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Feed-in tariff


A feed-in tariff (FIT, FiT, standard offer contract,advanced renewable tariff, or renewable energy payments) is a policy mechanism designed to accelerate investment in renewable energy technologies. It achieves this by offering long-term contracts to renewable energy producers, typically based on the cost of generation of each technology. Rather than pay an equal amount for energy, however generated, technologies such as wind power and solar PV, for instance, are awarded a lower per-kWh price, while technologies such as tidal power are offered a higher price, reflecting costs that are higher at the moment.

In addition, feed-in tariffs often include "tariff degression", a mechanism according to which the price (or tariff) ratchets down over time. This is done in order to track and encourage technological cost reductions. The goal of feed-in tariffs is to offer cost-based compensation to renewable energy producers, providing price certainty and long-term contracts that help finance renewable energy investments.

FITs typically include three key provisions:

Under a feed-in tariff, eligible renewable electricity generators, including homeowners, business owners, farmers and private investors, are paid a cost-based price for the renewable electricity they supply to the grid. This enables diverse technologies (wind, solar, biogas, etc.) to be developed and provides investors a reasonable return. This principle was explained in Germany's 2000 Renewable Energy Sources Act:

The compensation rates ... have been determined by means of scientific studies, subject to the provision that the rates identified should make it possible for an installation – when managed efficiently – to be operated cost-effectively, based on the use of state-of-the-art technology and depending on the renewable energy sources naturally available in a given geographical environment.

As a result, the tariff (or rate) may differ by technology, location (e.g. rooftop or ground-mounted for solar PV projects), size (residential or commercial scale) and region. The tariffs are typically designed to decline over time to track and encourage technological change.

FITs typically offer a guaranteed purchase agreement for long (15–25 year) periods.

Performance-based rates give incentives to producers to maximize the output and efficiency of their project.


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