The term refers to a scheme through which people who generate electricity from renewable sources, e.g., solar or wind, are guaranteed a price for that electricity which is fed into or sold to the electricity grid.  The feed-in tariff (FIT) is an economic instrument by which the government encourages people to spend money to install alternative, renewable energy.  The scheme is intended to accelerate adoption of renewable sources of energy that emit lower levels of greenhouse gas emissions than fossil fuel sources, e.g., coal or peat.

The utility companies are required to purchase the renewable energy from the private generators at a guaranteed price that is higher than other sources of energy, and sometimes the guarantee extends for a set period of time.   Since the utilities also generate electricity, they often oppose the FIT as setting up competition for them and reducing their profit margins.

While many countries have adopted a FIT, there are many variations: people get paid for any electricity they generate or just whatever surplus energy they create (what is leftover once they use the energy for their own needs); different rates are set for different renewable sources; sometimes the government limits the size of the renewable energy project that is eligible.  This last issue is a matter of contention in the UK in light of the recent decision to limit FIT to only smaller generators.  In Germany, a leader in the field, the price is guaranteed for a period of time, everyone is eligible, and everyone is guaranteed access to the electricity grid.

FITs have often led to a small annual increase in the price of electricity per customer because the electricity generated from renewable energy sources is typically more expensive than electricity generated from conventional sources, such as coal, gas, hydropower, or nuclear.  At the same time, they are an equitable means of supporting renewable energy sources because everyone, or at least many individuals, farmers, cooperatives, large and small companies, can participate in the FIT.

Some further ideas to explore on the Feed-in Tariff:

Determine which forms of renewable sources of electricity are subject to FIT payments in your area.

Go through the exercise of adopting a renewable source of energy for your school or work place or home and determine what you have to do to qualify for the FIT scheme in your area; what it will cost you to install the renewable source of energy; and what, if any, savings you will earn from the FIT.

Sources:

European Union Environmental Agency (EEA), “Feed-in tariff”

glossary.eea.europa.eu/terminology/concept_html?term=feed-in%20tariff

Miguel Mendonca and David Jacobs, “Feed-in Tariffs Go Global: Policy in Practice”  Renewable Energy World,  www.renewableenergyworld.com/rea/news/article/2009/09/feed-in-tariffs-go-global-policy-in-practice

Wind-Works, “Electricity Feed Laws, Feed-in Laws, Feed-in Tariffs, Advanced Renewable Tariffs, and Renewable Energy Payments”

www.wind-works.org/articles/feed_laws.html

See, also, the video “Earth Report – Pay Back Time – Feed-in tariff” in the current You Tube section of irish environment (June 2011).

“The German Feed-In Tariff Model: A Solution to the Energy Crisis?” (Dec 11, 2009) www.suite101.com/content/the-german-feedin-tariff-model-a179183