Most readers probably know about Feed-in Tariffs (FITs) by now. While not popular in the U.S., the policy has gained traction in more than 50 countries. Climate Progress recently had a visit from German Parliamentarian Ulrich Kelber, who talked about the importance of FITs (video below). We thought it would be a good opportunity to explain the policy for all those who aren’t completely familiar.
FITs are considered by many to be the most successful instrument for promoting renewable energy. Despite the wonky name, it’s actually a very simple concept — which is why it’s been so effective.
FITs guarantee an owner of a renewable energy project a premium price for every unit of electricity or heat generated over a 15-20 year period of time. That premium is designed to give the owner “a reasonable rate of return” and is changed on a set schedule as technology costs come down, with room to make immediate changes when needed. (In fact, Germany and other European countries have made major changes to their FITs over the last year as the price and cost of solar PV has dropped dramatically.)
The payments come from utilities, which raise the funds by charging ratepayers a small fee each month. This only costs a few dollars— or, as is often said: “About the price of a loaf of bread.”
FITs also give clean energy projects of any size priority access to the grid — meaning that a 5 kilowatt solar PV system has just as much right to plug into the grid (if not more) as a 500 MW coal plant. This, as Ulrich Kelber described, “empowers people.”
The policy drives rapid investment, which is why Germany — a pioneer in creating the modern FIT — has been an historic leader in deployment of solar PV, solar thermal, wind, biogas and combined heat and power.
Investors like FITs because they provide long-term consistency; renewable energy companies like FITs because they create an environment that makes it easy to scale; and consumers like FITs because it provides a simple way for them to invest in renewable energy.
Here’s some recommended reading on FITs from previous Climate Progress stories: