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.
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:
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”
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