Feed-in tariffs

• 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 a government body, which are prone to difficulties in finding up-to-date information on production costs and alternative technologies. Therefore, they generally 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.

• 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.

In Australia, FITs have been introduced or are under consideration in:

• New South Wales—a FIT scheme known as the Solar Bonus Scheme was confirmed on 10 November 2009 to commence on 1 January 2010 and operate for 7 years. Under the scheme, which is a gross FIT, solar power systems up to 10 kilowatts in size with a maximum 160 megawatt-hours electricity consumed per annum will receive 60 cents per kilowatt hour of electricity fed into the grid.
• South Australia—the Solar Feed-In Scheme came into effect on 1 July 2008 and will operate over a 20-year period. A tariff of 44 cents per kilowatt hour is available for electricity fed back into the South Australian electricity grid from a solar photovoltaic system. Like NSW, this is also only a net tariff, rather than a tariff paid on the entire production of a solar power system.
• Victoria—from late 2009, a premium feed in tariff of 60 cents per kilowatt hour will be available for small-scale producers with solar photovoltaic systems smaller than 5 kilowatts in size and with energy consumption of less than 100 megawatt-hours a year. It will run for 15 years after the scheme commences. This complements the existing standard feed-in tariff which pays the standard retail rate to excess power fed back to the grid for renewable energy systems up to 100 kilowatts in capacity.
• Queensland—the Solar Bonus Scheme commenced on 1 July 2008 and will be offered until 2028, with a review scheduled after 10 years or until 8 megawatts of solar power systems are installed. Customers who consume no more than 100 megawatt-hours of electricty per year with a solar photovoltaic system up to 10 kilowatts (for single phase power) or 30 kilowatts (for three-phase power) in size are paid 44 cents per kilowatt hour for surplus electricity fed back into the grid.
• ACT—from 1 March 2009 until 30 June 2010 a gross FIT of 50.05 cents per kilowatt hour will be paid for all electricity generated from systems up to 10 kilowatts in size. Systems from 10 kilowatts to 30 kilowatts in size will be paid 40.04 cents per kilowatt hour. The prices are set annually, although when entering a scheme, an individual agrees to the price prevailing at the time of agreement for the full 20 years of the contract. For information see the ACT Government factsheet.
• Tasmania—a discussion paper is being considered by the Tasmanian Government. Submissions closed in November 2008.
• Northern Territory—the Alice Solar City project involves a gross FIT of 45.76 cents per kilowatt hour for all electricity generated, which increased to 49.92 cents on 1 July 2009.

• Western Australia—a gross FIT scheme was proposed during the most recent election campaign. However, a net FIT scheme is now being proposed with a prospective start date of 1 July 2010.