Solar Today January February 2013 : Page 19

NAMASTE SOLAR An incentive that is too generous can result in overbuilding. This over-building has resulted in the effective end of a thriving solar market in Spain and a drastic reduction in the value of the SRECS in New Jersey and Pennsylvania. Therefore, PV value should inform the Smart FiT but not set its worth directly. ficulties because of an absence of adequate mar-ket controls, long-term planning and program flexibility. In Spain, the one-size-fits-all/no-limit FiT resulted in very large systems with large economies of scale rapidly flooding the market and, in effect, killing the program. In addition, because FiTs are cost-based incentives, many question the rationale of preferentially subsidiz-ing the most expensive technologies. When FiT programs are adjusted following cost reductions, it is often done in ad hoc steps, often taken on an emergency basis, leading to market rushes and slowdowns. Although the German program has been the most successful in terms of market growth, it has not been immune to these flaws and has reached near-crisis status more than once. Building a Smart FiT A Smart FiT retains the key attributes that have contributed to the FiT success: simple interconnection; minimal administrative work; and predictable, bankable, long-term per-kilo-watt-hour contracts. A Smart FiT, however, dif-fers from a traditional FiT in several fundamental ways: r *UJTWBMVF&#0e;ESJWFO&#0f; r *UJODMVEFTNBSLFU&#0e;UISPĨMFDPOUSPMT&#0f; r ĉFMPOH&#0e;UFSNFOEHBNFJTDPOUSPMMFE&#0f; Value-Driven: The Smart FiT is value-driv-en rather than cost-driven and thus addresses the underlying reason for incentives in the first place: to capture the renewable value that cannot be fully monetized under business-as-usual con-ditions. The argument is that investors should be fairly compensated for the value that they pro-duce. In the case of PV, this value is multifaceted (figure 1) and influenced by four factors: 1. The location of PV within the transmission and distribution (T&D) networks, 2. The local penetration of PV, 3. The placement (orientation/tilt) of PV and 4. The availability of emergency/dispatch-able storage capability. These factors determine — 1. The ability of PV to actively support the transmission and distribution grids by reducing peak demand stress; 2. The environmental value resulting from the locally displaced energy mix; 3. The operational and infrastructural T&D measures that will be necessary to absorb a grow-ing amount of solar generation; and 4. The ability of installations to mitigate the consequences of power outages and natural disasters 1 at an individual or community level. The Smart FiT should reflect these factors in an intelligent per-kilowatt-hour price that would depend upon location and system specs, and self-adjust over time as penetration increases. Market-Throttle Controls: The examples of Spain and, more recently, New Jersey and Penn-sylvania have demonstrated that an incentive that is too generous can result in overbuilding, exceeding mandates and planners’ expectations. This overbuilding has resulted in the effective end of a thriving solar market in Spain and a drastic reduction in the value of the SRECS in New Jersey and Pennsylvania. Therefore, PV value should inform the Smart FiT but not set its worth directly, at least not in cases where value would be much higher than current local system cost. Ideally planners should set the Smart FiT at the minimum between a system’s levelized cost of energy (LCOE) with an acceptable ROI and its levelized delivered value, as illustrated in figure 2 (page 20). [1] A non-negligible part of Hurricane Sandy’s toll in New York and New Jersey in October was the lack of electrical power that impeded disaster recovery and kept people in the cold and without access to basic necessities, such as gasoline for their generators and cars. There is ample evidence (including the experience of one of the authors) that PV systems equipped with a small storage system can power emergency loads indefinitely and thereby keep homes and business up and running and even provide community relief (e.g., gas stations equipped with such systems). Copyright © 2013 by the American Solar Energy Society Inc. All rights reserved. solartoday.org SOLAR TODAY January/February 2013 19

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