The Right FiT: Finding a Cost-Effective Feed-in Tariff for Los Angeles Alex Turek
What is a Feed-in Tariff? A policy tool that provides incentive to third-party energy producers to construct alternative energy systems and sell the power generated back to the grid for a predetermined price. In urban settings, this often means rooftop solar development.
The Opportunity A perfect storm of conditions can make Los Angeles a U.S. and world leader in new solar installations. The conditions: • Solar costs continue their precipitous drop • Traditional energy sources continue to increase in costs – even the well-documented “dirt cheap” natural gas • Opportunities exist to further reduce solar costs, primarily with soft costs – a class of costs that will lower with sound policy and active firm learning • The economy continues its emergence from the “Great Recession” • Firms are ready to invest • A qualified labor pool is ready to be tapped • Los Angeles is one of the sunniest places in the country with an average of 292 sunny days a year
The Output
The Plan Expand the country’s already largest feed-in tariff – LADWP’s FiT 100 while maintaining a cost-effective impact on ratepayers
How? Compare the projected increase in natural gas costs with the anticipated continued reduction in solar costs. Find a tariff price that draws a sufficient demand from solar developers while minimizing program cost. Build a complex ratepayer impact and avoided cost model
Uses local solar system assumptions and a series of LADWP assumptions to compare the cost of a new FiT program to the cost of constructing and operating a new natural gas plant .
$0.180
$0.160
Tariff Price
$0.140
Safe Pricing - Small Projects Safe Pricing - Large Projects Mean Pricing - Small Projects Mean Projects - Large Projects Aggressive Pricing - Small Projects Aggressive Pricing - Large Projects
$0.120
$0.100
$0.080
2
3
4 5 Year
6
7
8
Based on applicant feedback from the first two tranches of the LADWP FIT 100, a realistic starting point for tariff price will be 15 cents for large projects and 16 cents for small projects and both will decrease in price by solar cost projections.
Recommendations
This would result in: Table 1. Cost-effective Program Capacity Menu( MW)
Safe
Mean
Aggressive
1,488
1,070
858
Medium
648
540
466
High
600
500
338
$0.040 1
Discussion
With a menu of 9 items, policy makers can make an informed decision based on their preferred future cost predictions of natural gas and solar. Based on LADWP capabilities, optimism in Los Angeles policy and solar firms to continue reductions in the soft costs of solar and erring towards caution for natural gas prices, the safest option may be the 1,070 MW FiT program based on low natural gas projections and mean solar cost projections.
Some assumptions include: • Solar system production factor • Rooftop project tilt & orientation derate • Household and commercial consumption • Household and commercial electricity rates • Natural gas annual escalation • Coal and natural gas GHG emissions per MWh • Levelized cost of natural gas • Inflation
Low
$0.060
In other words, the three natural gas cost projections will influence the avoided cost calculations and the three solar cost projections will inform the price of the tariff offered.
Also included in the analysis is: Economic impacts: job years created and direct investment Environmental impacts: GHG avoided and homes powered
The Model
Chart 1. Tariff Pricing Per Year based on Cost of Solar
Nine cost-effective FiT designs that mixes and matches three natural gas projected costs scenarios – low, medium and high based on LADWP files– with three projected future solar costs – safe (business as usual), mean and aggressive (DOE 2020 Snapshot goals).
231,120 homes powered by solar 35,881 million pounds of CO2E avoided GHG emissions when compared to natural gas plant 3,426,389 passenger vehicles removed from the road equivalence
13,147 direct job years created 7,648 indirect job years created $3,263,500,000 invested directly into Los Angeles Client: Los Angeles Business Council Graduate Advisor: J.R. DeShazo April 1, 2014