Frequently Asked Questions
What are Feed-in Tariffs?
A Feed-in Tariff or FIT is a fixed price contract that utilities pay to electricity generators for producing renewable energy. It consists of a pre-defined PPA (Power Purchase Agreement) and typically offers a guarantee of:
- Payments to project owners for the total amount of renewable electricity they produce;
- Access to the grid; and
- Stable, long-term contracts (20 years)
Does the term “Feed-in Tariff” go by other names?
Countries in Europe where the renewable energy policy the FIT Coalition is promoting has been widely and successfully implemented, call this policy a feed-in-tariff (FIT). In Germany, ‘tariff’ means ‘rate’, and ‘feed-in’, means ‘to feed renewable energy into the grid’.
In North America, a ‘tariff’ sounds like a tax, and ‘feed-in’ sounds like a buffet binge, so FITs sometimes go by other names. The names that can be found in North American include: Standard Offer Contracts (SOCs), Advanced Renewable Tariffs (ARTs), Renewable Energy Rates (RE Rates), Renewable Energy Dividends (REDs) and “Renewable Energy Payments”. Renewable Energy Payments is the term organizations such as Alliance for Renewable Energy has been using. It is important to note that Renewable Energy Payments, Feed-in Tariffs, and the other terms listed above all refer to the same mechanism or type of incentive renewable energy policy.
How do Feed-in Tariffs work?
In communities that have passed laws mandating Feed-in Tariffs, the law requires the local utility company—such as PG&E in California—to pay a fixed price (the “tariff”) for electricity that renewable energy companies “feed in” to the grid. The price reflects the actual cost of producing the renewable energy, so that renewable energy generators receive a guaranteed, fixed payment based on their costs, and a long-term contract to guarantee that payment.
What’s the logic behind paying more for renewable energy?
Initial costs are always higher for a new technology. Because solar power, for instance, is still more expensive than fossil fuel power, it’s hard for a new solar power project to start up. The Feed-in Tariff allows solar and other renewable producers to compete against cheaper established fossil-fuel energy until renewable energy producers develop the technology and economies of scale to compete against the rising price of fossil fuel.
Feed-in Tariffs are typically funded by a small increase in the cost of all consumers’ utility bills, which makes the cost increase very minor, particularly in view of the multiple economic, social and environmental benefits.
How do we know Feed-in Tariffs work?
They have already had great success in countries like Germany and Spain. Germany has already achieved its goals for renewable energy well ahead of time—even though Germany’s northerly location is not ideal for solar power.
In the US, Gainesville, Florida is in the early stages of implementing its Feed-in Tariff system, but there has already been a boom in solar production and new jobs for solar workers. Of the various ways of jump-starting solar and other renewable power, Feed-in Tariffs are the fastest and most efficient.
Why do we need a Feed-in Tariff system in California?
California has set goals of 20 percent renewable energy by 2010 and 33 percent by 2020. As the first deadline draws near, we are not even close to achieving it, and California is on track to fail in both the short term and the long term goals. Feed-in Tariffs will give renewable energy producers the incentive to ramp up their efforts, just as they have done in Germany and Gainesville.
How does a Feed-in Tariff affect costs for consumers?
In a Feed-in Tariff system, consumers may initially pay a slightly higher rate for electricity, but the rate doesn’t increase with time, unlike rates for conventionally produced electricity. As the costs for renewable energy come down, the rates will come down also and consumers will save money versus traditional fossil fuel energy.
What if I don’t want my rates to go up?
Your rates are already going up, especially in California, which has the fourth highest rates in the country. And they will continue to go up as natural gas, petroleum and coal become scarcer and more expensive to process.
Unlike fossil fuels, sunlight and wind will never become scarce or more expensive to process. Right now, Germans are paying about $1.50 a month extra for feed-in tariff supported energy. When you balance this against the hidden costs of global warming, air pollution from dirty power plants, and exploration for new fossil fuels, it’s a pretty good deal.
How can we get a Feed-in Tariff in California?
By passing Feed-in Tariff legislation now in the State Senate (AB 1106). This will require California utilities to offer a standard contract and reasonable premium for renewable energy. The premium (the Feed-in Tariff) helps renewable energy producers flourish, upgrade their technology, achieve economies of scale and expand their productivity.
Books on Feed-in Tariffs
There several books with detailed information on Feed-in Tariffs and renewable tariff policy. You can find information about these books at the links below.
- Feed-in Tariffs by Miguel Mendonca--a Review
- Energy Switch: Proven Solutions for a Renewable Future
- Switching to Renewable Power by Volkmar Lauber
