REPP – Renewable Energy Purchase Price
Here are some points to outline a proper policy to expand the use of renewables, grow the economy, increase jobs, and generate profit for both the utility and investors.
1. Utility companies (Dominion and COOPs) must be allowed by the SCC to purchase renewable energy for resale at a rate which provides profit margin for the utility and for the owner/investor of the renewable energy power plant. A suggested rate is the REPP plus 10%.
2. An 8% IRR is acceptable for renewable energy power plants using market pricing minus 20% as a benchmark. This is meant to drive prices down.
3. Production based incentives are the only acceptable method for implementation. This prevents implementation of low quality materials or roughshod workmanship which fails several years after construction. Higher quality products ensure long term returns (solar production values are currently warranted for 25 years, however the life cycle of the products can exceed 50 years with annual maintenance).
4. The rate at which renewable energy is purchased must scale downward annually in order to push costs of renewables down in the marketplace.
5. Implementation of a REPP will build the infrastructure and knowhow in the marketplace to meet the future demand in the state for renewable energy. This will decrease the cost of implementation for the utility companies in high demand areas, and accelerate the rate at which grid parity can be reached through declines in REPPs until the REPP is equal to or less than retail energy rates. At this point, the program should be restructured to a net metering program.
6. REPPs must be applicable to all grid connected power plants.
7. All grid connected systems must sell power to the utility at the REPP rate and purchase power at retail energy costs. This can be altered through utility bill reductions equivalent to the retail power cost in the payment to the power plant owner (provided that the power plant is attached to a property which consumes power).
8. The federal tax credits expire in 2016 (provided that it is not eliminated in the next budget), however the grant in lieu of tax credit , and accelerated depreciation schemes expire at the end of 2011, and with current budget concerns in congress, it is not likely that these programs will be extended.
9. The cost of REPP implementation should be spread over the entire customer base. According to current market conditions, the increase of cost for retail power per MW of capacity added in the first year of implementation is $0.000036 (36 ten thousandths of a penny) (or 36 millionths of a dollar). Market caps can be established early in the implementation phase. Although, if the REPP is structured to prevent profitability which is too attractive, then market caps will not be necessary.
10. The REPP structure is akin to the German Feed in Bonus (Einspeisevergütung) which has added roughly 2 EURO per month to rate payers – currently the installed solar capacity in Germany is 17.5 GW. The country spurred the development of the solar industry through the use of this program. A REPP program would be the beneficiary of the early German investment due to the late nature of its implementation. Cost drops have already occurred, and with markets rapidly shrinking, manufacturers are looking for new markets to expand into with lower pricing. The prospect of module manufacturers closing doors is very real, and without new markets to absorb product the pricing will go upward rather than staying on a downward trend. Historically, the solar industry has dropped in price by 20% for every doubling of manufacturing capacity. A shrink in manufacturing capacity due to closing markets would result in price increases across the industry.
James Huff, CEO
abakus solar USA, Inc.