Feed-in tariffs are legislated prices paid to producers of renewable energy over a guaranteed period, making the installation of renewable energy systems a worthwhile and secure investment. All energy users share the extra cost, thereby reducing it to a manageable level.

Renewable energy systems currently tend to be more expensive than conventional energy, but underlying feed-in tariffs is the assumption that the benefits of renewable energy are worth paying for.

The prospect of lower renewable energy costs in the future, coupled with the pricing of conventional energy sources to reflect their true environmental costs, will make feed-in tariffs unnecessary in...

Renewable energy faces a number of market barriers that a well-designed feed-in tariff can overcome:¹

Governments have predominantly used two methods to try to encourage renewable energy: namely, setting a quota or renewable portfolio standard for utilities to meet, or creating an open market for developers to feed-in renewable energy using feed-in tariffs. Both approaches incorporate the premium price paid for renewable energy into the rate base and therefore distribute the cost among all customers without government subsidy. A quick comparison between North America and continental Europe — both with roughly the same populations — can provide a useful illustration...

In addition to their success in implementing renewable energy, countries with the longest established feed-in laws (Denmark, Germany and Spain) have the overwhelming majority of jobs in these industries, with more than 215,000 people employed in renewable power in Germany alone. In Denmark and Germany, more than 50% of projects are owned by farmers or cooperatives. While competitive bidding processes tend to leave the market in the hands of large conglomerates, feed-in tariffs have managed to unleash the collective buying power of many small investors.

Germany, which arguably has the most successful feed-in tariff program in the world, has ramped...

Renewable sources of generation are capital-intensive, and thus require long periods of time to return their investments and earn a profit. Policies that support renewable energy systems require as a starting point:

political will coupled with public demand for renewable energy

willingness to pay a premium for renewable energy

stable public policy.

As mentioned earlier, the essential elements of a feed-in tariff system are priority access to the grid (interconnection) and a price for the electricity produced that contributes to profitability (or at least the prospect of profitability).⁷

In an effective feed-in tariff system, grid access is simple and accessible;...

At first glance, it may appear that setting a premium price for renewable energy runs counter to a competitive marketplace. In practice, however, feed-in tariffs do encourage competition. While a feed-in tariff does fix a price, it leaves the market open to choose the most competitive manufacturer and allows the generators of power to choose their desired technology. Furthermore, as the feed-in tariff price drops, manufacturers must continually improve their costs.

The countries that initially implemented feed-in laws now have the most dynamic wind energy industry in the world. The countries that have relied on the use of government grants...

In Denmark and Germany, much of the renewable energy generation is owned locally, either by people in the community or those nearby. Through a feed-in tariff system, homeowners, farmers and investment groups can quickly, easily and at little cost connect to the grid and sell their electricity for a profit. In Denmark, for example, almost 90% of the wind turbines are owned by landowners and co-ops. Having a stake in ownership can facilitate development by reducing opposition to new projects, thereby furthering the deployment of renewable energy systems. Ontario's Community Power Fund was set up to provide financing for community...

Feed-in tariffs, also referred to as advanced renewable tariffs or feed-in laws, have repeatedly been shown to be the most cost-efficient policy mechanism for encouraging the rapid deployment of renewable energy systems. Governments that are serious about encouraging renewable energy development increasingly understand that feed-in tariffs are the most effective policy instrument at their disposal.

A feed-in tariff is simply a guaranteed price set by the government for anyone who wants to sell renewable electricity to the grid, and a guarantee that they will have access to the grid to do so. The tariff is set so that a modest...