DEFINITION of Feed-In Tariff - (FIT)
A feed-in tariff is an economic policy created to promote active investment in and production of renewable energy sources.
BREAKING DOWN Feed-In Tariff - (FIT)
Feed-in tariffs typically make use of long-term agreements and pricing tied to costs of production for renewable energy producers. By offering long-term contracts and guaranteed pricing, producers are sheltered from some of the inherent risks in renewable energy production, thus allowing for more diversity in energy technologies.
Feed-In Tariff (FIT) History
The first feed-in tariff (FIT) was implemented by the Carter administration in the United States in the late 1970s. The National Energy Act, as it was known was meant to promote energy conservation along with the development of new, renewable sources of energy, like solar and wind power. Since this time, FITs have been widely used, most notably in Germany, Spain and other parts of Europe.
Feed-In Tariff (FIT) Specifics
Feed-in tariffs are meant for almost anyone who produces renewable energy—homeowners, business owners, farmers and private investors. Generally, FITs have 3 provisions.
1) They guarantee grid access, meaning energy producers will have access to the grid.
2) They offer long-term contracts, typically in the range of 15-25 years.
3) They offer cost-based purchase prices, meaning that energy producers are paid in proportion to the resources and capital expended in order to produce the energy.