FEED IN TARIFF (FIT)

Overview
The concept of Feed in Tariffs was part of the of the original renewable energy friendly policies
in the USA in the 1970's and then expanded and successfully implemented in Germany in
1990,
Governments the world over are now coming to see the wisdom of enabling everybody in their
country to produce and sell electricity using renewable technologies, and setting prices that will
attract new developments.
This policy mechanism is commonly known as "Feed In Tariffs" (FIT). In North America this
simple idea is known by many different names: Electricity Feed Laws, Feed-in Laws, Advanced
Renewable Tariffs (ARTs), Renewable Tariffs, and more recently Renewable Energy
Payments. Regardless of the name, they are the world's most successful policy mechanism for
stimulating the rapid development of renewable energy, and secondarily for creating a large
and growing base of jobs and income for the people involved.
What are Feed-in Tariffs?
Feed in Tariff policies typically include three key provisions:
1. Guaranteed grid access to all producers of electricity from approved renewable sources.
2. Long-term contracts (typically 20 years) to purchase the electricity produced at a set fixed
price per killowat hour (kWh) produced.
3. Published prices for the electricity sold, which are set to provide an attractive rate of retun
at the time the project is built. These prices are periodically adjusted to reflect changing
market and policy conditions.
Feed in tariffs are the most egalitarian method for determining where, when, and how much
renewable generating capacity will be installed. Renewable Tariffs enable homeowners,
farmers, cooperatives, and independent producers to participate on an equal footing with large
commercial developers of renewable energy.
FIT permit the interconnection of renewable sources of electricity with the electric-utility
network and at the same time specify how much the renewable generator is paid for their
electricity and over how long a period.

Advance Renewable Tariffs
Advanced Renewable Tariffs (ARTs) are the most modern version of Feed In Tariffs. ARTs
differ from the simpler feed in tariffs in several important ways. Most importantly, FIT are
differentiated by technology. There is one price for wind energy, another price for solar, and so
on. Tariffs within each technology can also be differentiated by project size or, in the case of
wind and solar energy, by the productivity of the resource.
Additionally, in the case of solar they can be further differentiated between tariffs for roof-top
based; referred to as retrofit in the UK installations, which generally receive a higher price for
the electricity; and ground-based installations that usually receive a slightly lower tariff rate.
Tariffs rate are subject to periodic review to determine if the tariff rates are sufficiently robust or
appropriate to meet the targets desired in the time allotted, and reflective of current
technologies, costs, and market conditions.
For purposes of this discussion when we use the term Feed In Tariffs or FIT, we are using the
term synonymously with Advanced Renewable Tariff / ART.
Who Pays For the Feed In Tariffs?
Feed-in tariffs are not subsidies. They do not subsidize the cost of the equipment used to
produce renewably-generated electricity, like solar panels or wind turbines, nor do the
payments come from taxpayers. Instead, feed-in tariffs are simply payment for the generation
of electricity.
The extra cost for the feed in tariffs is shared among all energy users, thereby spreading the
costs. In Germany in the average household pays about 1.01 per month for the Feed In Tariff
program.
A number of analyses have shown that these price increases, however, can be offset by the
price-dampening effect that large amounts of lower cost renewable energy sources (such as
wind power) can have on spot market prices. This has led to electricity price reductions in
Spain, Denmark, and Germany.
The German government estimates the actual cost is near zero, because the benefits of
reducing carbon emissions and other air pollutants as well as reducing the cost of expensive
fossil-fired generation (and social health costs), offsets the cost of the renewable energy.

