternatives and we know that market based resource allocation systems is the most efficient way to allocate money for a particular purpose.

Is the FiT a cost-effective way of increasing solar energy use?

It can be if it competes with other greenhouse reduction technologies.

Are there any other options could be used instead of, or to complement a FiT?

The proposal of Energy Rewards as part of the FIT proposal complements FIT.

By reducing the upfront costs associated with installation, are direct subsidies a more attractive option to encourage the adoption of renewable energy technologies?

Direct Rebates are likely to be less efficient because the upfront subsidy will almost certainly cause market distortions – However, the Rewards approach permits direct subsidies through giving some people more Rewards.

Summary

The objective of the FIT is to reduce greenhouse emissions not promote a particular technology. Relating the subsidy directly to the reduction in emissions regardless of the technology or behavioural changes will lead to more efficient expenditure because it brings choice and allows the market in renewable energy production and energy savings to operate efficiently. The introduction of Rewards for low emissions will encourage the adoption of a plethora of renewable energy technologies including PV solar panels. Rewards is socially equitable and favours the frugal over the high consumers. It can be introduced for NO COST to the government and will be seen as fair and reasonable by most of the population.

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