Issue Brief: Feed-in Tariffs

Feed-in Tariffs

Executive Summary

Feed-in Tariffs (FITs) is the name of a policy measure used to accelerate the deployment of renewable energy technologies in the electricity sector. Under a FIT policy, utilities pay renewable energy producers a guaranteed rate per unit of electricity in a long-term agreement that guarantees priority access to the electrical grid. The rate paid to the producer is set at an amount that provides a reasonable rate of return to producers over the entire length of the contract. This certainty has proven key as it enables developers to secure financing more easily and helps rapidly expand the renewable energy market. In turn, renewable energy companies are able to achieve economies of scale, allowing the cost of producing renewable energy to drop over time.

This policy has been practiced early and often in Europe to develop the renewable electricity sector. The use of FITs in Denmark helped its wind power industry grow to become the world leader, while in Germany, FITs helped the country reach its 2010 target of obtaining 12.5 percent of its energy from renewable sources three years ahead of schedule. In the United States, utilities, municipalities and states have begun to implement FIT policies to help meet renewable energy targets and expand these industries in local markets. Though introduced in Congress (H.R. 6401 by Rep. Jay Inslee (D-WA)), no bill has yet been passed that would create a FIT policy on the national level. But increasingly, policymakers in all levels of government have begun considering FITs as a way to bring down the costs of renewable energy technologies and shift to a low-carbon supply of electricity. The experiences of early adapters of this policy can be used to gain insight into how to design a successful and cost-effective FIT policy.


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