Feed-in Tariff

What is it?

A feed-in tariff is a procurement policy for renewable energy sources of power. The FIT works by paying a fixed price over a specific time period, preferably longer term (15-20 years) for the power produced by a renewable energy system that is fed into the electrical grid.

The idea is to provide a reasonable rate of return for project proponents, regardless of project size and location. This policy mechanism creates market demand for renewable energy technologies and has been very successful around the world in encouraging renewable energy markets. To be most effective, a FIT is best combined with policy that provides priority access for renewable sources of power to the grid and an obligation to connect, in addition to low interest loans or other financing mechanisms to encourage smaller scale participation (homeowners, farmers, community groups, cooperatives, non profits and small business, etc). This will ensure the broadest uptake of renewable energy sources and will increase the likeliness of acceptance for renewable energy technologies.

(Table here listing what features it needs to be effective? differentiated by technology and further differentiated by location—i.e. on and off shore wind, building integrated vs ground mounted solar, etc.; payment period—10 or 15 to 20 years; payed by rate payers not tax payers; all electricity goes to the grid; rates are reduced overtime for new projects to ensure competitivness and reflect the fact that prices will come down over time (digression))

What are its advantages?

  • The FIT creates demand through improving investment security, and improving access to finance (bank loans are more likely when it can be guaranteed a certain amount will be earned back).
  • By paying for the power produced (paying per kilowatt-hour) rather than just the system itself, you promote (or select for) higher quality, more efficient systems. It pays to invest in a higher producing and longer lasting technology.
  • Differentiated FITs ensure that all technologies have a chance to develop a market, in turn ensuring a diversity of RE technologies are being developed and consequently being the most promising policy mechanism for developing a decentralized grid. A diversity of RE technologies feeding into the grid increases the reliability of the grid—if one resource is unavailable, generally another resource always is.

Relevance to local governments

Local governments could create a FIT either directly or by mandating municipally owned utilties to implement a FIT. Furthermore, local governments could top up poor rates. Cities can also participate or make it easier for citizens to participate by removing many local barriers to RE deployment (building codes, zoning laws, setback rules, interconnection standards, they could mandate munipical utilities to give priority access and obligate them to connect FIT RE projects to the grid, etc), and through improving access to finance (through the creation of revolving or low-interest loans, offering favourable tax breaks, subisidies, etc) and allowing the lease, use or sale of city lands and roof space for RE projects.

Local governments have a large role to play in either initiating or improving a FIT or maximizing the effectiveness of a national or regional FIT.

Local examples:

Gainesville, Florida
In March 2009 Gainesville’s utility, Gainesville Regional Utilities, opted for a FIT to meet Florida’s renewable portfolio standard requirement. This FIT was for solar projects, where solar energy project proponents could apply and gain Solar Energy Purchase Agreements (SEPA). With a SEPA, the utility agrees to pay a fixed rate for each kilowatt-hour over a 20 year period. Visit GRU's press release where it supply's various other resources such as application procedure and forms, information about the FIT, etc. Here is a link to the FIT Ordinance.

Sacremento Municipal Utility District

Starting in January 2010, SMUD, servicing an area in California, plans to introduce feed-in tariffs (FiT) for renewable energy. The program aims to connect customer-sited, distribution grid fed, and under 5MW projects to the grid, and pay these generators a fixed, long-term price. See draft program here.