When people talk about progress in the areas of clean energy they typically focus on technology issues. But even the best technology can’t overcome limitations imposed on renewable resources in the design of energy markets. Feed-in Tariffs and Net Metering are energy market features that provide great incentives for producers of renewable energy.

A Set Price For Production

A feed-in tariff sets a flat rate that a utility must pay someone who generates renewable electricity. Feed-in tariffs allow small producers of renewable energy a certain return on investment without the volatility of wholesale and retail market pricing.

Germany is well known as an early mover in the creation of feed-in tariffs. Germany’s tariff is widely believed to be the reason that they are now the world leader in solar powered energy production. In February of 2008,The State of California approved a feed-in tariff applicable for up to 480 megawatts of renewable energy created by small producers.

On June 11, 2008 Rep. Jay Inslee announced that he would be introducing a bill that would establish a federal feed-in tariff in the United States.

Feed-in tariff legislation is not a slam dunk by any stretch of the imagination. Because the rates paid under these tariffs are set higher than standard energy prices, they are effectively subsidized by the utilities who purchase the power. Those utilities may pass the extra costs related to the tariff on to their customers.

Balancing Production And Use

Net metering rules allow small producers of renewable energy to offset their use of energy with production from their renewable generators. Under these rules production of energy effectively rolls back the meter so that the producer is ultimately charged (or paid) for the net of their production and use. This type of pricing scheme is especially effective for small energy producers who consume more power than they generate.

The EIA reports that over 34,000 customers in the U.S. utilized net metering programs in 2006 with the vast majority (about 75%) of these customers located in California. The number of customers accessing net metering programs represents about 1% of all the customers in the United States. Net metering rules are implemented at the state level vary widely from state to state.

While net metering seems to be a very beneficial aspect of a retail electric market there are some potential drawbacks to these schemes. According to the EERE, “Net metering has the potential to be a bad deal for utilities. If market penetration of solar and other renewable energy-powered buildings becomes substantial, utilities are likely to become concerned with revenue losses.”

Common Technology Issues

The electric meter is the common technology element that is important to both of these programs. In order for these programs to work effectively a customer must have a meter that can either register produced power or effectively spin backwards in order to provide the net of consumption and production. In some cases the meter must register supply and demand time-stamped at different times of day. I plan to explore advanced metering technology and its effect on clean energy in future posts.