Feed-in Tariff Totally Explained

Everything about Feed-in Tariff totally explained

A Feed-in Tariff (FiT, FiL, Feed-in Law or solar premium) is an incentive structure to encourage the adoption of renewable energy through government legislation. The regional or national electricity utilities are obligated to buy renewable electricity (electricity generated from renewable sources such as solar photovoltaics, wind power, biomass, and geothermal power) at above market rates set by the government The higher price helps overcome the cost disadvantages of renewable energy sources. The rate may differ among various forms of power generation.

History

This type of program was first implemented in the USA in 1978, but it's the German model, that begun in 1990 ("Stromeinspeisungsgesetz") and refined in the year 2000 ("Erneuerbare-Energien-Gesetz") when it became a Federally managed program that has proven to be the world’s most effective practice for boosting adoption of renewable energy technologies. Feed-In Tariffs (REFIT) have been associated with a large growth in wind power in Spain, Germany and Denmark. These countries now boast the supply of 9%, 5% and 20% of their electricity respectively. These systems involve fixed payments that are guaranteed in the long term; 20 years in the cases of Spain and Germany.

Principle

In the effort to combat climate change, the increased deployment of renewable energy sources is regarded by many as critical. One major obstacle to this adoption is the retail price of electricity generated from renewable sources, which is typically more expensive than the retail price of electricity generated from fossil fuels. A FiT is a revenue neutral way of making the installation of renewable energy more appealing. The electricity that's generated is bought by the utility at above market prices. For example, if the retail price of electricity is 10¢/kWh then the rate for green power might be 40¢/kWh. The difference is spread over all of the customers of the utility. For example, if $100,000 worth of green power is bought in a year by a utility that has 1,000,000 customers, then each of those customers will have 10c added on to their bill annually.
Thus, a small annual increase in the price of electricity per customer can result in a large incentive for people to install renewable energy systems. This is the essence of a FiT: it's a mechanism to instigate a change in the way power is produced, gradually shifting from present polluting means to non-greenhouse methods.

Policy Alternatives to Feed-in Tariffs

Schemes such as quota incentive structures (renewable energy standards or renewable portfolio standards) and subsidies create limited protected markets for renewable energy. The supply of renewable energy is achieved by obliging suppliers to deliver to consumers a portion of their electricity from renewable energy sources. In order to do this they collect green electricity certificates. Hence a market is created in green electricity certificates which, according to the theory, generates downward pressure on the prices paid to renewable energy developers. This is based on the theory of perfect competition where there's a multiplicity of buyers and sellers in a market where no single buyer or seller has a big enough market share to have a significant influence on prices. Although, in practice, markets are very rarely perfectly competitive, the assumption is still that a relatively competitive market will produce a more efficient use of resources compared to a system where prices are set by Government fiat.
The fundamental problem with the quota scheme is that there's no long-term certainty. When a quota is set either for a period of time or for a quantity of power, once that goal is reached then there's nothing to keep the green power producers from becoming uneconomic in the face of power produced from coal fired power stations and hence collapsing as businesses. This inevitability with the quota method means that there's reluctance on behalf of investors to get involved in the first place. Those that do get involved are short-term speculators rather than long-term entrepreneurs and so instability is inherent in this system.
It has been argued that FiT is the most effective way to promote the uptake off renewable energy yet devised. After investment subsidies it's the most widespread means of promoting renewable energy uptake in Europe.

Green certificates

Activists such as Paul Gipe have argued that green certificate schemes disadvantage local ownership.

Netmetering

The introduction of FIT is usually preceded by legislation for net metering and dropping the requirement of a separate powerline.

Feed-in Tariff by territory

Feed-in tariff laws were in place in 46 jurisdictions across the world by 2007.

Germany

Erneuerbare-Energien-Gesetz (EEG) law, first introduced in 1990.

Spain

Spanish feed-in legislation (Real Decreto 661/2007)

United States

California

The California Public Utility Commission (CPUC) has approved a feed-in tariff on January 31, 2008 which is effective immediately.

Australia

At May 2008, feed-in laws had been passed in South Australia and limited provisions in Victoria. Proposals were before Parliaments in Queensland and the ACT.

South Australia

Electricity (Feed-in Scheme - Residential Solar Systems) Amendment Bill 2007 inserted provisions into the Electricity Act 1996. Applies only to solar PV. Net export payment method (for example gross production – household load = net export) limits the incentive provided.

Australian Capital Territory

Electricity Feed-in (Renewable Energy Premium) Bill 2008 is under consideration by the Legislative Assembly.

Further Information

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