June 24, 2009—Feed-in tariffs (FiTs) are the world’s most widely used policy to drive renewable energy development, according to a new report from the National Renewable Energy Laboratory (NREL). FiTs have reportedly helped transform cloudy Germany into the world leader of installed solar power and photovoltaic manufacturing, and are now stimulating green energy investment in North America as well.
Locations as disparate as the city of Gainesville, Florida, the province of Ontario, Canada, and the state of Washington recently have adopted measures establishing guaranteed long-term prices for clean electricity. A dozen more states and many more communities are considering similar energy policy proposals.
NREL energy analysts are digging into these complex policies in a series of technical reports designed to inform government policy makers, clean energy investors, utilities, and other stakeholders.
NREL analysts have identified several key factors in a successful FiT policy, such as stability, long-term contracts, adequate energy prices, annually decreasing payments, differentiating payments, incorporating FiT into the electricity rate base, and reducing bureaucracy.
Feed-in tariffs guarantee long-term payments at pre-established rates for the electricity generated from renewable sources. The production-based payments are often higher than market rates, but are on the verge of becoming competitive in specific locations for certain technologies such as wind power.
While utilities are obligated to buy the power, the long-term payments help encourage renewable energy development by reducing risks for investors. Any added costs are typically passed along to ratepayers and, for technologies like wind and landfill gas, may provide a hedge against electricity price volatility and large price spikes over the long-term.
According to the NREL studies, experience around the world suggests that FiTs can effectively expand renewable energy deployment and remove barriers to renewable energy development, while creating jobs and helping meet renewable energy standards, when the policy design is adapted to local context
