Since 1991, Germany, Spain, Denmark, and over 40 other nations, states, and provinces, have pioneered legislation that have proven to promote the fastest, cheapest, and widest growth of renewable energy. In many of these countries these policies are called "Feed-In Tariffs" (FITs). Producers of renewable energy are paid a premium rate or "tariff" for each kilowatt of energy they "feed into" the grid. In North America these policies have various names including CLEAN: Clean, Local, Energy Available Now--Contracts. Whatever they are called, the fundamental principles of these policies stay the same.
I. Fundamental Principles of FIT Policies
Since 1991, Germany, Spain, Denmark, and over 60 other nations, states, and provinces, have pioneered legislation that have proven to promote the fastest, cheapest, and widest growth of renewable energy. In many of these countries these policies are called "Feed-In Tariffs" (FITs). Producers of renewable energy are paid a premium rate or "tariff" for each kilowatt of energy they "feed into" the grid. Here are the fundamental principles of these policies:
- Everyone who produces renewable energy is guaranteed that they can connect to the power grid and sell their energy to their utility company. There is no limit to the amount of renewable energy that can be sold to utility companies.
- Utility companies sign 15-20 year contracts with all their renewable energy producers. All contracts are transparent and open for inspection.
- The contracts include long-term agreed upon prices that the utility companies will pay for the energy they buy. The prices are set high enough to be an incentive to new producers and for existing producers to expand their production capacities. Prices vary according to the source of the energy (i.e, sun, wind, water, bio-mass, etc.) and the size and location of the energy-producing installation.
- The utility companies can recoup their increased costs of paying higher prices for renewable energy by spreading these costs among all their customers.
- An Independent Review Board is established that periodically sets the prices and terms for new contracts.
II. How do FITs work?
Feed-In Tariffs are the mechanisms or instruments at the heart of specific state, provincial or national renewable energy policies. FITs are incentives for homeowners, farmers, businesses, etc., to become producers of renewable energy, or to increase their production of renewable energy. As such, they increase our overall production and use of renewable energy, and decrease our consumption and burning of fossil fuels.
III. Why FITs?
There are many reasons why Feed-In Tariffs (FITs) are the most successful renewable energy (RE) incentive in the world. Here are a just a few:
JOB CREATION-- Germany introduced this type of legislation in 1991 and it has made them the world’s leading producer of RE technology. FITs are credited with creating at least half of their quarter-of-a-million RE jobs. These jobs increased 40% between 2004 and 2006 alone. Most of these new jobs are in the former East Germany, an area being revitalized by their renewable energy economy. All levels of jobs are created including high-skilled positions in engineering, manufacturing, agriculture, and electronics.
SIMPLICITY-- One important reason FITs have been so successful is their simplicity. With FITs, when anyone generates power from a RE system that is passed through to their local grid, the utility company cuts them a check! RE businesses find this model especially appealing because it makes anyone with a viable RE site and a willingness to invest in their future an electricity entrepreneur. FIT laws by their very nature are easy to support because they need little explaining and are relatively simple for utilities to implement and operate. This is true whether the RE producer is a residential homeowner with a small solar system or a huge commercial business with thousands of panels on their roof.
STABILITY & INVESTMENT SECURITY-- FIT incentives also have massive appeal to investors and lenders. This is because the incentives are fixed for long time horizons, typically 20 years, which provides a guaranteed revenue stream that can be borrowed against easily. Unlike Renewable Energy Certificates (RECs) which have annually fluctuating values through a trading mechanism, FIT incentives never change and never require any administration or additional cost. As long as the RE system is generating electricity it continues to make the system owner a guaranteed return on their investment. With revenue stability of this caliber and a market that is not constrained in size, institutional investors can accurately model the financial risk and returns associated with investing in RE technologies and fund the industry where the best market opportunities exist in real time. In Germany, FIT policies have generated 3.3 billion Euros of investment in RE, with a return on the investment estimated to be 9.3 billion Euros.
STAY-AT-HOME REVENUE-- With FITs, the revenue from producing renewable energy will stay in the state or province where it is produced. This will create "local wealth" and stimulate the local economy.
FAIRNESS-- Critics in the US often complain that FITs are too socialistic by design because they “fix the price” instead of letting the market dictate their value. Yet this couldn’t be farther from the truth. In fact, FITs actually allow us to make a FAIRER comparison of the true costs for traditional energy sources such as nuclear, natural gas, coal, and oil. Rather than attempt to figure out how much environmental damage they each do respectively, the FIT incentive simply allocates a fair “avoided cost” to RE technologies for the total environmental impact that would otherwise be borne by society by not using them. So in reality the FIT is providing an incentive that brings parity to the incentives, tax breaks, and environmental damage done by traditional energy sources that are never reflected in their market prices.
EQUALITY-- FITs create a level playing field for all different sizes of renewable energy producers. It encourages individuals, small businesses and larger businesses to become RE producers and rewards them all. By ‘democratizing’ and spreading out energy production, FITs stimulate the green market economy and keeps a few large corporations from controlling the market and the profits. With FITs in place, everyone can profit from creating renewable energy.
