Feed-in Tariff


Feed-in Tariff

A Feed-in Tariff (FiT, FiL, Feed-in Law, solar premium [ [http://www.armadasolar.com/act_renewable_energy_info.html Solar Premium] ] or Renewable Tariff [http://www.wind-works.org/FeedLaws/RenewableEnergyPolicyMechanismsbyPaulGipe.pdf] ) is an incentive structure to encourage the adoption of renewable energy through government legislation. The regional or national electricity utilities are obligated to buy renewable electricity (electricity generated from renewable sources such as solar photovoltaics, wind power, biomass, and geothermal power) at above market rates set by the government [http://glossary.eea.europa.eu/EEAGlossary/F/feed-in_tariff] .

Also known as Renewable energy payments [ [http://www.eesi.org/briefings/2008/061808_hboell_rep/061808_hboell_rep_notice.html Home ] ]

The higher price helps overcome the cost disadvantages of renewable energy sources. The rate may differ among various forms of power generation.

History

This type of program was first implemented in the USA in 1978. President Jimmy Carter told Americans that the energy crisis was "a clear and present danger to our nation" and drew out a plan to address it [http://www.portlandpeakoil.org/discussion/aggregator/categories/2?page=4] . As reaction to a perceived “energy crisis” and growing concerns over air pollution, President Jimmy Carter signed the National Energy Act (NEA) and the Public Utilities Regulatory Policy Act (PURPA). The purpose of these watershed laws was to encourage energy conservation and the development of national energy resources, including renewables such as wind and solar [http://web.gsm.uci.edu/~navarro/windfinal110899.pdf] .

Standard Offer Contracts for renewable power development were first introduced in California in the early 1980s in response to the state's investor-owned utilities behavior toward small power producers. California's Public Utility Commission ordered the utilities to offer standardized contracts and to offer one such contract, Standard Offer No.4 (SO4) with fixed prices. By the mid- 1980s, private power producers had installed 1,200 MW of wind capacity in California. Much of this capacity is still in service. For two decades these wind turbines have delivered about 1% of the state’s electricity [http://www.worldfuturecouncil.org/fileadmin/user_upload/Miguel/Gipe_RE_Policy_Mechs.pdf] .

But it is the German model, that begun in 1990 ("Stromeinspeisungsgesetz") [ [http://www.worldfuturecouncil.org/fileadmin/user_upload/Maja/Feed-in_Tariffs_WFC.pdf World Future Council] Feed-in Tariffs] 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 increased deployment of renewable energy sources is regarded by many as 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 FiT 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 FiT: it is a mechanism to instigate a change in the way power is produced, gradually shifting from present polluting means to non-greenhouse methods.

Policy Alternatives to Feed-in Tariffs

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. [cite journal
author = David Toke
title = Renewable financial support systems and cost-effectiveness
journal = Journal of Cleaner Production
volume = 15
issue = 3
pages = 280–287
date = 05 February 2006
url =
doi = 10.1016/j.jclepro.2006.02.005
accessdate =
]

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.

Quota systems favor large, vertically integrated generators and multinational electric utilities, and are more difficult to design and implement than Price system [http://www.wind-works.org/FeedLaws/RenewableEnergyPolicyMechanismsbyPaulGipe.pdf] .

It has been argued that FiT is the most effective way to promote the uptake of renewable energy yet devised. Only Renewable Tariffs have a consistent recordof offering equitable opportunity to all willing participants in the market, offering the freedom to produce and sell the own energy and stimulating rapid rates of growth [http://www.wind-works.org/FeedLaws/RenewableEnergyPolicyMechanismsbyPaulGipe.pdf] . After investment subsidies it is the most widespread means of promoting renewable energy uptake in Europe. [ [http://ideas.repec.org/a/eee/enepol/v35y2007i2p994-1012.html Energy Policy, 2006] An integrated assessment of the feed-in tariff system in Spain, Pablo del Rıo and Miguel A. Gualb,]

Net Metering

The introduction of FIT is usually preceded by legislation for net metering and dropping the requirement of a separate powerline.

Green certificates

Activists such as Paul Gipe [ [http://www.wind-works.org/articles/feed_laws.html Wind Works Feed Laws] ] have argued that green certificate schemes disadvantage local ownership, but local green certificates can be used.

Feed-in Tariff by territory

Feed-in tariff laws were in place in 46 jurisdictions across the world by 2007. [ REN 21 (2007) Renewables 2007: Global Status Report at p.43]

Germany

Erneuerbare-Energien-Gesetz (EEG) law, first introduced in 1990. As of May 2008 the cost of the program adds about 1.01€ (USD1.69) to each monthly residential electric bill. [ [http://www.nytimes.com/2008/05/16/business/worldbusiness/16solar.html?_r=2&scp=1&sq=Solar+Valley+Overcast Germany Debates Subsidies for Solar Industry] ]

pain

Spanish feed-in legislation (Real Decreto 661/2007)

United States

California

The California Public Utilities Commission (CPUC) has approved a feed-in tariff on January 31, 2008 which is effective immediately. [ [http://docs.cpuc.ca.gov/word_pdf/NEWS_RELEASE/78824.pdf CPUC Press Release] ] For more information, see the CPUC webpage on the feed-in tariff, http://www.cpuc.ca.gov/PUC/energy/electric/RenewableEnergy/feedintariffs.htm

Australia

At May 2008, feed-in laws had been passed in Queensland, South Australia and the ACT. Limited provisions have also been passed in Victoria. The Tasmanian Government is considering a scheme while New South Wales, Western Australia and the Northern Territory are not currently considering tariffs.

Queensland

The Solar Bonus Scheme (Feed-In Tariff Scheme) commenced on 1 July 2008. Customers participating in the scheme will be paid 44 cents per kilowatt hour (kWh) for surplus electricity fed into the grid.

outh Australia

Electricity (Feed-in Scheme - Residential Solar Systems) Amendment Bill 2007 inserted provisions into the Electricity Act 1996. Applies only to solar PV. Net export payment method (i.e. gross production – household load = net export) limits the incentive provided.

Australian Capital Territory

Electricity Feed-in (Renewable Energy Premium) Act 2008 is now law but much of the Act is awaiting formal commencement, after having been passed by the Legislative Assembly. Implementation will be at some point in late 2008.

ee also

* Automatic meter reading
* Distributed generation
* Electricity meter
* Energy efficiency
* Feed-in tariffs in Germany
* Net metering
* PV financial incentives
* Renewable energy commercialization
* Smart meter
* Utility submeter
* Virtual power plant

References

External links

* [http://www.powerauthority.on.ca/sop/ OPA Ontario Canada]
* [http://renewableenergyweek.com/rea/news/story;jsessionid=3947E77D3B57B57180A59E3DF728B4F0?id=48565 Ontario Canada FIT evaluation]
* [http://www.renewable-energy-world.com/display_article/294298/121/ARCHI/none/none/1/All-eyes-on-Greece:-New-feed-in-tariff-gives-boost-to-PV-industry/ Greece Feed Law]
* [http://onlinepact.org/ Policy Action on Climate Toolkit: draft your own feed-in tariff law online]
* [http://www.bmu.de/files/english/renewable_energy/downloads/application/pdf/langfassung_einspeisesysteme_en.pdf Fraunhofer]
* [http://www.renewableenergyworld.com/rea/news/story?id=53026&src=rss Switzerland Feed Law]


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