Feed-in Tariff Policy: Design, Implementation, and RPS Policy Interactions

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Feed-in tariff (FiT) policies are now implemented in more than 40 countries around the world and are cited as the primary reason for the success of the German and Spanish renewable energy markets. As a result of that success, FiT policy proposals are starting to crop up in several other areas around the world including a number of US states.

The success of renewable energy projects in Europe, which have implemented the FiT system, has only proved the positive effects of implementing FiTs.

The two most common FiT payment designs are the “fixed-price” and the “premium-price” options. However there are also variations of these payments designs, for example with the premium-price FiT design there is a variation known as the “spot-market gap” model, currently implemented in the Netherlands.

A spot market is where energy can be sold for cash and delivered instantly. This option could be of interest to policy makers in the US as it represents a novel FiT design that may be found to be more compatible with the current US regulatory policy environment.

However regardless of variations, these two models dominate FiT policy design; yet most countries who currently have an FiT policy seem to have opted for the fixed-price approach.

The reason for this preference for fixed-price design is due to the stable conditions for investors. Basically, with this design the total FiT payment to the project remains independent from the market price, and is a predetermined payment for a guaranteed period of time, for example Germany’s FiT is fixed for a period of 20 years.

Another major feature of FiT design is the differentiation of price in terms of system specifications. For example in some areas of the world the price for any type of solar installation is the same; whereas in others there is a price variation for different types of installation such as roof top, ground mounted or BIPV. The price can also vary dependant on where in the region the system is, as the quality of the resource can be different at each site.

FiTs impose very few limitations – if any at all – on those wishing to sell renewable power to the grid, this makes them a powerful vehicle for leveraging both local and global capital toward renewable energy development.

Because of all these subtle differences each renewable energy project is unique, and so each FiT will be different from the next. This means that we can expect to see new FiT programs cropping up all the time as well as changes to existing policies. The Tariff Watch section will be dedicated to keeping you up-to-date on all this photovoltaic FiT news.

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