FITs WILL SPEED UP OUR SHIFT FROM FOSSIL FUELS TO CLEAN RENEWABLE ENERGY. IN THIS WAY, FITs WILL ALSO:
-- PROTECT OUR HEALTH We will be putting less particulates into the air since we will be burning less oil, coal and natural gas. This will mean less suffering from asthma and other breathing disorders and reduced medical and health insurance costs.
-- REDUCE GLOBAL WARMING Burning fossil fuels releases 75% of the greenhouse gases that are heating the planet. It is estimated that by switching to renewable energy we can cut CO2 emissions in half by 2030. In 2006, with REPs in place, Germany alone saved 100 million tons of CO2 from entering the atmosphere.
-- REDUCE CONFLICTS OVER ENERGY The world’s demand for energy is increasing faster than expected, while our supplies of oil, coal and natural gas are declining. As nations compete for energy, there may well be more conflicts, wars and violations of human rights. Increasing the production of renewable energy will help states and nations meet their own energy needs.
-- CREATE ECONOMIC SECURITY Renewable energy production will lesson a community’s or nation’s vulnerability to increasing fossil fuel prices and will increase self-reliant economic growth. Those who install renewable energy the soonest will save the most. The prices of fossil fuels and nuclear energy are expected to rise as their supply diminishes, and the costs of extraction, environmental protection and cleanup increase. The costs for renewable energy are expected to decline due to economy of scale and technological progress.
-- INCREASE HUMAN SECURITY The natural disasters triggered by climate chaos are responsible for 150,000 deaths each year, and cause millions of people to seek refuge elsewhere. There are currently more ‘environmental refugees’ than ‘political refugees’. The Intergovernmental Panel on Climate Change (IPCC), recipients of the 2007 Nobel Peace Prize, predict 50 million environmental refugees by 2010, and 150 million by 2050. The hardships and financial costs for the refugees and those who provide aid will be staggering.
-- STABILIZE ENERGY COSTS Communities that use locally produced renewable energy have more stable energy costs. Once the systems are set up, their renewable fuels such as sun and wind are low cost or free. Overall, energy costs will be more predictable and controllable, creating economic stability.
-- CREATE FLEXIBILITY Green energy resources such as sun, wind, water, geothermal, and biomass can be combined depending on their availability. They can provide heating, cooling, electricity, and fuel for machinery, vehicles and other transportation. Renewable Technologies can be flexibly designed to fit the landscape, architecture, machines, and vehicles—increasing efficiency and autonomy.
IV. What can FITs do for you?
If you are a...
the benefits include:
• No funding necessary
• No administration, only program oversight
• Only costs ratepayers money if it works
• Creates massive economic boost:
• Creates new permanent employment base
• Creates perpetual government tax income (sales, property, income)
• Achieves environmental goals/directives (GHG)
• Best return for money invested
• Designed to lower utility prices in future years
• Promotes expediency in reaching “grid parity”
the benefits include:
• Ratepayer borne investment – all costs captured
• Revenue opportunities exist in financing, equipment sales, and service
• Distributed generation
• Control the power coming onto the grid
• Lower portfolio generation costs by using free energy sources long-term
• Payments set and adjusted to promote favorable technologies
• Lower GHG emissions and achieve “greening” of operations
Renewable Energy Company (Solar, Wind, Bio, etc.)
the benefits include:
• Inclusion of all market segments (residential/small commercial, commercial, industrial, utility)
• No need for federal tax incentives (unless desired)
• Not a subsidy – a ratepayer investment in future bill stability
• No annual quotas – market based
• Periodic review for optimal performance
• Pricing degression placed on manufacturers
• High growth
• Customer financing by traditional banking institutions
• Little government interference
• Priority access to grid and transmission systems
the benefits include:
• Progress towards Environmental goals (GHG)
• Reduces need for transmission lines (distributed generation source)
• Lessens environmental damage from fossil fuel exploration and mining such as oil, coal, natural gas, and lignites
• Promotes long-term local employment and betters local economies
Member of the Business Community
the benefits include:
• Additional source of income (building and property owners)
• Banks can easily finance
• Great source of American jobs for contractors, electricians, manufacturers, business professionals, financiers, service organizations, etc.
• Help promote a cleaner future
• Increase the health of local economies
Individual & Community
the benefits include:
• Source of household income – anyone can be an entrepreneur
• Income from Renewable Energy stays in the community
• We invest a few dollars now to get lower utility bills in the future
• On-site generation for our homes and businesses if desired (no utility bills)
• Better the lives of our children by creating a sustainable future
• Better health for everyone; clean air, land, and water. Less asthma, cancer, other health problems
• Reduce the use of polluting fossil fuels like coal, oil, and natural gas
• Keep nuclear plants out of our back yards
• Support local jobs -- creates well paying permanent jobs in our local economies (engineers, manufacturing, installation, etc.)
• Increase national security -- stop sending our money to foreign countries for fuel
• Reduce Green House Gases to stop global warming and mitigate species loss/extinctions (polar bears, etc.)