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In the last year, Feed-in Tariffs (FITs) have moved from “speculation to reality in North America,” writes Tim Schneider of Pierce Atwood’s renewNewEngland.com blog.  New FITs have been implemented in Hawaii, Oregon, Vermont, California, and Ontairo as well as local jurisdictions like Gainesville, Florida.

In Feed-in Tariffs: The Good, the Bad and What Utilities Need to Know, I explained:

A FIT is a legislative tool used to encourage the adoption of renewable energy by overcoming the expensive upfront costs of installations.  It goes something like this: renewable energy generation systems are built, utilities pay an (inflated) fixed price for the electricity produced, the price of the tariff decreases each year until ultimately, the renewable technology “stands alone” at the end of a predetermined feed-in period.

The primary goal of FITs is to encourage investment in renewables by smaller utility customers who then operate as distributed generators.  Imagine a distributed generation network of roof-top solar panels, wind turbines on farms, and fuel cells across a community — generated electricity (or stored excess) is sold back to the grid at a fixed cost guaranteed by the utilities.  With the introduction of smarter grid apps and innovative aggregation models, the business and economic benefits associated with distributed generation increase.

“Purists,” renewNewEngland.com explains, “will note that FITs in the US are actually old news, citing PURPA, which partially explains why US policymakers are reluctant to try anything that sounds like fixed price, long term contracts for renewable energy.”  An NREL report (PDF) released in early 2010 explores the emerging conflict between FIT programs popping up around the country and established legal traditions.

According to the report, state-level feed-in tariffs are mandates insofar as state’s require utilities to buy wholesale electricity from renewable sellers at standard prices, terms, and conditions.  The report explains:

States wishing to enact this mandate have encountered legal uncertainty because wholesale sales of electricity are subject to one of two federal statutes:  PURPA or the Federal Power Act of 1935 (FPA).  Under certain circumstances, each of these federal statutes ”preempts” state statutes and regulations.

In other words, state FITs may, in some cases, be preempted by federal law, which creates considerable uncertainty for state regulatory agencies and legislatures when crafting FIT legisltion.  According to the report, as analyzed by renewNewEngland.com, under current law:

A state cannot simply require a utility to purchase electricity from a seller at specified prices for a specified duration (the essence of a FIT) without conforming its actions to the mandates of PURPA.  At the very least, this complicates – and may ultimately frustrate — any effort to enforce a FIT.  Moreover, ‘given the FPA’s requirements, a state-level feed-in tariff, as defined above, outside of PURPA, is not legally possible in the United States today.’

The report offers two prospective paths for states to implement FITs consistently with federal law:

1. States may rely on the utility’s PURPA purchase obligation
2. States may rely on state law independent of PURPA (but that is still subject to the FPA)

The difficulty revolves around the extent to which these established federal laws hinder state development of FIT programs to encourage the integration of sources of renewable energy like biomass, which advances state efforts to meet renewable portfolio standards.  Certainty with regards to the interplay between state FIT action and federal laws will go a long way in enabling the expansion of renewable power in the United States.

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