A policymakers guide to feed-in tariff policy design

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Source: GLOBE Foundation

'Feed-in tariffs (FITs) are the most widely used renewable energy policy in the world' says a massive report by a team of researchers at the National Renewable Energy Laboratory (NREL).

Analysts from the NREL's Strategic Energy Analysis Center (SEAC), along with E3 Analytics and the U.S. Department of State, have published 'A Policymaker's Guide to Feed-in Tariff Policy Design' (PDF 2.1 MB).

Feed-in tariffs (FITs) are accelerating renewable energy (RE) deployment, accounting for a greater share of RE development than either tax incentives or renewable portfolio standard (RPS) policies, says the report.

FITs have generated significant RE deployment, helping bring the countries that have implemented them successfully to the forefront of the global RE industry. In the European Union (EU), FIT policies have led to the deployment of more than 15,000 MW of solar photovoltaic (PV) power and more than 55,000 MW of wind power between 2000 and the end of 2009.

In total, FITs are responsible for approximately 75% of global PV and 45% of global wind deployment. Countries such as Germany, in particular, have demonstrated that FITs can be used as a powerful policy tool to drive RE deployment and help meet combined energy security and emissions reductions objectives.

This 144 page policymaker's guide provides a detailed analysis of FIT policy design and implementation and identifies a set of best practices that have been effective at quickly stimulating the deployment of large amounts of RE generation.

The report provides a comprehensive overview of policy options and highlights for Americans some key elements that make policies successful, specifically.

  • Long-term policy stability,
  • Payments based on the cost of generation,
  • Differentiating tariffs by technology, size, location, and resource intensity
  • Guaranteed access to the grid,
  • Eligibility to all end users and project developers, including some utilities, and a
  • 'Must take' provisions for the electricity generated.

As noted by renewable energy expert Paul Gipe, the report emphasizes the positive investment environment that aggressive feed-in tariffs provide.

'Well-designed feed-in tariffs can help reduce [investment] risk, which can also help reduced the overall cost of RE development,' says the report.

It goes on to note that the stability of feed-in tariffs makes it more likely that 'traditionally risk-averse investors' will provide debt financing, making more capital available for renewable energy development. The latter is increasingly important in the US as the market for tax-advantaged investments has shrunken dramatically since the collapse of the housing bubble.

Although the discussion is aimed primarily at decision makers who have decided that a FIT policy best suits their needs, exploration of FIT policies can also help inform a choice among alternative renewable energy policies.

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