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National Feed-In Tariffs to help renewables enter the market

What is it?

Feed-in tariffs (FIT) are used to create a price mechanism to support the development of and demand for alternative sources of energy and encourage a transition towards renewable methods of energy generation. Electricity utilities are obligated to buy renewable electricity at above-market rates set by the government. An FIT should have a two pronged approach setting the price for renewable energy higher than the market price for energy and mandating energy utilities to purchase energy from renewable energy providers.

Who advocates it?

Greenpeace Australia and Australian Conservation Foundation

How do they work?

A feed-in tariff scheme mandates energy utilities to buy energy from renewable energy providers at an above market price. With a national FIT the price that producers receive for solar energy will be dramatically higher than the market price. This is an incentive for potential investors and producers to enter the market and generate renewable energy. The increased cost of energy consumption for consumers will be spread across all consumers and spending on energy consumption can be expected to increase marginally.

To maximize the effectiveness of a FIT scheme it is important that the above-market price is guaranteed in the long-term. This ensures that there will be a return on investment from the production of renewable power within a few years. With a return on investment in the renewable energy sector ensured then market sources may be mobilized to meet the increased demand for solar panel and reduce carbon dioxide emissions.

Feed-in tariffs will not only assist large scale production of renewable energy but it will also encourage households to install solar panels and other renewable energy generators and transfer electricity into the grid. With above market prices for renewable energy the investment into renewable energy generation will soon be paid off and households will be able to earn money by producing renewable energy.

Two kinds of tarrifs: Gross FITs and Net FITs:

Some Australian states have experimented with the use of FIT. Unfortunately, these FITs have proved ineffective because they have paid only for the net production of renewable energy (the energy that is transferred to the grid) and not the gross production (total energy produced) of renewable of energy. To tilt the market in the favour of renewable energy and give them a sustained long term competitive advantage it is necessary that the FITs are set at a gross level. This means that renewable energy generation is truly encouraged and rewarded (Greenpeace 2009).

A feed-in tariff of this kind increases the competitiveness of alternative sources of energy, welcomes producers of renewable energy into the market place and drastically reduces carbon dioxide emissions.

Where have feed-in tariffs been tried?

Germany has successfully used feed-in tariffs to foster a renewable energy industry and reduce carbon dioxide emissions. The FIT scheme that Germany adopted, and which Australia arguably should copy, mandated energy utilities to purchase renewable energy at an above market price. This provided investors with certainty that the installation of renewable energy generators would generate a profit within a few years. As a consequence of Germany’s FIT scheme, in just ten years Germany’s solar energy production increased from 5% to 15% of total energy consumption at only a small cost to consumers (Martin 2009). Consequently, there has been a rush towards renewable energy, generating jobs while protecting the environment.

Further Reading:

Access Economics. (2008) “The Economics of Feed-In Tariffs for solar PV in Australia”

Greenpeace Australia Pacific (2008) “Briefing: Will Australians be starved of renewable energy feed-in tariff?” Retrieved from:

http://www.greenpeace.org/australia/resources/reports/climate-change/briefing-will-australians-be

Kennedy, D., (2007), “A 2020 vision of a feed in tariff for Australia”

Martin, D (2009) “Feed-in Tariffs Have Earned a Role in US Energy Policy”

http://www.greenpeace.org/australia/resources/reports/climate-change/briefing-will-australians-be

Norman, J and S O’Connor, (2009) “Embrace the Renewable Energy Future” retrieved from: http://www.greenpeace.org/australia/resources/reports/climate-change/briefing-will-australians-be

Submitted by 5 years ago

Comments [1]

  1. GREEN PRICING TEACHERS THAT RENEWABLE ENERGY IS ONLY FOR THE AFFLUENT.

    Green Power is an option to consumers by utility companies in the United States allowing them to make the choice to contribute to the building of wind farms, solar arrays etc by paying higher rates on their monthly bills, from this, green pricing has developed, as the way in which people can be charged for their contribution.

    Green pricing is a charge ‘price per kilowatt-hour to support increased percentage of renewable sources or to buy discrete kilowatt-hour blocks of renewable energy’ (www.ucsusa.org) e.g. Puget Sound Energy Company in the Pacific Northwest area’s pricing program is as follows for their green energy program:

    100 Percent of Your Monthly Usage:

    • Your renewable energy purchase is based on your total monthly usage. The additional cost is $0.0125, or just over a penny, per kWh.

    • For the average energy-efficient household using 800 kWh monthly, green power usage would only cost about $10.00 more per month on your electric bill.

    • The environmental benefit is equivalent to taking a car off the road for a year.*

    Blocks:

    • PSE’s Green Power Program lets you purchase renewable energy in 160 kilowatt-hour (kWh) blocks for a fixed cost of $2.00 per block per month, with a minimum purchase of $4.00 per month.

    • You can buy as many blocks as you'd like, allowing you to match a portion or all your energy usage to new renewable resources around the region.

    Currently in the United States ‘as of March 2006, more than 600 utilities, electricity providers in 36 states offer a green pricing option’ (www.ucsusa.org.au).

    However this could work in Australia, but would have too many limitations and a feed-in tariff would be a greater alternative:

    • The federal government does not provide any subsidies for voluntary green power programs and therefore the taxpayer is subject to the cost of the renewable energy program.

    • ‘Two-thirds of the market is excluded from participating’, in terms of those who could afford this and those that would struggle even if they wanted to. The cost of electricity would be too expensive for the low-income consumer to participate even if they wanted too. For example, someone who is on the dole who earns approximately $235 a week would have to spend an extra 10-12 dollars a month as a minimum contribution to the program under the energy efficient household rates, however if their house produced over the 800kwh monthly the cost would be far greater. People want fairness and it shouldn’t be the affluent who are the only ones who can afford it.

    • Industrial and commercial agents will not donate money to this area as their industry is in favour of costs they can cut by staying with coal energy.

    Our economy would be better off as Gustaf says through a feed-in tariff system which creates ‘a price mechanism to support the development of and demand for alternative sources’ this proposal is far better for the economy for the long run despite the short term inflated costs of electricity.

    Further Reading;

    http://www.pse.com/energyEnvironment/renewableenergy4/pages/GreenPowerProgram.aspx?tab=2&chapter=1

    http://www.ucsusa.org/clean_energy/what_you_can_do/buy-green-power.html

    http://www.local.org/coyle.html

    United States Department of Energy

    United States Environmental Protection Agency

    The Total Environment Centre

    World Changing ‘A User’s Guide for the 21st Century’.

    5 years ago