Feed-in Tariff (FIT) is a renewable energy subsidy policy that essentially guarantees the price that a renewable energy producer can sell their electricity at.
The guaranteed price of the electricity is typically set such that it ensures a reasonable return-on-investment for the renewable energy producer. In our opinion, a well-implemented FIT program is one of the best methods to encourage investment in renewable energy technologies.
In order to better understand Feed-in Tariff (FIT) programs, we will take a look at:
- How Feed-in Tariff programs are typically implemented.
- Example of Feed-in Tariff programs from the United States and Canada.
- Criticisms of Feed-in Tariff programs.
How Feed-in Tariff Programs are Typically Implemented
In order to create an effective FIT program, a lot of research has to be done to ensure that the program prices are set reasonable levels. The program prices can vary widely due to geography, capacity of the renewable energy system, and the type of renewable energy technology used. The following steps are typically followed when implementing a FIT program.
1.The local government determines a reasonable Feed-in Tariff price at which electricity is purchased from renewable energy producers. The program price can be as simple as a single set price, or can involve more complex sliding scales and bonuses. The goal of the FIT price is to encourage investment while keeping electricity rates reasonable for the public.
2. Local utilities allow renewable energy producers access to their electricity grid, and pay the FIT price to the renewable energy producers for the electricity they generate. The utility companies typically have no choice but to allow grid access as the government mandates it through regulations.
3. As more renewable energy producers come online, the FIT prices are reviewed. The FIT prices are usually lowered over time in order to encourage renewable energy producers to lower their cost of production.
Examples of Feed-in Tariff Programs From the United States and Canada
United States (California ReMAT Program).
The California Renewable Market Adjusting Tariff program (ReMAT) is designed for renewable energy producers with less than 3 MW of production capacity. The overall program allows for up to 493.6 MW of generation capacity to be eligible for FIT pricing.
ReMAT starting price is $0.08923/kWh, and is independently reviewed every two months.
More information on this program: https://www.sdge.com/regulatory-filing/654/feed-tariffs-small-renewable-generation
Canada (Ontario MicroFIT Program)
The Ontario microFIT program is designed for renewable energy projects with a production capacity of 10 kW or less. The program started in 2006, and provides a guaranteed price for power generated using wind, waterpower, biomass/biogas, solar photovoltaic power, and landfill gas.
Ontario MicroFIT periodically publishes a price schedule to set the FIT rates. The price peaked in 2009 at around $0.80/kWh, and is between $0.128-$0.313/kWh in 2017 depending on your system type and size.
More information on this program: http://www.ieso.ca/get-involved/microfit/news-overview
Criticisms of Feed-in Tariff Programs
The main criticism for certain FIT programs is that the government ends up paying too much for renewable energy – and waste taxpayer dollars. For example, the 80.2 cents per kWh paid by the Ontario FIT program in 2009 was roughly 40X the fair market value of electricity in that Canadian province. A situation like this can cause electricity rates to rise as consumers are left to absorb the increased cost of electricity.
This issue can typically be addressed by implementing a competitive bidding process into the FIT program.