A feed-in tariff is a premium rate paid for electricity fed back into the electricity grid from a designated renewable electricity generation source like a rooftop solar power system or wind turbine. At present, feed-in tariff regulations for renewable energy exist in over 40 countries around the world.
Germany sets the feed in tariff example
Possibly the most successful feed-in tariff laws would be those introduced in Germany over the past 15 years. In 1991 the German government introduced the Electricity Feed Act, legally regulating the feed-in to the grid of electricity generated from renewable resources such as solar power. This Act required utility companies to purchase electricity generated from renewable resources such as domestic solar power systems at set rates (feed-in tariffs).
The scheme was expanded and enhanced in 2000, and has been responsible for the dramatic growth in Germany’s renewable energy market, particularly the solar photovoltaic industry. In the five years from 2000, the quantity of electricity fed into the grid from eligible sources has more than doubled, with a seven-fold increase in installed solar photovoltaic (PV) capacity to over 1,500 MW by the end of 2005.
Why do we need feed-in tariffs?
Residential solar power is somewhat disadvantaged due to the high entry costs. The market fails to take into account the true value and many benefits to the electricity network which arise from the adoption of renewable energy technologies embedded within the electricity grid.
Solar PV, like other renewable energy sources, provide environmental benefits through reduced greenhouse gas emissions and social benefits through industry development and job creation – for example through the installation of grid connect solar systems, each with related economic benefit.
A feed-in tariff redresses these systemic market failures and rewards solar electric generation for its true value to the electricity market and wider society, by providing a financial incentive for the adoption of renewable energy.
Design of a feed-in tariff scheme
For a feed-in tariff to be effective, it is essential that the tariff offered is designed in a way as to adequately reward solar PV proponents. There are three key elements of a feed-in mechanism which need to be considered: The price level of the tariff; the means of metering; and the duration of the scheme. It is the proper combination of these three elements, which will determine the success or failure of a feed-in mechanism.
An effective scheme would involve a feed-in tariff of at least 4 times the market rate, paid on the entire output of a solar power system (via gross production metering), and offered for at least 15 years. Only a gross feed-in tariff set at or above these levels would adequately reward the adoption of solar PV for the range of environmental, social and economic benefits arising from this technology, and encourage the uptake at sufficient levels to achieve the policy goals.
When Germany introduced gross feed-in tariffs in 2000 it doubled the amount of electricity generated from renewable energy sources and adjusted its 2010 target of 12.5% of total energy consumption. It is now three years ahead of schedule.
As a consequence of this success, Germany recently increased its renewable energy target to 27% of all electricity generation by 2020. Also the gross feed-in tariff has created nearly 250,000 new jobs in the renewable energy industry, which will soon surpass the car industry as that nation’s number one employer.
The German solar power sector is now creating three times the number of jobs per installed megawatt as the coal fired electricity industry – all of this in a country receiving much less sunshine than other parts of the world not participating in similar programs, or just engaging in minimal participation.
International experience tells us that gross feed-in tariffs can be very successful in stimulating the uptake of renewable energy, addressing climate change and creating strong local industries and employment.
As mentioned, some 40 countries throughout the world now have some sort of feed in tariff incentive in place. In order to determine if feed in tariffs are available to you, contact your local energy authority for further details.
How you can help
If feed in tariffs aren’t available in your area and you care about fighting climate change, cutting greenhouse gas emissions and encouraging our domestic renewable energy industry; then please write to your local elected representative requesting they consider gross feed-in tariffs as the most effective way to increase solar power use.