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
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,
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,
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
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
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
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
At the March 2008 Council
of Australian Governments’ meeting it was agreed that
Australia would have a harmonised approach to FiTs. However, little
progress on a national level has been made since. Australian Greens
Senator Christine Milne tabled a petition on 24 June 2009 with over
17 000 signatures supporting a national gross FiT scheme. On
the same day, Independent MP Rob Oakeshott introduced Senator
Milne's Private Member Bill on FiTs into the House. Then Prime
Minister Kevin Rudd
indicated that discussions on a national FiT will take place in
the context of how it could potentially dovetail with the renewable
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