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Martin Laplante

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Wed, 12 Sep 2007

What's Best for Renewables, Merton Rule or Feed-In Tariff?

A debate is on in Britain, which invented the Merton Rule, as to whether a feed-in tariff is better at improving the supply of renewables.

A few definitions. The Merton rule is a planning law, first introduced in the London suburban borough of Merton, that says that all new larger-scale development must provide at least 10% of its energy using onsite renewable sources. This typically means solar, but sometimes wind or geothermal. Because this technology can get expensive, developers also do their best to reduce energy use, so that the renewables portion is 10% of a smaller number. A large number of jurisdictions in Britain have gotten on this bandwagon. Since 2005, 90 have adopted the Merton Rule in draft or final Local Development Framework documents.

But more recently, some believe that a better instrument to promote renewables is a feed-in tariff, which promotes larger-scale economically viable projects. A feed-in tariff is essentially an agreement for a utility to purchase renewable electricity at a price that is a lot higher and conditions that are a lot looser than when they buy other sorts of electricity. Essentially, someone with a small generation capacity can sell their surplus power to the public utility when they have too much and buy some back from the utility when they have too little.

Ontario has feed-in tariffs and their system for connecting micro power generating sources and for net metering is quite sophisticated and successful. It has the advantage that the powers-that-be need not worry about financing and approving anything beyond the interconnection to the grid. Of course, everyone realizes that the utility is buying power at a high price when it least needs is and that they can not count on it being a reliable source, but that is not the point of it. The point is that these small producers are using their own power and so the utility does not need to produce as much, even at peak. The purchase of surplus power is just a way to help with the financing, but without putting in any money up front.

This is different from the Merton Rule. The Merton rule does not require any interconnection. For a feed-in tariff to be effective, a project should provide at least 100% of its own electricity, give or take, so that it has a surplus. Then and only then is there an incentive. At 10% as the Merton rule says, the project is financed by its own energy savings alone. It is more of a stick than a carrot, but it is a cheap way to get architects thinking and for developers to have to care. In the end, it's not that difficult. Canadian Tire sells solar or solar-wind kits that can easily supply 10% of your power for a few thousand dollars, and 100% for $20,000 and there are tax incentives to make it even more attractive. They even have a cool ROI calculator for grid-connected systems.

The two types of policy instruments are completely different. One can not replace the other. Is 10% a little arbitrary? Yes, but it's a practical way to force development into an appropriate mindset, at little cost to anyone. As for feed-in tariffs, they are essential to a burgeoning renewable strategy. Once renewable micro-generators become a larger percentage of the mix, other tools must be added to preserve the stability of the grid, like vehicle-to-grid systems that take advantage of the big batteries in hybrid and electric cars.

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