Environmental Engineering Reference
In-Depth Information
Feed-in Tariffs
The electricity generated from PV plants is currently about five times more expensive than
that from conventional sources (coal and natural gas). Were it not for economic incentives,
most forms of renewable energy would not be competitive with fossil fuels. These incentives
take a number of different forms, and the different approaches reflect economic and financial
priorities. Asia has preferred the growth of the domestic technology sector and has subsidized
the manufacturers through tax breaks and other incentives, thereby reducing the market price
ofthetechnology.InEuropeandNorthAmerica,thepriorityhasbeentokick-startatransition
from fossil fuels to alternative energy sources and the preferred method has been to offer
state-guaranteed above-market prices for the energy sold. These state subsidies are known as
feed-in tariffs. They allow eligible renewable electricity generators (whether a family with
solar panels on the roof of their home or a major company operating offshore wind farms) to
be paid over a fixed long-term period (typically twenty years) a guaranteed premium price for
any renewable electricity they produce and feed into the grid.
The payment is usually administered by the utility company or grid operator and is derived
from an additional charge for electricity (or heat) that is imposed on national or regional
customers. In this way, the added cost of the renewable energy is spread around to all
consumers, whether they chose renewable energy or not. Tariffs may be differentiated by
technology type, size, and location. For example, if a country is concerned about landscape
impacts and prefers to support energy integration within energy-efficient urban areas, the
government may provide higher tariffs for small roof-mounted PV plants and lower tariffs for
large biomass-fuelled power plants.
In 2004, at a time when the price of electricity in the United States and Germany was
about
€
0.06 per kilowatt-hour and
€
0.20 per kilowatt-hour, respectively, the feed-in tariff
on PV installations offered by the German government guaranteed investors as much as
€
0.57 per kilowatt-hour for twenty years. With such generous subsidies, it is no wonder
that Germany (followed by Spain and Italy) quickly saw a boom in solar PV. A similar
phenomenon occurred in the United States with bioethanol and in China with wind power.
Benefits have been so generous that in recent years China and the U.S. have complained
about each other on a few occasions to the World Trade Organization for unfair market
Thanks to subsidies, the renewable sector is growing almost everywhere. The pace of
growth is so fast that the IEA recently updated its projections. The 2009 IEA baseline
scenario predicted that the share of renewables in the global primary energy mix would
