FEED-IN TARIFF
as a Marketing Strategy for
Renewable Energy
M. Zafar Iqbal
Department of Physics
COMSATS Institute of Information Technology
Islamabad
A feed-in tariff (FIT), (standard offer contract,
advanced renewable tariff or renewable energy
payments) is a policy mechanism designed to
accelerate investment in renewable energy
technologies. It achieves this by offering long-term
contracts to renewable energy producers, typically
based on the cost of generation of each technology.
Rather than pay an equal amount for energy,
however generated, technologies such as wind
power, for instance, are awarded a lower per-kWh
price, while technologies such as solar PV and tidal
power are offered a higher price, reflecting costs that
are higher at the moment.
In addition, feed-in tariffs often include "tariff
degression", a mechanism according to which the
price (or tariff) ratchets down over time. This is done
in order to track and encourage technological cost
reductions. The goal of feed-in tariffs is to offer costbased compensation to renewable energy producers,
providing price certainty and long-term contracts that
help finance renewable energy investments.
FITs typically include three key provisions:
• guaranteed grid access
• long-term contracts
• cost-based purchase prices
Under a feed-in tariff, eligible renewable electricity
generators, including homeowners, business owners,
farmers and private investors, are paid a cost-based price
for the renewable electricity they supply to the grid. This
enables diverse technologies (wind, solar, biogas, etc.) to
be developed and provides investors a reasonable return.
This principle was explained in Germany's 2000 RES Act:
The compensation rates...have been determined by
means of scientific studies, subject to the provision
that the rates identified should make it possible for
an installation – when managed efficiently – to be
operated cost-effectively, based on the use of stateof-the-art technology and depending on the
renewable energy sources naturally available in a
given geographical environment.
— 2000 Renewable Energy Sources (RES) Act
As a result, the tariff (or rate) may differ by technology,
location (e.g. rooftop or ground-mounted for solar PV
projects), size (residential or commercial scale) and region.
The tariffs are typically designed to decline over time to
track and encourage technological change.
As of 2010, feed-in tariff policies had been enacted in over
50 countries.
The first form of feed-in tariff (under another name) was
implemented in the US in 1978 under President Jimmy
Carter, who signed the National Energy Act (NEA). This
law included five separate Acts, one of which was the
Public Utility Regulatory Policies Act (PURPA). The
purpose of the National Energy Act was to encourage
energy conservation and develop new energy resources,
including renewables such as wind, solar and geothermal
power.
In 1990, Germany adopted its "Stromeinspeisungsgesetz"
(StrEG), or "Law on Feeding Electricity into the Grid". The
StrEG required utilities to purchase electricity generated
from renewable energy suppliers at a percentage of the
prevailing retail price of electricity. The percentage offered
to solar and wind power was set at 90% of the residential
electricity price, while other technologies such as hydro
power and biomass sources were offered percentages
ranging from 65–80%. A project cap of 5 MW was included.
While Germany's StrEG was insufficient to encourage
costlier technologies such as photovoltaics, it proved
relatively effective at encouraging lower-cost technologies
such as wind, leading to the deployment of 4,400 MW of
new wind capacity between 1991 and 1999, representing
approximately one third of the global capacity at the time.
An additional challenge that StrEG addressed was the right
to interconnect to the grid. The StrEG guaranteed
renewable electricity producers grid access. Similar
percentage-based feed-in laws were adopted in Spain, as
well as in Denmark in the 1990s.
Germany's Renewable Energy Sources Act
Germany's Feed-in Law underwent a major restructuring in
2000, re-framed as the Act on Granting Priority to
Renewable Energy Sources ("Erneuerbare Energien
Gesetz", German Renewable Energy Act). In its new form,
it proved to be the world's most effective policy framework
at accelerating the renewable deployment.
Important changes included:
1. Purchase prices were based on generation cost. This led
to different prices for wind power, solar power,
biomass/biogas and geothermal and for projects of
different sizes.
2. Purchase guarantees were extended to 20 years.
3. Utilities were allowed to participate.
4.Rates were designed to decline annually, based on
expected cost reductions, known as "tariff degression".
Since it was the most successful, the German policy
(amended in 2004 and 2008) often was the benchmark
against which other feed-in tariff policies were considered.
Other countries followed the German approach. Long-term
contracts are typically offered in a non-discriminatory
manner to all renewable energy producers. Because
purchase prices are based on costs, efficiently operated
projects yield a reasonable rate of return.
Feed-in tariffs (FIT) supported growth in solar power in
Spain, Germany and wind power in Denmark.
Feed-in tariff laws were in place in 46 jurisdictions globally
by 2007.
The success of photovoltaics in Germany resulted in an
electricity price drop of up to 40% during peak output times,
with savings between €520 million and 840 million for
consumers. Savings for consumers have, conversely,
meant reductions in the profit margin of big electric power
companies, who reacted by lobbying the German
government, which reduced subsidies in 2012.
Energy utilities lobbied for the abolition, or against the
introduction, of feed-in tariffs in other parts of the world,
including Australia and California. Increase in the solar
energy share in Germany also had the effect of closing
gas- and coal-fired generation plants.
