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 (i.e. independent power producers, IPPs).
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
Varianten moeglich in Bezug auf:
- Fristigkeit
- Preishoehe, Preisprofil ueber die Laufzeit
- Preisfestsetzungsprozesse (Tarifierung per Gesetz, per Regulierung, durch Regulierungsbehoerde..)
- gesetzliche oder vertragliche Basis (oeffentlich rechtlich, oder privatrechtlich)
- Herkunft der Praemie (Umlage - auf Stromkunden- und Formen; Staatsbudget, Sonderhaushalte, Dritte, EZ?)
- Gueltigkeit, Differenzierung und eventuelle Beschraenkungen
- nach Technologien (Wind, SolarPV, CSP...)
- nach Kapazitaet der Anlagen
- jaehrliche Quoten
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.
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.
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 capacity installed, amount of energy generated by the producer, 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) and the type of site where the power is generated (e.g.Wind: on shore or off share, e.g. solar PV: roof or field).
For solar PV a tarif for own consumption is in place, too. If an operator of a PV plant consumes its own power the utility pay a certain tarif to the owner for this power. In 2010 this tarif is in the range of 0,13-0,15€/kWh ( feed in tarif appro. 0,30-0,35€/kWh, average grid price for househlds app.0,18-0,21€/kWh).
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.
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.
Malaysia
The Renewable Energy Act was passed in April 2011(seda.gov.my/go-home.php).
Philipines
On the debate to whether decide on FIT or auctioning for the limited allotments of 760 MW on the Philipines. See article business.inquirer.net/12961/bidding-eyed-for-renewable-energy-allocation
Uganda
"Feed-in Tariffs Hit Uganda
Monday, January 24, 2011
Uganda has introduced its renewable energy feed-in tariff (Refit) joining Kenya and South Africa, but the East African country is offering a twist compared to its African neighbors.
Uganda has geared its Refit to a plethora of sectors, including varying tariffs for hydropower projects that range from 1 MW to 8 MW, geothermal, and bagasse. The tariff also proposes capacity caps per year, less than 20 MW, for each technology; however, projects with an installed capacity greater than 20 MW will be required to negotiate a tariff and PPA with the system operator on a case by case basis.
The Refit will be managed and implemented by Uganda’s Energy Regulatory Authority (ERA) as part of its mandate under the Electricity Act of 1999. The tariffs for each priority technology will be determined by using a $/kWh leveled cost approach based on the electricity generation costs from the RE source. The ERA said in its Refit document that this is aimed at providing an after tax internal rate of return to equity holders equal to an assumed cost of equity capital in order to provide sufficiently high tariffs and avoiding windfall profits. The ERA said, “The key inputs are based on general investment assumptions and specific assumptions for each of the priority technologies that influence the power generation costs.”
For more information on Uganda’s Refit, please look at the Uganda Renewable Feed-in Tariff Phase 2.[1]"
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
- NREL Feed-in Policy Guidelines
