A feed-in tariff (FiT) is a premium rate paid for electricity fed back into the electricity grid from a designated renewable electricity generation source. At present, feed-in regulations for renewable energy exist in over 40 countries, states or provinces internationally, all involving the payment of a premium for the electricity fed into the grid from a variety of renewable energy sources.
FiTs can be applied in two forms:
- a gross FiT - whereby all electricity generated from a renewable source is purchased from the generator at a generous price, with the generator buying-back any electricity they need to use from the grid, or
- a net FiT - whereby only unused or surplus electricity is purchased from the generator.
Either of these FiTs can be applied as a static subsidy, or can gradually decrease over time to promote innovation.
Pros and cons
FiTs have a number of problems, including:
They are a subsidy and as such impose a higher cost on the economy, especially on energy consumers.
They do not appear to be effective at encouraging the use of other forms of renewable energy, apart from wind and solar, although natural endowments of a country also strongly influence the choice of renewable energy sources.
- If set at too high a rate a FiT may result in higher than justified profits for equipment producers.
FiTs are usually fixed by government bodies, which may have difficulties in finding up-to-date information on production costs and alternative technologies. Therefore, governments or their agencies may find it hard to fix the right tariff to avoid some of the above problems.
- If the FiTs are not set at a competitive level they are incompatible with competitive national electricity markets.
These problems noted, FiTs have numerous advantages, including:
They are very effective in increasing the amount of electricity generated from wind and solar.
They encourage the geographically widespread deployment of alternative power generation. This minimises the problems of the geographic concentration of such facilities.
They spread the burden of adjusting the mix of energy generation across all consumers via a higher than otherwise overall electricity charge. The costs of adjustment are not just confined to governments and those individuals and firms who install alternative electricity generation equipment.
They are simple to administer.
They may promote new industrial activity in areas where such tariffs are introduced.
- The problems in stimulating innovation involved with static tariffs can be met with an initially high, but gradually decreasing, tariff.
Who has them?
The first instance of the introduction of feed-in laws was in the United States in 1978. This remained the sole example of such legislation up until the early 1990s when the concept caught on in Europe at the same time as the USA was phasing out its laws. Countries such as Denmark, Spain, Italy, Switzerland and Greece implemented feed-in policies between 1990 and 1994, and similar measures were adopted in India, Sri Lanka, Thailand, Latvia and Slovenia towards the end of the decade. More recently, places as diverse as India, Kenya, the Philippines, Poland and China have been added to the list.
Table R10 on page 26 of the Renewable Energy Policy Network for the 21st Century (REN21) Renewable Energy Status Report (2009 update) shows which countries have adopted FiTs up until early 2009.
Possibly the most famous, comprehensive and successful instance of feed-in laws would be those introduced and modified in Germany over the past 17 years. The German government introduced the Electricity Feed Act 1991 in 1991. This scheme was expanded and enhanced with the adoption of the Renewable Energy Sources Act of 2000, which has been responsible for the dramatic growth in Germany's renewable energy market and the solar photovoltaic industry in particular. From 2000 to 2005 there was a seven-fold increase in installed solar photovoltaic (PV) capacity to over 1500 megawatts.
In 2004, the German government introduced the first large-scale FiT system, under a law known as the 'EEG' (Erneuerbare Energien Gesetz) which resulted in explosive growth of PV installations in Germany. The system also applies to wind, biomass, hydro and landfill/sewage generated electricity.
At the outset the feed-in tariff was over three times the retail price or eight times the industrial price. The principle behind the German system is a 20 year flat rate contract.
The EEG implemented two important and innovative features:
Degression of tariffs—new installations receive lower tariffs. From 2003 on, new installations receive tariffs that are lowered for the following years. This is to retain the incentive for manufacturers to systematically reduce production costs and to offer more efficient products every year.
Stepped nature of tariffs—the tariffs for the different technologies defined in the Act are determined based on the yield and generation costs of each particular plant. This feature is especially important for wind energy but applies to other renewable energy systems as well.
At the March 2008 meeting of the Council of Australian Governments (COAG), it was agreed that COAG would consider options for a harmonised approach to FiTs later in the year. At the November 2008 meeting, COAG agreed to a set of national principles to apply to new Feed-in Tariff schemes, which were aimed at promoting consistency across the country.
As at December 2011, FiTs have been introduced or are under consideration in the following states and territories:
New South Wales: a gross FiT scheme known as the Solar Bonus Scheme started on 1 January 2010 and will operate for 7 years. Initially, qualifying solar power systems received 60 cents per kilowatt hour (kWh) of electricity fed into the grid. The scheme closed to new applicants on midnight 28 April 2011.
NSW currently offers consumers a net and gross metered approach for small scale solar PV installations. Under the net approach consumers utilize the electricity they generate from their PV unit, as required, and any surplus is fed back into the grid. The energy retailer buys this surplus electricity at an agreed rate (each retailer offers different rates), typically in the range of 6 to 8 cents per kWh. Conversely, under the gross approach, all of the electricity generated by the consumer is fed back into the grid, with the retailer buying it off the consumer at the agreed rate (same rates and conditions apply as described for the net approach). The consumer then buys electricity off the grid in the normal way.
