by Jamie Van Nostrand
Today’s New York Times features an article about Tocco da Casauria, Italy, where the town installed four wind turbines and now generates 30 percent more electricity than it uses. The revenues produced by the excess generation — about 170,000 euros annually — is used by the town to pay for garbage services and fund local improvement projects. The town has not gone “off the grid,” however; that would leave the town subject to blackouts when the wind doesn’t blow. Rather, the output from the wind turbines is sold into the national grid, and the town shares in the profits from selling the electricity.
Why can’t we replicate this model in the United States? There are a couple of factors that make this project “work” in Italy. First, the electricity prices in Italy are very high (about three times the average in the United States), and thus wind energy is cost-effective when compared to the fossil-fueled energy it is replacing. Second, Italy has implemented “feed-in tariffs,” which essentially are government guarantees to buy renewable electricity at subsidized prices from any company, city or household that produces it. Rather than relying on economic incentives to stimulate investment in renewable energy, the United States tends to rely on renewable portfolio standards, which are minimum requirements specifying the percentage of a utility’s electricity supply mix that is provided by renewable energy resources. (In New York, for example, the RPS calls for 30% renewable energy by 2015.) While solar developers have urged adoption of feed-in tariffs in the United States, there is considerable resistance to doing so due to the impacts on electricity prices from requiring utilities to buy renewable energy output at subsidized prices. A feed-in tariff for solar power, for example, could require a utility to pay over 25 cents per kWh for electricity that it could acquire on the wholesale electricity market for about 7 to 8 cents. These higher costs for the utility’s electricity supply, in turn, would be recovered from the utility’s ratepayers through higher rates. So while a feed-in tariff would perform the function of stimulating investment in renewable energy resources by producing an attractive revenue stream based on a fixed, subsidized price, the flip-side is the higher cost imposed on utility ratepayers. For the most part, policymakers, legislators and utility regulators in the U.S. have declined to go down the path of feed-in tariffs although, as a matter of policy, they could do so in order to provide the incentives that would lead to the sort of community wind development illustrated in the New York Times article.