A Feed-in Tariff (FiT, FiL, Feed-in Law or solar premium[1] is an incentive structure that boosts the adoption of renewable energy through government legislation. The regional or national electricity utilities are obligated to buy ‘green’ electricity (electricity generated from renewable sources such as solar photovoltaics, wind power, biomass, and geothermal power) at above market rates. This difference in price covers the cost disadvantages of adopting renewable energy sources and the rate differs between the different forms of power generation.
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History
This type of program was first implemented in the USA in 1978, but it is the German model, that begun in 1990 ("Stromeinspeisungsgesetz")[2] and refined in the year 2000 ("Erneuerbare-Energien-Gesetz") when it became a Federally managed program that has proven to be the world’s most effective practice for boosting adoption of renewable energy technologies. Feed-In Tariffs (REFIT) have been associated with a large growth in wind power in Spain, Germany and Denmark. These countries now boast the supply of 9%, 5% and 20% of their electricity respectively. These systems involve fixed payments that are guaranteed in the long term; 20 years in the cases of Spain and Germany.
Principle
In the effort to combat climate change, the adoption of renewable energy sources has proven critical. One major obstacle to this adoption is the retail price of electricity generated from renewable sources, which is typically more expensive than the retail price of electricity generated from fossil fuels. A FiL is a revenue neutral way of making the installation of renewable energy more appealing. The electricity that is generated is bought by the utility at above market prices. For example, if the retail price of electricity is 10¢/kWh then the rate for green power might be 40¢/kWh. The difference is spread over all of the customers of the utility. For example, if $100,000 worth of green power is bought in a year by a utility that has 1,000,000 customers, then each of those customers will have 10c added on to their bill annually. Thus, a small annual increase in the price of electricity per customer can result in a large incentive for people to install renewable energy systems. This is the essence of a FiL: it is a mechanism to instigate a change in the way power is produced, gradually shifting from present polluting means to non-greenhouse methods.
Feed-in Tariff versus Market Based
Market-based schemes such as quota incentive structures (renewable energy standards or renewable portfolio standards) and subsidies create limited protected markets for renewable energy. The supply of renewable energy is achieved by obliging suppliers to deliver to consumers a portion of their electricity from renewable energy sources. In order to do this they collect green electricity certificates. Hence a market is created in green electricity certificates which, according to the theory, generates downward pressure on the prices paid to renewable energy developers. This is based on the theory of perfect competition where there is a multiplicity of buyers and sellers in a market where no single buyer or seller has a big enough market share to have a significant influence on prices. Although, in practice, markets are very rarely perfectly competitive, the assumption is still that a relatively competitive market will produce a more efficient use of resources compared to a system where prices are set by Government fiat.[3] The fundamental problem with the quota scheme is that there is no long-term certainty. When a quota is set either for a period of time or for a quantity of power, once that goal is reached then there is nothing to keep the green power producers from becoming uneconomic in the face of power produced from coal fired power stations and hence collapsing as businesses. This inevitability with the quota method means that there is reluctance on behalf of investors to get involved in the first place. Those that do get involved are short-term speculators rather than long-term entrepreneurs and so instability is inherent in this system. It has been argued that FiL is the most effective way to promote the uptake off renewable energy yet devised. After investment subsidies it is the most widespread means of promoting renewable energy uptake in Europe.[4]
Green certificates
Activists such as Paul Gipe[5] have argued that green certificate schemes disadvantage local ownership.
Netmetering
The introduction of FIT is usually preceded by legislation for net metering and dropping the requirement of a separate powerline.
See also
- Automatic meter reading
- Distributed generation
- Electricity meter
- Feed-in tariffs in Germany
- Net metering
- PV financial incentives
- Renewable energy commercialization
- Smart meter
- Utility submeter
- Virtual power plant
References
- ^ Solar Premium
- ^ World Future Council Feed-in Tariffs
- ^ David Toke (05 February 2006). "Renewable financial support systems and cost-effectiveness". Journal of Cleaner Production 15 (3): 280-287. doi:10.1016/j.jclepro.2006.02.005.
- ^ Energy Policy, 2006 An integrated assessment of the feed-in tariff system in Spain, Pablo del Rıo and Miguel A. Gualb,
- ^ Wind Works Feed Laws