South Australia: there are five categories to the solar feed-in scheme operating in SA. The scheme is only available to customers that consume less than 160 megawatt hours (MWh) per annum.
- Customers that have received approval to connect a PV system to the grid by 31 August 2010 and the PV system has been fully installed (including import/export meter) by 29 January 2012, are entitled to 44 cents per kWh exported to the grid, until 30 June 2028.
- Customers that have received approval to connect a PV system to the grid between 1 September 2010 and 30 September 2011 and the PV system was fully installed (including import/export meter) by 30 September 2011, are entitled to 44 cents per kWh exported to the grid, until 30 June 2028. This is subject to the following conditions:
- FiT payment is limited to the first 45 kWh exported to the grid each day.
- A maximum of one PV system per customer connected to the grid will receive the FiT.
- The PV system must not be installed for the dominant purpose of making profit, so systems should be installed at locations where you normally use the most electricity.
- Same as category 2 except the import/export meter is still to be installed. A booking must be made with the ETSA Utilities within 120 days of 1 October 2011 to have an import/export meter installed.
- Customers that have received approval to connect a PV system to the grid between 1 October 2011 and 30 September 2013 and have a PV system fully installed, or a booking made with ETSA Utilities to have an import/export meter installed within 120 days of 1 October 2013, are entitled to 16 cents per kWh exported to the grid until 30 September 2016. This also includes the conditions as outlined in category 2.
- Customers that have received approval to connect a PV system to the grid after 30 September 2013 will receive no FiT, but will be eligible to receive a minimum retailer payment from the electricity retailer they have a contract with. The exact amount of the minimum retailer payment will be determined by Essential Services Commission of South Australia (ESCOSA) by the 29 January 2012.
Victoria: the FiT schemes in Victoria are currently under review with the results of the review expected in 2012. There are currently three FiTs schemes operating in Victoria, a Premium Feed-in-Tariff, a Transitional Feed-in-Tariff, and a Standard Feed-in-Tariff.
The Premium Feed-in-Tariff was introduced in late 2009 and is open to eligible customers that have submitted their application to their electricity supplier by 30 September 2011. The Premium Feed-in-Tariff offers 60 cents per kWh for excess generated electricity fed back into the grid from small scale solar systems, up to 5 kilowatts (kW). Customers who have signed up to the Premium Feed-in-Tariff will continue to receive this rate until 2024.
The Transitional Feed-in-Tariff will replace the Premium Feed-in-Tariff and is available from 1 January 2012. It offers customers with a small scale solar system (up to 5 kW) 25 cents per kWh for excess electricity fed back into the grid until the end of 2016. The scheme has a cap of 75 MW of installed solar systems.
The Standard Feed-in-Tariff is available to customers generating up to 100 kW from any type of renewable source (solar PV, wind, hydro or biomass) and customers who sign up will receive a one for one rate for their excess electricity fed back into the grid. It is available to eligible households until 31 December 2011 for solar PV systems up to 5 kW but will remain open for solar customers whose solar PV capacity is greater than 5kW and up to 100 kW.
Queensland: the Solar Bonus Scheme started on 1 July 2008 and will be offered until 2028, with a review scheduled after 10 years or until 8 MW of solar power systems are installed. Customers who consume no more than 100 MWh of electricity per year with a solar photovoltaic system up to 10 kW (for single phase power) or 30 kW (for three-phase power) in size are paid 44 cents per kWh for surplus (net FiT) electricity fed back into the grid. On 10 May 2011 the Queensland Government announced a change to the scheme, establishing a cap of 5kW for eligible PV systems.
Australian Capital Territory: from 1 March 2009 until 30 June 2010 a gross FiT of 50.05 cents per kWh was paid for all electricity generated from systems up to 10 kW in size. Systems from 10 kW to 30 kW in size were paid 40.04 cents per kWh. The prices are set annually but, when entering a scheme, an individual agrees to the price prevailing at the time of agreement for the full 20 years of the contract. Since 1 July 2010, and until 30 June 2011, 45.7c was being paid per kWh for all systems up to 30kW. Since 17 February 2011, the ACT government has established a number of changes to the scheme and then, on 1 June 2011, announced its planned closure.
Tasmania: the electricity FiT scheme offered in Tasmania is a gross FiT scheme which pays a one-to-one rate per kWh for electricity generated. It is offered to all grid-connected renewable energy installed systems provided they meet the following eligibility rules:
- Be an Aurora electricity customer.
- Use an Aurora preferred or Clean Energy Council accredited renewable energy supplier to install the renewable energy system.
- Connect a renewable energy system of up to 3 kW in capacity.
Northern Territory: Power Water Corporation provides domestic customers a gross FiT of 19.77 cents (this may change—it is on a one to one basis) and existing participants in the Alice Solar City project receive a gross FiT of 51.08 cents capped at $5 per day (this may also change).
Western Australia: a net FiT scheme, which started on 1 August 2010, offers 40 cents per kWh. From 1 July 2011 the tariff reduced to 20 cents per kWh for new applicants, and then on 1 August 2011 the FiT scheme was suspended, and no new applicants accepted. The WA government said that the scheme had reached its quota. Existing FiT customers will continue to receive their FiT for the remainder of their 10 year payment period.
21 December 2011