Most countries are trying to increase the percentage of their electricity supply that comes from renewable sources. But because capital costs for renewable generation still, in most cases, are higher per kilowatt-hour than for fossil-fueled power, governments are looking at all options for encouraging the development of greater renewable capacity. Feed-in tariffs (FITs) are one policy tool that has been used, most notably in Europe. Now North America is testing FITs as well.
Feed-in tariffs (FITs), which have been credited with driving renewable energy growth in Europe, have been enacted in 63 jurisdictions around the world and are quickly gaining momentum in other ones, such as China, India, and Mongolia. Because of the high capital costs and financing challenges associated with renewable energy, more and more U.S. policy makers also are examining the mechanism that guarantees a minimum government-set price for renewable energy that is paid to generators by utilities under “standard offer contracts.”
Defining FITs
According to the FIT Coalition—a San Francisco Bay Area–based group advocating the quick adoption of FITs through development of the wholesale distributed generation market (projects of 20 MW or less)—“feed-in tariff” is a literal translation of Germany’s 1991 Stromeinspeisungsgesetz ( StrEG), the law on feeding electricity into the grid, and is the term used in Germany, France, and Spain. “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 group says on its website. These include: standard offer contracts (SOCs), advanced renewable tariffs (ARTs, a term used by FIT advocates in Ontario, Canada), renewable energy rates (RE rates), renewable energy dividends, and renewable energy payments (a term used by organizations such as the Alliance for Renewable Energy).
The U.S. Department of Energy, too, concedes that no standard, official definition of FIT exists. In a January 2010 report (http://bit.ly/dh2hwJ) commissioned by state utility commissions in conjunction with the National Association of Regulatory Utility Commissioners (NARUC), the National Renewable Energy Laboratory (NREL) sets down a broad working definition of “state-level feed-in tariff”:
a publicly available, legal document, promulgated by a state utility regulatory commission or through legislation, which obligates an electric distribution utility to purchase electricity from an eligible renewable energy seller at specified prices (set sufficiently high to attract to the state the types and quantities of renewable energy desired by the state) for a specified duration; and which, conversely, entitles the seller to sell to the utility, at those prices for that duration, without the seller needing to obtain additional regulatory permission.
To simplify, the main, common characteristics of FIT-like programs (whatever their official name) is that the price of electricity generated by renewable or other specified sources is determined by government policy or public utility commission rather than a wholesale market and is typically (though not necessarily) set at higher than market prices as a way to encourage the development of a particular power source. Renewable FITs for small-scale generation are the most common, but FITs can also apply to other high-first-cost sources such as combined heat and power (CHP).
In addition to tariff, the size of projects qualifying for FITs varies by country and state. Germany has no limit on project size, nor does France for wind energy, though France limits solar PV to 12 MW. Ontario’s program (see sidebar "Ontario Ushers in the MicroFIT") limits contracts to 10 MW. As is typical of distributed generation generally, sources qualifying for FITs are usually (though not always, especially in Europe) smaller than what is typically considered “utility scale.” (See the web supplement to this story, "Feed-in-Tariffs Around the World," for more details on the specifics of programs in a variety of locales.)
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