Feed-in tariffs for renewable energy
A feed-in tariff is a premium rate paid for electricity fed back into the electricity grid from a renewable electricity generation source. At present, feed-in regulations for renewable energy exist in over 40 countries, states or provinces internationally.
Possibly the most well known and successful feed-in tariff laws would be those introduced in Germany. The scheme has been responsible for the dramatic growth in Germany’s renewable energy market and the solar photovoltaic(PV) industry in particular. In the five years from 2000, the quantity of electricity fed into the grid from eligible sources has more than doubled, with a seven-fold increase in installed solar photovoltaic capacity to over 1,500 MW by the end of 2005. By comparison, at the same time Australia had installed around 7MW, or less than 0.5% of Germany’s capacity.
Why do we need feed-in tariffs?
Renewable micro-generation is disadvantaged in Australia as the market fails to take into account the true value and benefits to the electricity network which arise from the adoption of renewable energy technologies embedded within the electricity grid. Renewable energy sources provide environmental benefits through reduced atmospheric pollution, and social benefits through industry development and job creation, each with a related economic benefit.
A feed-in tariff redresses these market failures and rewards micro-generation for its true value to the electricity market and wider society, by providing a financial incentive for the adoption of renewable energy.
Design of a feed-in tariff scheme
For a feed-in tariff to be effective, it is essential that it is designed to adequately reward micro-generation proponents. ATA believes that in order to provide an incentive for people to install grid-connected micro-generation systems, there are three key elements of a feed-in mechanism which need to be considered: the level of the tariff; the means of metering; and the duration of the scheme. It is the combination of these three elements which determine the success or otherwise of a feed-in mechanism.
The ATA believe that an effective scheme needs to provide a reasonable return on investment for householders, small businesses and community organisations – i.e. somewhere between a 5 to 10 year payback. In the context of rising electricity prices in most Australian states, such a return would be attractive to many micro-generation investors.
As an example, if the chosen micro-generation technology is a solar photovoltaic (PV) system, given the significant installed cost reductions for this technology over 2009 / 10, a low rate, gross-metered feed-in tariff of around 30c – 40c / kWh would see a household pay off a small to medium sized system within this timeframe.
The ATA strongly support gross metering with respect to micro-generation systems, as this provides the simplest form of metering, easily understood by all parties including consumers, policy bureaucrats and network managers.
And it is essential that feed-in tariffs are designed as long term structural mechanisms, with a 15 – 20 year timeframe, to provide certainty to industry, consumers and government. The ultimate aim of a feed-in tariff is to provide industry and consumer support, to a particular electricity generation technology, in the absence of a carbon price. Once a carbon price is introduced, and further technology cost reductions are achieved, the requirement for feed-in tariffs and other technology support mechanisms will eventually dissipate.
Supporting arguments and background materials
Click here for ATA’s paper: The design of a feed-in tariff
State-based feed-in tariffs
Each state and territory is at a different stage and development of a feed-in tariff. Click here for an update.