Description
FITs typically include three key provisions:
- guaranteed grid access
- long-term contracts for the electricity produced
- purchase prices based on the cost of generation
Under a feed-in tariff, eligible renewable electricity generators (which can include homeowners, business owners, farmers, as well as private investors) are paid a cost-based price for the renewable electricity they produce. This enables a diversity of technologies (wind, solar, biogas, etc.) to be developed, providing investors a reasonable return on their investments. This principle was first explained in Germany's 2000 RES Act:
"The compensation rates...have been determined by means of scientific studies, subject to the provision that the rates identified should make it possible for an installation – when managed efficiently – to be operated cost-effectively, based on the use of state-of-the-art technology and depending on the renewable energy sources naturally available in a given geographical environment."
As a result, the tariff (or rate) may differ to enable various technologies to be profitably developed. This can include different tariffs for projects in different locations (e.g. rooftop or ground-mounted for solar PV projects), of different sizes (residential or commercial scale), and sometimes, for different geographic regions. The tariffs are typically designed to ratchet downward over time to both track, and encourage, technological change.
FITs typically offer a guaranteed purchase agreement for electricity generated from renewable energy sources. These agreements are generally framed within long-term (15–25 year) contracts.
The fact that the payment levels are performance-based puts the incentive on producers to maximize the overall output and efficiency of their project.
As of 2010, feed-in tariff policies have been enacted in over 50 countries, including Algeria, Australia, Austria, Belgium, Brazil, Canada, China, Cyprus, the Czech Republic, Denmark, Estonia, France, Germany, Greece, Hungary, Iran, Republic of Ireland, Israel, Italy, Kenya, the Republic of Korea, Lithuania, Luxembourg, the Netherlands, Portugal, South Africa, Spain, Switzerland, Tanzania, Thailand, and Turkey. In early 2012 in Spain, the Rajoy administration suspended the Feed-in tariff for new projects.
In 2008, a detailed analysis by the European Commission concluded that "well-adapted feed-in tariff regimes are generally the most efficient and effective support schemes for promoting renewable electricity". This conclusion has been supported by a number of recent analyses, including by the International Energy Agency, the European Federation for Renewable Energy, as well as by Deutsche Bank.
Read more about this topic: Feed-in Tariff
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