Discussion of LADWP's Feed-in Tariff

Signing LA's feed-in tariff ordinance

On the heels of signing several large contracts for solar, The Los Angeles Department of Water and Power recently established a feed-in tariff program to source solar power closer to home.

Some thoughts on the program details and development:

It’s a 100 MW sized program (due to be increased to 150 MW).  For the first 20 MW of the program, the utility will offer participants 20 year contracts to buy solar energy produced within the LADWP service territory for 17 cents per kWh.  Projects can be sized between 30 KW and 3 MW, with a set aside to encourage participation of small systems.  After the first 20 MW of contracts are used up, the price for the next tranche is 16 cents, and so on.  Program details, here.

We also highly recommend reading the board package that was developed for the City Council’s consideration.  It’s illuminative of a lot of the issues that face solar markets today.  Download it here (pdf).

For utilities that want to establish similar programs, here’s a discussion of some key design elements, and how LADWP solved them:

1) How to establish the price? Designers of fixed-price feed-in tariff programs need a way to determine the correct price–too high, and ratepayers are not well served (and future program expansion may face backlash and resistance); too low, and the program won’t work at all.  LADWP’s solution?  They conducted competitive solicitations as a price-finding exercise.  From our perspective, that’s a better approach than using an administrative process to pick a number.  It’s more accurate, fairer, and less burdensome on program staff.

2) How to drive down prices?  The biggest barrier to solar’s market expansion is price.  Smart programs should lead to increasing scale…and that’s principally a case of bringing down costs.  LADWP’s approach is to have prices decline as the local market achieves scale and can lower prices. As noted above, there are transparent step-downs in price designed into the program: the first 20 MW of contracts will receive 17 cents per kWh, the next 20 MW will be offered at 16 cents per kWh, and so on.

3) How to ensure that contracts will be successful? Experience has shown  that you have to make sure that those that get contracts have both the ability and intent to deliver.  Otherwise you’ll just get a bunch of speculators wasting everyone’s time.  Best program design includes project viability mechanisms.  In most instances, that means development security.  LADWP requires entities that get a contract to put up $50 per kW development security – money that they get back when they bring contracts on-line, or forfeit if they fail to do so.  To discourage speculators, you should make it painful to fail.  Anyone that gets a part of the limited contract capacity but does not deliver prevents a legitimate developer from participating.  The Gainesville feed-in tariff program, for example, had a lot of speculators until local solar developers demanded that it be revised to include development security.

We’ve explored many of these issues in more depth in a manual that we developed for competitive wholesale distributed generation programs (such as California’s Renewable Auction Mechanism).

We even wrote a manual to help others design good wholesale distributed solar programs. Check it out here.