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11/11/2015 NREL: State and Local Governments FeedIn Tariffs
http://www.nrel.gov/tech_deployment/state_local_governments/basics_tariffs.html 1/3
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FeedIn TariffsA feedin tariff (FIT) is an energy supply policy that promotes the rapid deployment of renewable energy resources. A FIT offers a guarantee of paymentsto renewable energy developers for the electricity they produce. Payments can be composed of electricity alone or of electricity bundled with renewableenergy certificates. These payments are generally awarded as longterm contracts set over a period of 1520 years.
FIT policies are successful around the world, notably in Europe. Currently there are six U.S. states (California, Hawaii, Maine, Oregon, Vermont, andWashington) that mandate FITs or similar programs. A few other states also have utilities with voluntary FITs. There is growing interest in FIT programsin the United States especially as evidence mounts about their effectiveness as framework for promoting renewable energy development and job creation.
Background
FIT policies can be implemented to support all renewable technologies including:
WindPhotovoltaics (PV)Solar thermalGeothermalBiogasBiomassFuel cellsTidal and wave power.
So long as the payment levels are differentiated appropriately, FIT policies can increase development in a number of different technology types over awide geographic area. At the same time, they can contribute to local job creation and increased clean energy development in a variety of differenttechnology sectors.
FIT policies are successful around the world, notably in Europe. Currently there are six U.S. states (California, Hawaii, Maine, Oregon, Vermont, andWashington) that mandate FITs or similar programs. A few other states also have utilities with voluntary FITs. There is growing interest in FIT programsin the United States, especially as evidence mounts about their effectiveness as framework for promoting renewable energy development and job creation.
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 electricitygeneration, 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 newinvestment.
Due to the guaranteed terms and low barriers to entry offered by FIT policies, they have been highly successful at driving economic developmentand job creation.
Data from countries like Germany and Spain demonstrate that welldesigned 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 projectdevelopment than other policy mechanisms.
Implementation Issues
Despite the many benefits, FIT policies pose a few challenges as well.
FIT policies do not address the barrier posed by the high upfront costs of RE systems, in contrast to rebate programs and other upfront "capacitybased" incentives. FIT policies are designed to offer stable revenue streams through longterm purchase contracts, requiring that the high upfrontcosts be amortized over a long period of time.
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11/11/2015 NREL: State and Local Governments FeedIn Tariffs
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Welldesigned FIT policies require a significant upfront administrative commitment to design the policy and to establish FIT payments based onthe levelized cost of renewable energy generation. Detailed analyses on technology cost and resource quality are needed to ensure FIT payments areadequate to guarantee cost recovery without leading to windfall profits.
FIT policies designed to include guaranteed grid interconnection, regardless of location on the grid, could lead to lessthanoptimal project siting.Accordingly, if projects are sited far from load centers or transmission or distribution lines, interconnection costs increase. This puts upwardpressure on policy costs. However, this challenge can be largely overcome if FIT policies encourage siting projects near load centers by creating anincentive—either a bonus or a higher price based on higher spotmarket prices—or if the policies require developers to bear a portion, if not theentirety, of the costs of grid connection.
Due to changes in technology costs and market prices over time, FIT policies must be adjusted periodically to account for these changes.Accounting for changes in technology costs accurately remains a challenge. Changing payment levels too often can be undesirable as well, as itcreates investor uncertainty and increases overall market risk. One way to resolve this issue is to adjust the policy through a tariff degression, wherethe FIT payments decline by a predetermined percentage each year. This can be coupled with periodic policy adjustments that occur every several—three to four—years. To be successful, these adjustments require a detailed methodology to track market changes effectively from year to year.Ultimately, the challenge is to provide a flexible policy framework without jeopardizing investor confidence.
Design Best Practices
Many successful FIT policies base the prices offered to suppliers on the levelized cost of renewable energy generation to ensure a reasonable rate ofreturn. Other design best practices include:
Offering longterm, musttake contractsDifferentiating FIT prices by technology type, project size, and resource qualityIncluding a design feature that incorporates an incremental decrease in the FIT prices over time to encourage innovation and accelerate the pace ofdeploymentIncorporating the costs of the policy into the electricity rate baseMinimizing transaction costs by providing streamlined administrative procedures.
Source
The information for this summary about FITs comes from an NREL technical report, State Clean Energy Policies Analysis Project: An Analysis ofRenewable Energy Feedin Tariffs in the United States .
Additional ResourcesDescriptions of current Feedin Tariffs and Similar Programs (source: EIA)
The following NREL technical reports provide more information on FITs:
Innovative FeedIn Tariff Designs That Limit Policy CostsRenewable Energy Cost Modeling: A Toolkit for Establishing CostBased Incentives in the United StatesPolicymaker's Guide to FeedIn Tariff Policy DesignFeedin Tariff Policy: Design, Implementation, and RPS Policy Interactions
The following databases provide information about policy implementation and the status of legislation in the states:
Database of State Incentives for Renewable and EfficiencyNational Conference of State Legislatures' Energy and Environment Legislation Tracking Database
Printable Version
State & Local Governments HomeBlogEducation & OutreachPolicy Basics
Community SolarFeedIn TariffsRenewable Energy RebatesRenewable Fuel StandardsRenewable Portfolio StandardsSolar Requests for ProposalsValueofSolar Tariffs
PublicationsRequest AssistanceTechnical Assistance Project Map
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