Feed-in Tariffs (FIT)

Feed-in tariffs (FIT) are fixed rates paid power plants / electricity producers for feeding electricity into the grid, whereas power purchasing agreements (PPA) are bilateral contracts between the producer and the grid / system operator. FITs are typically used to incentivize the production of electricity on the basis of renewable energy (RE-FIT). FIT set a price, other incentive schemes set a quantity (quota regulation), markets react accordingly (...).

Experiences 

Germany

Germany started supporting renewable energies in 1991 with the first legally binding act that enabled producers to feed their renewable energies into the grid. In 2001 the first version of the now called Renewable Energy Sources Act (EEG) entered into force and was designed to provide an adapted tariff to the different renewable energy systems in dependence to their status of technology development and prices for production of power and to ensure compliance with sustainability criteria. The latest version of this act entered into force in January 2009. It is the most important instrument and driving force in the expansion of renewable energies in the electricity sector because it provides investment securities.

How does the Renewable Energy Sources Act (EEG) work?
Basically, the EEG obligates that all generators of electricity are guaranteed access to the integrated electrical grid to a fixed price on base of a feed-in tariff scheme for the time span of 20 years beginning at the point of installation.
The exact amount of the feed-in tariff depends on the starting date of feeding in and drops by a fixed percentage each year. This encourages technological improvements and cost decreases (degression rate). The prices furthermore vary with the amount of energy generated by the producer and the type of renewable energy source. (Landfill gas, sewage treatment plant gas, mine gas, biomass, geothermal, energy from solar radiation (solar photovoltaic, solar thermal), hydropower and wind power).

The additional costs that arise are distributed equally among all energy utilities in Germany (off-budget incentive scheme). They in turn pass the costs down to the end consumer, according to their demand on electricity (cross subsidisation).

Therefore, the fixed prices are intended to level costs for energy derived from renewable energy sources with energy from traditional resources.
The fixed-tariffs give further more security to providers of electricity and stimulate investments into the sector. It creates an equal level “playing field” for renewable energy technologies that also enables small and medium sized producers to participate in the energy market and to develop new and innovative solutions.

Therefore, the EEG it is especially favouring small producers in decentralised (grid connected) areas to invest into renewable energies. The individual support for every single source of renewable energies furthermore encourages the decentralized approach.

Expansion of renewable energies in the power generation sector: Since the beginning of the support, wind power has developed strongly and hydropower has been maintained at a high level. A similar boom occurred in the use of biomass, photovoltaic and geothermal energy.