Most FIT contracts worldwide last for terms of 20 years or longer. Spanish contracts, for example, are guaranteed for 25 years, with extensions at a reduced payment for even longer. FIT contracts for hydro generation in Ontario, on the other hand, are in place for 40 years.
Louisiana’s extremely short contract term may make the proposal moot as it will be nearly impossible to finance projects for such short periods at the low tariffs offered.
Of particular interest is the approach used to define the tariff, avoided cost plus a premium to represent the environmental benefits, which are valued at USD$0.03 per kilowatt hour (kWh).
Another novel element is passing the costs on to ratepayers through the fuel adjustment clause, an approach normally used for increases in the cost of fossil fuels. In this case, the PUC’s "standard offer tariff" is truly a standard offer as the tariff is undifferentiated by size, technology, or resource intensity. At the end of the five-year period, the tariff reverts to avoided cost.
Below is summary of the FITs key elements:
- Avoided cost, plus USD$0.03 per kWh
- Limited by ceiling and floor prices (Floor price: USD$0.06 per kWh; Ceiling price: USD$0.12 per kWh)
- Contract term: five years
- Program cap: 30 megawatts (MW) per utility
- Cost recovery through fuel adjustment charge
- Project size limit: five MW
- Minimum project size: 25 kW
Utilities may avoid offering any standard offer contracts by building three renewable energy projects themselves. Each of the three projects can be no more than 300 kW. One of the three projects can be up to five MW in size.