feed-in tariff

A feed-in tariff , is a mechanism designed to encourage the adoption of renewable energy sources. It typically includes three key provisions:

1) guaranteed grid access,

2) long-term contracts for the electricity produced, and

3) purchase prices that are methodologically based on the cost of renewable energy generation.

Under a feed-in tariff, an obligation is imposed on regional or national electricity utilities to buy renewable electricity (electricity generated from renewable sources, such as solar thermal power, wind power, wave and tidal power, biomass, hydropower and geothermal power), from all eligible participants.

The cost-based prices therefore enable a diversity of projects (wind, solar, etc.) to be developed, and for investors to obtain a reasonable return on renewable energy investments. This principle was first explained in Germany's 2000 RES Act:

“The compensation rates…is predetermined by means of scientific studies.

As a result, the rate may differ among various forms of power generation, and for projects of different sizes.

In addition, FITs typically offer a guaranteed purchase for electricity generated from renewable energy sources within long-term (15–25 year) contracts.

As of 2009, feed-in tariff policies have been enacted in 63 jurisdictions around the world, including in Australia, Austria, Belgium, Brazil, Canada, China, Cyprus, the Czech Republic, Denmark, Estonia, France, Germany, Greece, Hungary, Iran, Ireland, Israel, Italy, the Republic of Korea, Lithuania, Luxembourg, the Netherlands, Portugal, Singapore, South Africa, Spain, Sweden, Switzerland, and in some states in the United States.

In 2008, a detailed analysis by the European Commission concluded that "well-adapted feed-in tariff regimes are generally the most efficient and effective support schemes for promoting renewable electricity." This conclusion has been supported by a number of recent analysis, including by the International Energy Agency, the European Federation for Renewable Energy ^,as well as by Deutsche Bank .