Feed-in Tariffs (FIT)

Feed-in tariffs (FIT) are fixed rates paid to producers of electricity for feeding it into the grid. 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 (...)

FIT allows decentralised electricity production by private entities.
Selling electricity into a (national) grid is often strongly restricted. FIT allows such with fixed procedures for a fixed price. It thereby creates reliable conditions for potential investors. This is specially demanded for small power production facilities. Those can provide decentralized electricity production and effective use of available resources (e.g. hydro-, wind-, biomass-, thermal heat or solar power plants).

Design options 

The following design options exist:

• Purchase obligation
• Stepped tariff
• Tariff digression
• Premium option
• Equal burden sharing
• Forecast obligation

Experiences 

Germany has made good experience with feed-in-tariffs. Nevertheless it is necessary to analyze the situation in each country to find out the best way to improve renewable energy power generation under the given framework set. The feed-in-tariff works well with an extended grid system. Therefore it will have to be combined with other measures or replaced by other options for a rural electrification strategy, where there often isn’t any grid at all.

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.

 

Morocco

Morocco is a country with a huge dependency on the import of fossil energy of up to 95%. But the country has a high potential for renewable energy: if this potential was exploited, then Morocco could produce twice as much as the required amount of energy and thus also tackle the obstacle of the low electrification rate which is 15% or lower in rural areas.

GTZ activities in Morocco started in the 1990s with a wind energy programme which offers different services:
• Performing surveys and measurements to determine the wind potential
• Elaboration and improvement of conditions for feeding wind-generated electricity into power grids Creation and consolidation of energy-sector framework conditions for renewable energy resources
• Fostering knowledge among experts and managers in private and state-owned institutions to assess the wind energy potential, to plan wind energy projects and to improve the energy policy framework for renewable energies

 

This wind energy programme was one of the very first renewable energy programmes in Morocco. It greatly contributed to establishing renewable energy as an important topic in the country and served as a basis for all following activities, like for instance the construction of the 60 MW wind farm at Essaouira.

 

Currently, GTZ is working with the Government of Morocco on a programme for renewable energy and energy efficiency promotion. The project is pursuing an integrated concept that combines policy advisory services, sectoral and technical support and institutional promotion. It also includes knowledge transfer and networking of applied research on renewable energy and energy efficiency. Its efforts focus on different aspects:

• The project advises the Moroccan Ministry of Energy, Mines, Water and the Environment on developing and implementing the nation’s Renewable Energy and Energy Efficiency Act and secondary regulation in the form of, for example, ordinances and decrees.
• Furthermore support to its partner organisation, Morocco’s Centre for Development of Renewable Energy (CDER), in its transformation process is provided.
• Efforts to develop regional utilisation strategies for renewable energy sources and energy efficiency in selected regions of Morocco represent a further aspect of the project.
• Through the cooperation with industry and research partners, like for instance the Fraunhofer Institute for Systems and Innovation Research or the German Aerospace Center the project supports the development of renewable energy and energy efficiency.
• Results achieved so far: (1) Training events have improved the technical know-how of the partner organisation, particularly with regard to energy efficiency; (2) Morocco’s Renewable Energy and Energy Efficiency Act is on track to be adopted by Moroccan Parliament in 2009.

 

Chile

Sixty percent of electricity generation in Chile is based on imported fossil fuels (mostly natural gas that was imported from Argentina until they started to close the gas tap in 2004) and 40 percent on domestic hydropower.

Besides its capacity to greatly expand the use of hydro power, Chile also has non-conventional renewable energy (RE) resources with considerable potential that the Chilenian government plans to use also as a means of security for energy supply. Until the start of the joint project the private sector had invested in this area only in a few isolated instances, especially since unresolved technical and legal issues have made supplying power to the electric grid difficult. In the liberalised electricity market, renewable energies must also compete economically with conventional energy sources.

The GTZ project started in 2004 and supports non-conventional renewables to gain a more significant role in maintaining a sustainable electricity supply in Chile. Political acceptance and the investment climate for supplying the grid with electricity generated from renewable sources have been improved and the number of projects to be implemented is rising rapidly.

The project provides the Comisión Nacional de Energia (CNE), (the body responsible for regulating, preparing and implementing energy policy) with advisory services on creating favourable conditions for electricity generation from non-conventional renewable energy sources. This includes regulation of grid access, integration into the electricity market, and development of expansion strategies and promotional instruments for renewable energies. This resulted in a law that obliges power distributers to offer a growing part of their electricity from renewable energies (starting with 5% in 2010, aim for 2014: 10%) and fines them if they don´t provide the adequate amount.
A second priority area is the removal of structural market constraints hindering the rapid expansion of renewables in Chile. These include, besides lack of knowledge about energy resources and their geographical distribution, lack of experience with planning and approval procedures and with grid connection.

The project supports investigation of the technical and economic energy potential in the wind energy, biomass and biogas sectors. To facilitate planning and approval procedures, guidelines for project planning and environmental impact studies are being prepared for the respective renewable energy technologies.

Results: The new regulations improve the economic and legal conditions for RE projects and facilitate entry into the market for new actors and investors. At present, more than 45 projects with a total capacity of about 1280 MW have the status of legal approbation, are in planning or already in construction (mini hydropower plants, wind energy plants, biomass/biogas plants, geothermic projects). The CO2 emissions reduction sum up to 2.5 Mio. t/year.

Brazil

1. FITs are politically not feasible in Brazil.

2. Due to high retail electricity rates it is expected that grid parity will be attained in 5-7 years.

3. The regulator is repsonsible for tariff adjustments.

Feed-in tariff funds 

Overview of proposed feed-in tariff funds

Name of organization	Capitalization / Source of funds	Governance Structure	Target / Services provided	Annotation
Deutsche Bank - Global Energy Transfer Feed-in tariffs for Developing Countries (GET FiT)	carbon credits, ODA, private capital	global	renewable energy and off-grid premium (incremental costs); policy advise; project preparation	GET FiT is proposed by Deutsche Bank Climate Change Advisors. Stage: Greenpaper (study), available on http://www.dbcca.com/research

Further Reading

• Arne Klein, Benjamin Pfluger, Anne Held, Mario Ragwitz (Fraunhofer ISI), Gustav Resch, Thomas Faber (EEG); Evaluation of different feed-in tariff design options – Best practice paper for the International Feed-In Cooperation; A research project funded by the German Federal Ministry for the Environment, Nature Conservation and Nuclear Safety (BMU); 2nd edition, Karlsruhe, October 2008
• John Besant-Jones, Bernard Tenenbaum, Prasad Tallapragada (ESMAP / World Bank); Regulatory Review of Power Purchase Agreements: A Proposed Benchmarking Methodology; Washington DC, October 2008
• DB Climate Change Advisors; Greenpaper GET FiT Program - Global Energy Transfer Feed-in Tariffs for Developing Countries; London April 2010