A Feed-in Tariff (FIT) is an incentive structure to encourage the adoption of renewable energy in which utilities are required to buy electricity generated from renewable sources at above-market rates. Feed-in tarriffs thereby create subsidies for energy sources and incentives for conversion to renewable sources. Since renewable energy generation is expected to become less expensive relative to non-renewable generation as the technology of the former improves, some see feed-in tariffs as temporary -- to be phased out as the the price of renewables drops below that of traditional sources of electrical energy.
In Germany, a system of feed-in tariffs subsidizing power from photovoltaics, wind, biomass, hydro, and geothermal installations are credited with accelerating progress towards the country's renewable energy goals, which include 12.5 percent of electricity consumption by 2010 and 20 percent by 2020. In 2005, 10 percent of Germany's electricity was produced from renewables. The feed-in tariffs, which vary according to the type of energy source, are adjusted downward every year.
Feed-in Tariffs for distributed renewables in the United States have been limited by strong disincentives such as caps that limit how much a micro-producer can sell. 1
The feed-in tarifs that have driven Germany's impressive progress toward renewables were first adopted by cities, and spread from locality to locality before becoming a part of national energy policy. 2
2. Some utility executives think German approach won’t work nationally in U.S., EarthPortal.org, 7/28/2008 [cached]