Last month, the Sacramento Municipal Utility District announced a feed-in tariff (FIT) program that is intended, as SMUD says in a press release, to streamline “buying electricity fed into its distribution system from eligible generation units at customer sites.”

SMUD’s FIT plan is in some ways broader and potentially easier to scale up than the FIT program implemented by the California Public Utilities Commission in February 2008 (the PUC program does not include SMUD customers). The SMUD FIT proposal would, for example, apply to projects generating up to 5 MW each and the overall program is capped at 100 MW, which is relatively high considering that SMUD serves only about 1.4 million customers in a state with 36 million people.

The per-project cap for the PUC FIT program, by contrast, is 1.5 MW and the program cap is just under 500 MW, even though the program serves a much larger customer base, including public water and wastewater facilities and non-water and non-wastewater facilities served by San Diego Gas and Electric, Southern California Edison, and Pacific Gas and Electric.

In an overview of the SMUD program published this week by Renewable Energy World, FIT expert Paul Gipe cited perspectives offered by several colleagues in the field. One, Craig Lewis, a founding member of FIT Coalition, a national advocacy group, noted that “the fact that SMUD raised the project size limit to 5MW is indicative that they believe distributed generation projects can be seamlessly integrated into the distribution grid in California.”

Targeting renewable energy and fossil fuel projects

Lewis points out, for example, that SMUD’s 100 MW target would, if scaled up to address the entire state, jump to almost 3,000 MW, which happens to be the solar PV limit for the California Solar Initiative, a statewide campaign that, through rebate programs, encourages installation of high-performance PV systems.

SMUD’s FIT program, however, covers not only solar power but all technologies, including small-scale fossil-fuel generation plants. It sets higher prices for power produced from renewable sources like solar and biogas, but also will award FIT contracts to combined heat and power (CHP) generators, which use fuels such as natural gas but boost plant efficiency by utilizing waste heat for onsite applications.

Pending regulatory approval, the SMUD program is scheduled to launch in January. Contract terms are 10, 15, and 20 years.

A potential weakness in the plan, which Lewis and other analysts homed in on in Gipe’s overview, is that SMUD’s FIT rate structure is based on the “value” of the power generation to SMUD – a rate structure that is among the most complex in the FIT realm, with 216 different payment rates for different seasons, times of day, contract lengths, and starting year, remarked renewable-energy consultant Robert Freehling.

More critically, the rate structure should be cost-based rather than value-based, analysts say. FIT Coalition’s Lewis calculates the average payout per kilowatt hour will be in the neighborhood of 17 cents – a rate of return unlikely to be generous enough to make participation worthwhile for most prospective investors.

Power pricing

Setting rates appropriately does appear to be one of the more challenging aspects of developing a serviceable FIT program. Vermont’s renewable-energy FIT program, the Vermont Energy Act of 2009, which became law in May, features “standard offer” rates that are subject to adjustment by the Vermont Public Service Board.

And in Florida, the FIT program run by Gainesville Regional Utilities, a plan developed for PV system owners, pays a relatively generous 32 cents per kWh.

Whether SMUD’s rate structure will show signs of progress by the end of 2010 or suffer from slow growth remains to be seen, but it almost certainly will provide useful information on what makes FIT programs viable and what elements need refinement.