What Are The Feed-In Tariffs?

The feed-in tariff (FIT) is a policy mechanism designed to accelerate investment in renewable energy sources by encouraging electricity generation from such sources and rewarding it. It has been an important and effective support for many types of renewables, especially wind power and solar PV, including other sources such as fuel cells, small hydro, and biomass.

The policy guarantees that the national or regional electricity company will buy all electricity produced by accredited renewable generators at an agreed price for a specific period.

Factors Affecting Feed-In Tariffs

Many factors influence whether FIT policies result in global sustainable development, including what kinds of technology are supported, where they are located, how successful they are at bringing new technologies to market, and how effective they are at reducing greenhouse gas emissions without increasing other environmental impacts.

Every energy provider needs to consider this, and businesses should be too. The best way to compare electricity providers is to use online comparison tools. They can help businesses determine which providers adhere to FIT policies.

Worldwide deployment of renewable sources has led to concerns regarding their use being dependent on subsidies and that the overabundance of generation has led to lower electricity prices. As a result, there is an ongoing debate about whether feed-in tariffs (FiTs), in particular and other forms of subsidies for renewable energy sources (RES), are excessive.

Another factor affecting Feed-in Tariffs is whether they are one-time or multi-year incentives. While the lure of guaranteed long-term cash flow might seem like incentive enough for some, it is essential to remember that renewable FITs typically expire after 20 years.

The period makes multi-year FITs a considerably less dangerous place for renewables investors because there’s no talk about whether governments will subsidize the technology for another two decades.

Future of Feed-in Tariffs

Today, most publicly supported FITs have been reduced or eliminated. In some regions, such as Australia and most of Europe, strong supporters admit that they will not meet future RES targets and perhaps never be competitive without additional changes.

Some countries and regions have introduced auction systems where FiTs do not play a role in awarding contracts but instead set a price floor for each type of technology via an implicit bidding process.

The new auction systems all include caps on the total amount that can be awarded. As of January 2014, FiTs are still found in 34 countries across Europe and Asia that are home to 43 percent of the world’s population.

China has gone from being a FIT skeptic to one of its most aggressive supporters, with nearly 75 GW committed since 2007, enough for roughly 20 percent of all global installations during that period. The Chinese Government intends for this momentum to continue until at least 2020, when it hopes to reach 200 GW.

Earlier this year, China approved changes to their FIT program, which will provide price bonuses for offshore wind energy projects.

Feed-in Tariffs and Renewable Energy

Feed-in tariffs are an essential part of the renewable energy movement, but quotas and feed-in premiums are sure to play a more prominent role in the future. Norway, for example, has successfully implemented both types of policies.

By introducing annual quotas that guarantee RES producers a certain level of revenue over 20 years, the Norwegian Government could help its 23 TWh renewable energy industry grow into a much larger market within six years.

For companies looking to make money off their investments without worrying about legal changes allowing for the expiration of subsidies or other forms of policy reform affecting their paychecks, this kind of stability makes all the difference in where they choose to put their money. Feed-in tariffs have been a popular policy tool to encourage renewable energy deployment.

Countries that have adopted the FIT approach have been rewarded with some enormous growth in their renewable energy industries, along with accelerating grid parity for renewables. FiTs are still the leading subsidy offered worldwide and are likely to remain so for several decades.