Who Benefits From Feed In Tariffs?
Property Owners & Project Developers benefit. Anyone who installs Renewable Energy (RE)
can profit, spreading out the value among citizens and not just owners of large-scale power
stations. They are more equitable than Renewable Portfolio Standards (RPSs) because
homeowners, farmers, small and large businesses and cooperatives can all participate. To
date more than 400,000 German households have installed solar PV.
The government benefits. Feed-in tariffs are designed to provide sufficient financial incentives
without capital grants, rebates, or tax subsidies. Additionally, it's a very easy system to
implement. Feed In Tariff policies are easy to implement: there is no monitoring, no penalties
and no caps.
It's estimated by the end of 2010, more than 53 billion will have been invested in Germany on
renewable energy projects. Germany has benefited from taxes it has collected on the income
generated from the sale of the electricity.
Additionally studies have shown that money spent locally (e.g., for building new solar energy
projects) re-circulates 300-600% more than money sent out-of-country for oil or gas, etc. This
secondary affect also helps the economy grow.
Universities Benefit: Good FIT rates for renewable technologies increase the drive for
innovation, and encourage investment in technologies such as wind, photovoltaic solar energy,
or Concentrating Solar Power (CSP) that all have huge potential.
Businesses Benefit: In order to meet the demand, new companies have emerged, existing
companies have expanded, and opportunities abound. In fact, this is one of the fastest growing
industries in the world right now and most analysts say it is still only getting started.
Workers benefit. In Germany, for example, the renewable energy industry now employs about
234,000 people almost 60% of whom were employed as a direct result of the German FIT
law. It is expected that by 2020 the renewable energy industry will employ 500,000 people.
Banks benefit: Unlike lending money on real estate, which can change in value or be subject to
defaults if the owners economic situation changes, the banks can accurately predict based on
FIT rates and the performance of the specific solar module how much cash will be generated to
repay any loans the bank makes. In other words, FITs make renewable energy projects
bankable.
Everybody benefits: Feed In Tariffs have contributed significantly to Germany's ability to meet
the targets set per the Kyoto accord. The greatest success in the efforts to reduce greenhouse
gas emissions has come from the energy industry. Development of renewable energies has left
positive traces. In 2008, some 20 million tons less CO2 than in the prior year were emitted to
the atmosphere in the energy production process. This amounts to 66 million tons less CO2
over 1990 volumes.
Additionally, FITs have spurred competition and innovation in the renewables energy field. For
example, within 20 years the cost of electricity produced from wind turbines is now less than
the cost of electricity produced from lignite, especially if the environmental costs are factored
in.
Benefits for Solar Energy Park Developers and Investors
The biggest benefit of Feed In Tariffs for developers and investors is that they can reliably
predict (at least for the term of the Feed In Tariff) the projected cash flows that will be produced
by each new Solar Energy Project and the financial risks associated with a such an investment
are dramatically reduced.
For anybody considering investing in a Solar Energy Project, knowing that Feed In Tariffs are
likely to decrease over time encourages people to move quickly to lock in the higher rates /
rates of returns for new projects.
Since Feed In Tariff rates can change over time, it is important to understand that in most
countries the Feed In Tariff rate applicable to a specific project is based on the Feed In Tariff
rate as of the day the first electricity is delivered to the grid.
Consequently, as more countries adopt Feed In Tariff policies, the demand for renewable
energy systems has risen dramatically and the installation costs are coming down fast. This
financing model has now been taken up widely around the world.
The Success of the FIT Policy
Feed in Tariffs has proven to be one of the most effective policy instruments in overcoming the
cost barriers to introducing renewable energy and making it economically viable. The simple
guarantees that FITs provide including access to the grid, a set price per Kilowatt Hour (kWh)
that will cover the costs associated with electricity production, and a guaranteed term for which
they will receive that rate has turned several European countries into world leaders in the
renewables sector. This is the case for Denmark on wind energy and for Germany on solar
energy.
FITs have been empirically proven to generate the fastest, lowest-cost deployment of
renewable energy, and with this as a priority for climate protection and security of energy
supply. FITs are the best vehicle for delivering these benefits, plus the highly desirable added
benefits of new job creation and as a significant contributor to economic growth and prosperity.
This conclusion has been supported by a number of recent analyses, including by the
International Energy Agency, the European Federation for Renewable Energy, as well as by
Deutsche Bank.
As of April 2010, 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, Republic of Ireland, Israel, Italy,
the Republic of Korea, Lithuania, Luxembourg, the Netherlands, Portugal, Singapore, South
Africa, Spain, Sweden, Switzerland, and in some (nowadays, a dozen) states in the United
States, and is gaining momentum in other ones as China, India and Mongolia.