The Feed-In Tariff (FIT) has proven to be one of the most effective policy instruments in overcoming the cost barriers to introducing renewable energy and making it economically viable. The simple guarantees that FITs provide – including access to the grid, a set price per Kilowatt Hour (kWh) that will cover the costs associated with electricity production, and a guaranteed term for which they will receive that rate has turned several European countries into world leaders in the renewables sector. This is the case for Denmark on wind energy and for Germany – as explained below – on solar energy.
Some of the benefits of a well designed FIT law are:
• A reduction in CO2 emissions. Well designed FIT laws can greatly increase the market share of renewable energy, thereby replacing fossil fuel based power with clean electricity generated from renewable sources.
• The creation of jobs. The growth of the renewable energy industry will create jobs for thousands of workers. In Germany, for example, the renewable energy industry now employs about 234,000 people – almost 60% of whom were employed as a direct result of the German FIT law.
• A more secure domestic energy supply. By expanding the market share of renewable energy produced domestically, countries will rely less on imported fossil fuels.
• An increased drive for technological innovation. Good FIT rates for renewable technologies increase the drive for innovation, and encourage investment in technologies such as wind, photovoltaic solar energy, or Concentrating Solar Power (CSP) that all have huge potential.
• The creation of fair market conditions for renewable technologies. Renewable technologies have been unable, in the past, to compete with conventional energy sources that do not internalise environmental costs and are frequently heavily subsidised. FIT laws help to level the playing field, and enable renewables to compete.