FITs oblige energy companies to buy renewable energy from producers, and sets the price which these companies pay per unit of electricity. By guaranteeing access to the grid and setting a favourable price per unit of power, FITs ensure that renewable energy is a sound long-term investment - for companies, for industry, and for individuals - thereby creating a strong economic incentive for investing in renewables.
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The most common method for funding the FIT involves sharing the costs amongst the end-users. The result being that the increase in price per household is very small. The following figure illustrates the mechanism.
Source: WFC Feed-in tariffs - Boosting Energy for our Future, page 7
When designed effectively, FITs are proven to:
FITs are often rejected for being 'interventionist' - for interfering in the free market - and for being inefficient or ineffective as a result.
All renewable energy support mechanisms are interventions in the market. What makes FITs unique is that they have proven to be the most effective mechanism for increasing the uptake in renewable energy, and the best at creating market growth.
It is also worth noting that those who argue that FITs are interventionist frequently advocate some form of quota system or 'renewable portfolio standard'. But quota systems are just as interventionist: while FITs fix the amount to be paid for the electricity, and allow the market to determine the amount of electricity generated; quota systems fix the latter, and allow the market to determine the former.
Sometimes, FIT laws are called Advanced Renewable Tariffs, Feed Laws or Renewable Energy Feed-in Tariffs (REFITs). The key question is not their label, but whether they effectively address the above objectives.
It is important, though, to know what is not a FIT law.
Find out what should be in a good FIT law.
Find out what you need to consider before drafting a FIT law
The World Future Council is working to promote FITs and has produced a guide for politicians that outlines the basics of feed-in tariff systems. Our researchers have also written a more detailed book - Feed in Tariffs: Accelerating the deployment of renewable energy - that compares different support schemes.
Feed-in Tariffs - accelerating the deployment of renewable energy, by Miguel Mendonça, 2009.
Powering the Green Economy - the feed-in tariff handbook, by Miguel Mendonça, David Jacobs and Benjamin Sovacool, 2010.
A Renewable World - Energy, Ecology, Equality, by Herbert Giradet and Miguel Mendonça, 2009.
The International Feed-in Cooperation: http://www.feed-in-cooperation.org/
Paul Gipe's site (Wind-Works): http://www.wind-works.org/
The Renewable Energy and Energy Efficiency Partnership (REEEP): http://www.reeep.org/
The Renewable Energy Policy Network for the 21st Century (REN21): http://www.ren21.net/
The German Federal Ministry for the Environment, Nature Conservation and Nuclear safety [renewable energy page]: http://www.bmu.de/english/aktuell/4152.php