Feed-in tariffs

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.

Germany

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.

Australia

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

  • New South Wales: a gross FiT scheme known as the Solar Bonus Scheme commenced on 1 January 2010 and will operate for 7 years. Under the initial scheme, qualifying solar power systems received 60 cents per kilowatt hour of electricity fed into the grid, but the scheme has now been 'revamped’ and offers only 20 cents per kilowatt hour to new participants. The scheme closed to new applicants on 29 April 2011, and the Government announced that customers already on the 60 cents per kilowatt hour scheme will have their rate reduced to 40 cents.
  • South Australia: the Solar Feed-In Scheme came into effect on 1 July 2008 and will operate over a 20-year period. Since its start, an increased tariff of 54 cents per kilowatt hour is available for some electricity fed back into the South Australian electricity grid from a solar photovoltaic system. This is only a net tariff, rather than a tariff paid on the entire production of a solar power system.
  • Victoria: from 1 November 2009, a premium feed-in tariff of 60 cents per kilowatt hour is 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 is a net FiT that will run for 15 years. 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 electricity 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 (net FiT) 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 was paid for all electricity generated from systems up to 10 kilowatts in size. Systems from 10 kilowatts to 30 kilowatts in size were 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. Since 1 July 2010, and until 30 June 2011, 45.7c are 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, its planned closure.
  • Tasmania: the Government will be mandating a net FiT for systems up to 3 kilowatts paid at a rate equal to the normal purchase price of electricity to standard Aurora customers. More details of the scheme, which is set to commence sometime in 2010, are not yet available.
  • Northern Territory: Power Water Corporation provides domestic customers a gross FiT of 19.23 cents (this may change) and existing participants in the Alice Solar City project receive a gross FiT of 51.28 cents capped at $5 per day (this may also change).
  • Western Australia: a net FiT scheme commenced on 1 August 2010, offering 40 cents per kilowatt hour. From 1 July 2011, the FiT will be reduced to 20 cents per kilowatt hour for new applicants.

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 energy target.



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