Feed in tariff, price for renewable energy

As the urgency of climate change becomes more and more apparent, the implementation of renewable energy technologies has grown imperative. In an effort to provide financial incentives for both the business and residential application of sustainable technologies such as solar thermal energy and wind power, many governments around the world have introduced variations of the feed-in tariff scheme.

Basically, this scheme obligates electricity utilities to buy power from renewable sources at fixed, often above market rates (which can be structured to promote greater technology efficiency through stepped reductions in tariffs over an extended period of time). These rates normally represent a significant increase (often referred to as premium FIT) and can be up to 300% or more above the retail price for electricity. Such makes producing clean energy much more lucrative. A utility purchasing clean energy compensates for the cost of this energy by spreading the difference across all its customers. As a result, only a very small increase in the electricity price per person is required in order to deliver a significant incentive for the utilization of renewable energy technologies. Rates usually vary depending on what renewable energy technology is used, this being due to the difference in the cost of energy generation respective to the technology. The tariff is normally guaranteed for a duration of 10-20 years. Both the rate and the duration of a feed-in tariff provide a certainty to investors which lowers the market risk.

The system has been very successful in countries such as Germany and Spain, greatly stimulating the renewable energy sectors in those countries. Renewable energy in Germany now accounts for around 15% of the nation’s energy. Of this renewable energy growth, more than half was supported by feed-in tariffs. This achievement has prompted several other countries around the world to introduce feed-in laws. Among many other countries, several states in the US have enacted feed-in laws and the UK is commencing its system of FITs in April 2010. In the UK this is set to boost the lagging implementation of photovoltaic appliances.

It is clear that a good feed-in tariff system has the capacity to greatly boost the renewable energy sector in the country of implementation. This boost creates new infrastructure laying the framework for governments and businesses to continue investing in renewable technologies. A booming renewable energy industry, such as in Germany, creates very solid economic benefits.

In Germany, the economic benefits of renewable energy totalled more than 9 billion euro ($12.7 billion) in 2006, including:

* fuel-import savings of 0.9 billion euro ($1.27 billion)

* avoided environmental and health damages worth approximately 3.4 billion euro ($4.8 billion)

* A decline in wholesale electricity prices amounting to 5 billion euro ($7 billion).*Worldwatch Institute

Naturally the German government has invested heavily into the renewable energy industry; however the economic benefits are well able to compensate such investments. This will become even clearer as the long term benefits of a thriving renewable energy sector become more apparent. These would include future savings in relation to avoided environmental damages, indirectly avoided health damages, long term and stable employment, etc… The potential of renewable energy is very great, taking advantage of this potential is absolutely imperative. Any government must realise that growing a country’s renewable energy sector as quickly as possible is vital to becoming part of a better future. Our climate is changing, resources are dwindling – the longer the implementation of renewable technologies is delayed, the greater the cost to all. The feed-in tariff scheme is a good initial step in this direction.

It is important that a FIT system is continually optimised in order to provide the best possible support to sustainable technologies, thus reflecting changing market conditions. The tariff must be high enough to make a real impact on market interest in clean technologies and the duration of a scheme must be sufficient to reduce market risk and encourage investment.

In 2008, a detailed report by the Commission of the European Communities found that “well-adapted feed in tariff regimes are generally the most efficient and effective support schemes for promoting renewable electricity.” In the European Union the promotion of wind energy, bio-gas and photovoltaic technologies has yielded the greatest success when supported with a feed-in tariff scheme.

In 2006, approximately 240,000 people where employed by Germany’s renewable energy sector. This represents a 40% increase over 2004. Such a trend is a good example highlighting the enormous contribution a FIT scheme can make; by greatly boosting the renewable energy sector it lays the foundation for hundreds of thousands of new and clean jobs.

In conclusion, feed-in tariffs can offer homes and businesses a great incentive for producing clean energy and consequently create significant environmental and economic benefits. It is crucial that sustainable technologies create a strong appeal in the business world. The financial benefit of generating clean energy must reflect the genuine value of renewable technology. Just as homes and businesses are better off generating power sustainably, so it is for a country, for the planet.

Gabriel Thelen is passionate about environmental conservation and hopes that more people will wake up to the urgency of the climate change crisis which will continue to impact life here on Earth with an ever greater effect.