A feed-in tariff requires utilities to pay rates set by the government for renewable power over a certain period of time. The law requires utility companies to negotiate a long-term contract with the homeowner. Contracts usually last 15-20 years. Although they’ve been used in countries like Germany and Spain, feed-in tariffs are now available in a growing number of locations, including California, Hawaii, and Vermont.
Feed-in Tariffs vs. Net Metering
Net metering is similar, since it’s another way that utility companies compensate homeowners for the energy they’re putting back in the grid. With net metering, if your solar panels are producing more energy than you’re using, your meter will run backwards, and you simply get a credit for the amount of energy you’re producing. The rate is the same as the rate you pay for electricity. But with a feed-in tariff, the rate you’re paid can be higher. Rather than just using one meter, you have a second meter that measures how much electricity you’re sending into the grid. Note that depending on where you live, the rate you’re paid can vary significantly. Countries like Spain, which offered high rates, saw enormous growth in solar as a result.
Feed-in tariffs guarantee fair pricing for producers. A governing body (like the California Public Utilities Commission) decides how much utilities will pay for renewable power. The rates are intended to help the producer earn back their investment and reasonable rates of return. They’re set so that producers using different types of technology can all recoup their money in about the same amount of time– so someone using solar panels will earn a higher rate than someone using a technology like biomass that has a lower initial investment. The rates that are offered change as technology becomes less expensive. In some cases, tariff rates are set to encourage small and local producers by paying them more than large companies. This helps decentralize power so that the grid becomes more stable.
Since feed-in tariffs offer guaranteed rates and long-term contracts, they make it easier for homeowners to get a loan at the bank. It’s a fairly low-risk investment for the bank, so they can offer lower interest rates.
Feed-in Tariffs in the U.S.
In the U.S., Feed-in Tariffs are still in the early stages of being considered and implemented. Six states have some form of FiT program in place: California feed-in tariff, Gainesville, Florida feed-in tariff, Vermont feed-in tariff, Oregon feed-in tariff, and Maine feed-in tariff—have some form of FiT program in place. In April, 2009, 11 state governments in the U.S. were considering adopting an FiT as a complement to their renewable electricity mandates.