Today’s post is part of an on-going series in which we offer practical, plain english definitions of some of the most baffling and complex terms thrown around in the renewable energy industry.
For today’s edition of Renewable Term of the Week, we will focus on Feed-in Tariffs.
Feed-in Tariffs (FITs)
A feed-in tariff (often referred to as FITs) is a governmental policy that is intended to encourage renewable energy development by guaranteeing that project developers will be able to enter into long-term purchase agreements for the electricity they generate from renewable resources. Under FITs, utilities are typically required to offer a specified price above market value for every kilowatt-hour (kWh) of electricity produced by renewable developers. When done well, this guaranteed boost to the profit margin for renewable projects creates a huge incentive to develop renewable projects, which in turn can dramatically alter the energy portfolios of the public utilities that are subject to the policy.
Depending on the policy goals that the legislators want to achieve, the guaranteed price can be tailored to offer added incentives to develop certain types of the technology, small or large projects, or any number of other variables. Similar to a Renewable Energy Standard, the FIT can also include a cap of sorts, so that the specified price is only offered up until a predefined quota of energy met. The FIT can also be tailored so that the specified price can decrease over time, or as certain renewable energy goals are met, to more closely reflect the supply/demand curve as the more renewable energy becomes available on the market.
For those industry readers outside of the United States, Feed-in Tariffs are a part of everyday life. To give you a sense of just how broadly these tariffs are utilized world-wide, the National Renewable Energy Laboratory estimates that, in total, FITs are responsible for approximately 75% of global PV and 45% of global wind deployment. However, in the United States, FITs have not been nearly as popular.
One reason that the U.S. has not seen wide-spread use of FITs are potential legal concerns that might come into play. Specifically, opponents to FITs in the U.S. argue that because FITs involve a wholesale sale of electricity between a renewable developer and to public utility, any state FITs would be preempted by either the Public Utility Regulatory Policies Act (PURPA) or the Federal Power Act (FPA). Nonetheless, ample research and analysis has been conducted on this topic by some of the leading energy law scholars in the United States, and it appears that solutions to these legal obstacles can be found through careful planning. For more information on these topics, please see the excellent January 2010 NREL report, “Renewable Energy Prices in State-Level Feed-in Tariffs: Federal Law Constraints and Possible Solutions,” written principally by Scott Hempling with the National Regulatory Research Institute (NRRI).
For more information about Feed-in Tariffs, or any other renewable energy topics please feel free to contact Luke at email@example.com.