Progress of FiTs before 2012
The feed-in tariff system has been modified frequently. The
feed-in tariff, in force since 1 August 2004, was modified in
2008. In view of the unexpectedly high growth rates, the
depreciation was accelerated and a new category
(>1000 kWp) was created with a lower tariff. The facade
premium was abolished. In July 2010, the Renewable
Energy Sources Act was again amended to reduce the
tariffs by a further 16% in addition to the normal annual
depreciation, as the prices for PV-panels had dropped
sharply in 2009. The most recent modification of the EEG
occurred in 2011, when part of the degression foreseen for
2012 was brought forward to mid-2011 as a response to
unexpectedly high installations in the course of 2010.
Progress of FiTs since 2012
As of July 2014, feed-in tariffs for photovoltaic systems
range from 12.88 euro cents per kWh for small roof-top
system, down to 8.92 euro cents per kWh for large utility
scaled solar parks. Also, FiTs are restricted to PV system
with a maximum capacity of 10 megawatts (MW). The
feed-in tariff for solar PV is declining at a faster rate than
for any other renewable technology.
As of July 2014, feed-in tariffs range from 3.33 ct/kWh (4.4
¢/kWh) for hydropower facilities over 50 MW to 12.88
ct/kWh (17.3 ¢/kWh) for solar installations on buildings up
to 30 kW and 19 ct/kWh (25.5 ¢/kWh) for offshore wind. As
of August 2014, a revised Renewable Energy Sources Act
(EEG 2014, also called EEG 2.0) entered into force, with
some modifications to the feed-in tariffs. The aim is to meet
Germany’s renewable energy goals of 40 to 45% of
electricity consumption in 2025 and 55% to 60% in 2035.
The policy also aims to encourage the development of
renewable technologies, reduce external costs, and
increase security of energy supply.
In the first half of 2014, 28.5% of gross electricity
production in Germany came from renewable sources. The
Federal Environment Ministry estimated that renewables
were to save 87 million tonnes of carbon dioxide by 2012.
A QUICK EXAMPLE on the FITs in UK:
If a household installed a 2.5kW solar system, the Feed-In Tariffs
would provide the following benefits:
In a typical location in South central England this system should
generate about 2,125kWh each year, earning a generation tariff of
about £330 a year[1], tax-free; plus
If, say 1,500kWh is used in the home this would save a further £210
per annum if electricity costs are 14p/kWh; plus
The remaining 625kWh would be exported, earning about £30 under
the export tariff.
Therefore the total benefit would be around £570 to £590[2] per year.
[1]
Nov 2012 to Jan 2013 installations at higher rate [2] Because most
houses without export meters receive the export tariff for 50% of the
generation - about £50.
PAKISTAN RENEWABLE ENERGY SOCIETY
Promoting Green Energy For Better Tomorrow
Feed-in tariff
Tuesday, February 14, 2012.
This is apropos a news item regarding incentives to sugar
mills for their own power generation (The News, Feb 10). It
is worth pointing out that a scheme dubbed feed-in tariff,
which provides significant concessions and rebates on the
electricity tariff for power from the national grid, has
emerged as a major incentive for the use of alternative
renewable energy sources, especially the solar energy, in
most of the major industrially developed nations around the
globe. Started by Germany, through the single-minded
initiative of a dedicated energy conscious member of the
German federal parliament, the idea caught on with active
adoption by most of the developed world, resulting in
revolutionary progress in the use of solar energy as an
alternative power source during the last few years.
PAKISTAN RENEWABLE ENERGY SOCIETY
Promoting Green Energy For Better Tomorrow
Consumers in the sunbelt countries (which include
Pakistan) in the developed world have thus been
incentivised to produce power from solar-cell modules,
which is not only sufficient for their own use, but the surplus
power generated is fed back into the grid with attractive
financial rewards. This has, in turn, led to a phenomenal
growth in the world solar-energy market, bringing a marked
reduction in the price per watt. It is time our government
and parliamentarians also thought of implementing such
innovative schemes to address our ongoing energy crisis.
Dr M Zafar Iqbal
Islamabad
Benefits
Some of the benefits and impacts of FIT policies
include:
• The rapid renewable energy development seen in
jurisdictions with FIT policies has helped reduce
the environmental impacts of electricity generation,
while providing valuable air quality and other
environmental benefits.
• Fixed prices created by FITs for renewable energy
sources can also help stabilize electricity rates
which can entice new business and attract new
investment.
• Due to the guaranteed terms and low barriers to
entry offered by FIT policies, they have been highly
successful at driving economic development and
job creation.
• Data from countries like Germany and Spain
demonstrate that well-designed FIT policies can
positively impact job creation and economic
growth. A growing body of evidence from Europe
and Ontario, Canada demonstrates that FIT
policies have on average fostered more rapid RE
project
development
than
other
policy
mechanisms
http://www.nrel.gov/tech_deployment/state_local_governments/basics_tariffs.html
THANKS