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Indianapolis Power & Light Proposes Modest Midwestern Feed-in Tariff Program

Posted on Monday, August 31st, 2009 at 4:13 pm by Paul Gipe

Indianapolis Power & Light (IP&L), an electric utility that provides retail electric service to 470,000 residential, commercial and industrial customers in and around Indianapolis, Indiana, proposed a pilot feed-in tariff program in a regulatory filing earlier this year.

IP&L’s proposal to the Indiana Utility Regulatory Commission (IURC) will become part of the utility’s Demand Side Management program. The IURC is expected to rule on the proposal later this year.

Several Midwestern utilities either have feed-in tariffs in place or have proposals before state regulatory commissions. Without exception, these voluntary programs are extremely limited in the maximum capacity that is permitted. None of the programs in Wisconsin and Michigan conform to best practices of successful policies elsewhere and none have resulted in any significant renewable energy development to date.

For example in Michigan, Consumers Energy has proposed a tariff only for solar PV, though the tariffs themselves exceed those of other Midwestern utilities. IP&L, in contrast, has proposed a series of tariffs for different technologies, not solely solar PV. IP&L includes tariffs for wind and biomass as well as solar PV.

Further, IP&L’s proposal caps total capacity of the program to one percent of retail sales. This greatly exceeds that of Consumers Energy where their program is limited to only 2 MW.

IP&L delivers 15 TWh per year to retail customers. Under IP&L’s proposal, the program would be limited to some 150 million kWh per year. Under Hoosier conditions that’s equivalent to 75 MW of wind or 150 MW of solar PV. While that’s 75 times greater than the Consumers Energy program, German farmers and homeowners install that much solar every month.

IP&L itself is developing a 106 MW wind project with French company EnXco in northern Indiana.

Below are some elements of IP&L’s proposed three-year pilot program.

  • Contract term: 10 years
  • Technologies included: Solar PV, wind, biomass
  • Project size minimum: wind, 50 kW; solar PV, 20 kW
  • Project size cap: 10 MW
  • Program cap: 1% of retail sales
  • Solar 20 kW-100 kW: $0.24 USD/kWh
  • Solar >100 kW: $0.20 USD/kWh
  • Wind 50 kW-100 kW: $0.14 USD/kWh
  • Wind 100 kW-1 MW: $0.105 USD/kWh
  • Wind >1 MW: $0.075 USD/kWh
  • Biomass: $0.085 USD/kWh (with a capacity payment)

The tariffs were derived using the problematic Discounted Cash Flow model that is highly reliant on federal tax subsidies. As a consequence, the proposed solar PV tariffs are one-third less than those in the much sunnier city of Gainesville, Florida. The wind energy tariffs are also substantially less than those recently implemented in Vermont. Thus the tariffs are not particularly attractive, notably in light of the short contract term of only 10 years.

Most successful programs internationally have contract terms of 20 years or more. Ontario’s program uses 20 year contract terms for most technologies, as does Vermont.

“When you do the math,” says Renew Wisconsin’s Michael Vickerman, “there’s not enough [money] there to get you over the hump. The tariffs, by themselves, are simply not high enough.” Vickerman speaks from experience. Similar tariffs in Wisconsin have not resulted in any significant development-and Wisconsin has a state subsidy program on top of the federal tax subsidies.

In another twist on feed-in tariffs, Midwestern utilities often limit participation with a high lower threshold that is nearly certain to limit development. IP&L’s proposal is no exception.

For wind energy, the minimum size to participate is 50 kW. There are few new wind turbines manufactured in that size class. Hoosiers will be limited to importing used wind turbines from Europe or California to use the tariff. Similarly, the 20 kW lower threshold for solar PV will exclude all homeowners except only the largest McMansions.

IP&L says in its filing that this severe limitation on the program is intentional. The utility says it doesn’t have sufficient resources to read the meters if there was any substantial uptake of the program.

Internationally, successful feed-in tariff policies have no lower thresholds for participation. These programs welcome all participants, even the smallest generators.

Still, IP&L has proposed a far greater program limit for its service area than that in California, once a leader in renewable energy. Current California feed-in tariff policy as well proposed legislation limits total contribution to only 500 MW, well below the one percent cap in the I&PL proposal.

Though IP&L’s proposal is another marker in the development of feed-in tariff policy in North America, the program is unlikely to result in any significant renewable development outside a few “show case” projects.

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