Feed-in Policies

Overview

Feed-in Laws: The (governmental) energy provider is obliged to buy electricity from private producers for a fixed price. Such law provides planning security for investors who can produce and sell electricity into the (national) grid. This is essential for its efficient production, as electrical power cannot be stored practically. Feeding in power for a fixed price allows private entities to utilise existing possibilities of electricity production.

Examples are: geothermic, windpower, block heat and powerplant, new or rehabilitated mini hydro power plants.

Difficulties Establishing Feed in Laws

One difficulty of establishing "feed in laws" is usually that thereby monopolies of the existing (governmental) producers are opened to private entities, this brings in competition which is not everywhere welcomed. Energy prices are also often heavily subsidised. In many development countries the customers price for electricity is lower then the production costs.

Feed-in Tariffs as Policy Instrument

Feed-in tariffs are a commonly used policy instrument for the promotion of renewable electricity production. The term feed-in tariff can be used either in the context of a minimum guaranteed price per unit of produced electricity as approved by the regulator, to be paid to the producer, or as a premium in addition to market electricity prices. Regulatory measures are usually applied to impose an obligation on electricity utilities to pay the (independent) renewable energy power producer a price as specified by the government.
The level of the tariff is commonly set for a number of years to give investors security on income for a substantial part of the project lifetime. Many different adaptations of the instrument are applied. However, the level of the tariff need not have any direct relation with either cost or price, but can be chosen at a level to motivate investors for green power production.

In certain developing countries like India, this instrument has gained importance since the early 90s and is still being used to promote renewable electricity predominantly from wind, small hydro and biomass.

► Further Information: Grid-connected Small Hydropower (SHP) Development:Regulatory Issues and Challenges

The objectives behind having a feed-in tariff can include:

• encouraging local, distributed generation, thereby reducing load on the network and reducing distribution losses associated with the transmission of electricity from centralised generators through the distribution network to customers;
• encouraging uptake of, and stimulating innovation in, renewable energy technology (either generally, or a specific type of technology); and
• reducing greenhouse gas emissions by lessening reliance on nonrenewable energy sources.

Generally, feed-in tariffs are based on a premium price being paid to the customer that is in excess of the normal wholesale cost of generation, and sometimes in excess of the normal retail price of electricity. Feed-in tariffs are generally available to residential customers, or to those customers below a given consumption threshold, and are not likely to be available to commercial scale electricity generation.

Which customers should be eligible for a feed-in tariff?

The central premise of most discussions on feed-in tariffs is that they are aimed at householders. The capital cost associated with installation of solar photovoltaic cells will usually mean that they are installed for reasons other than pure financial return, and therefore usually a personal rather than a business decision.

Some customers who operate small businesses, and are charged a business tariff, may also wish to access a feed-in tariff. Many small businesses have electricity consumption that is equivalent to a residential customer. Some small business customers may also feel equally motivated to install renewable generation at their premises. If the policy objective is to encourage small scale renewable energy, then it could be equally well served by renewable energy generation being installed at business premises.

It also needs to be borne in mind that if the payment regime for feed-in tariffs is to be the retail rate or greater, then the megawatt hour price of the electricity is considerably higher than the regular wholesale price. Accordingly, there needs to be some upper limit placed on the size of systems that could attract this subsidized rate. Consideration also needs to be given to the ability of the distribution network to accept the amount of electricity generated without causing instability in the system.

► Further Information: Feed-in Tariffs. Discussion Paper, Tasmania

Further Information

• Feed-in Tariffs (FIT)
• Global Feed-in Tariffs Project by the World Future Council
• Evaluation of different feed-in tariff design options - Best practice paper for the International Feed-in Cooperation by Arne Klein, Anne Held, Mario Ragwitz (Fraunhofer ISI) and Gustav Resch, Thomas Faber (EEG)
• Country- and region-specific information by PACT (Policy Action on Climate Toolkit)
• Feed-in Tariffs Wind Energy