FiTs Promote Solar in Japan, China, Germany & Spain

Feed in Tariffs (FiTs) make it attractive for investors, entrepreneurs, engineers and scientists to devote their time and effort seriously to renewables. While a desire to showcase renewables is good, often it is not enough to create confidence in the sector, says energy expert Dennis Posadas. Even without FiTs, the largest property developer in Singapore – the Housing Development Board (HDB) – has unveiled an innovative solar project that will soon power 45 residential blocks with the sun’s energy.

By Dennis Posadas, for the Straits Times (6 September 2011):

FORMER Japanese prime minister Naoto Kan’s insistence on passing Japan’s feed-in tariff (FiT) on renewable energy before his resignation on Aug 26 underscores the importance of sustaining renewable energy’s momentum. Japan’s Parliament finally passed the measure on Aug 23.

China’s decision to implement a FiT of 1 yuan per kilowatt hour (kwh) for solar systems is another welcome boost to the renewables sector. A similar FiT in the Philippines is encountering some resistance because of its impact on electricity prices.

In Spain and Germany, FiTs have led to significant growth in installed renewables, particularly for wind systems.

Most Singaporeans will probably agree with the rationale for shifting energy from fossil fuels to renewable sources like wind and solar in the light of concerns about climate change, health issues and crude oil price swings.

However, the hard work of determining how to pay for that shift needs to be discussed. For many countries around the world, the means to encourage a shift to renewables is the FiT.

FiTs are higher prices per kwh assigned to renewable sources, in recognition of their higher cost compared with fossil fuel sources.

In other words, to justify renewable investments, often there is legislation that mandates electricity utility companies to purchase increasing percentages of renewable energy in the total energy mix supplied to the grid.

So if coal costs only a few cents, to attract the solar and wind (and other renewable technology) investors, the price per kwh is set so that it is attractive to investors.

If a renewable source already matches the cost of fossil fuel power, then it is said to be at grid parity, which negates the need for FiTs.

Depending on the prevailing cost of electricity in a particular country, FiTs may tend to raise the average price of electricity as you are mixing currently expensive low carbon sources with cheap fossil fuel ones.

But this can be managed by various means, including a power price regulatory body or open electricity markets, by derating the FiT over time, and an offset by carbon credits, among others.

FiTs are efficient compared with other means to spur adoption of renewables. Instead of simply awarding tax exemptions or R&D grants, FiT payments are made to providers of renewable energy selling to the grid, and requires no government subsidy. Tax exemptions or R&D grants may be given to prospective investors, but there is no guarantee that their plant will actually operate and generate electricity.

FiTs make it attractive for investors, entrepreneurs, engineers and scientists to devote their time and effort seriously to renewables. While a desire to showcase renewables is good, often it is not enough to create confidence in the sector – remember the solar panels installed in the White House during the Carter administration that were eventually taken down during the Reagan years when oil became cheap?

In contrast, FiTs are long-term contracts (whose price can be revisited on a regular basis) to insulate renewable power plants from oil price swings.

However, once economies of scale and technology move forward from this initial market, we should see better, more efficient and cheaper renewables, which means that FiTs can eventually be scrapped. Coal and oil-powered energy systems have been around since the 19th century, and to expect that renewables will instantly catch up is unreasonable.

An excellent analogy is the PC and chip industry – while free competition and innovation may have driven us to US$100 (S$120) tablet PCs, it was the United States military that first had to jump-start a market for the fledgling semiconductor industry many decades ago.

FiTs are needed now. Waiting for renewables to become cheap without supporting the current renewables market is wishful thinking. For many decades the renewable sector and the people working in it have been courted, ignored and jilted, and this cycle repeated.

Experts and investors will not risk their time and money trying to create better renewable technologies if the market demand is constantly dependent on the price of oil.

The writer is an energy consultant who writes on clean energy issues.

Source: www.greenbusinesstimes.com

Jessica Cheam in Straits Times (16 September 2011):

The largest property developer here has unveiled an innovative solar project that will soon power 45 residential blocks in Punggol with the sun’s energy.

The Housing Development Board (HDB) yesterday inked a ‘solar-leasing’ agreement with local solar manufacturer Sunseap Enterprises, which will design, install and maintain the $11 million system.

The 2MWp (megawatt peak) solar photovoltaic set-up converts sunlight into electricity, which will then power common-area facilities such as corridor lights and lifts in the 45 blocks. A watt peak is a measure of power output used in relation to photovoltaic solar energy devices.

It will be the biggest solar installation here to date, and the first solar-leasing project.

The Pasir Ris-Punggol Town Council will take out a 20-year lease on the system from Sunseap Leasing, a unit of Sunseap Enterprises.

The town council will thus be spared the cost of the panels and their installation, but instead of buying power from the national grid, it will do so from Sunseap Leasing. The electricity will be priced at the current tariffs, with a 1 per cent discount thrown in.

HDB chief executive Cheong Koon Hean yesterday described the solar-leasing model as a ‘win-win’ one.

If the arrangement takes off, it could pave the way for more solar projects across the island, marking a turning point in Singapore’s growing solar industry.

As this is a test-bed project, HDB will cover 30 per cent of the cost, or $3.28 million; Sunseap will foot the rest.

Sunseap Leasing director Frank Phuan said the company has obtained financing from overseas banks to cover the cost, and will make its money by selling electricity to the town council over the next 20 years.

Up till now, the HDB has bought and installed its own solar panels – for 40 blocks in 10 towns.

With the solar-leasing model, it taps private enterprise to grow the solar programme, said Dr Cheong. She added that the HDB could look into doing the same for another 70 blocks, although their locations have yet to be identified.

We are going to learn about solar power generation through this test bed – what works, what doesn’t work… The solar-leasing model enables us to ramp up more quickly the introduction of solar power into HDB towns,’ she said.

Punggol, as Singapore’s first eco-town, is the ideal location for the HDB to start, she added. The agreement comes under the HDB’s $31 million, five-year scheme to test-bed solar energy at 30 of its precincts.

Three companies had bid for the contract, and Sunseap won due to its price and technical abilities, said the HDB.

The 11-year-old Sunseap has 35 staff and a factory in Boon Lay where it manufactures its solar panels. Most of its output is exported to Germany, which has a thriving solar industry.

Dr Thomas Reindl, a director at the Solar Energy Research Institute of Singapore, said solar leasing, though popular in countries such as the United States, is new in Asia.

The benefits of this system are that building owners can buy green power without having to pay upfront costs; and they also do not have to pay more than the prevailing electricity tariffs.

‘However, this concept works out for the leasing company only when electricity prices are not subsidised, such as in Singapore,’ he added. In countries where electricity costs are subsidised, it will not work because the leasing company will incur losses.

HDB’s Dr Cheong said she hoped the test-bed project will contribute to Singapore’s search for solar power generation technologies and develop the regional solar industry.

The installation of the solar panels will be completed by the middle of next year.

This article was originally published in The Straits Times.

Source:  www.eco-business.com