1.1 What is a Feed-In Tariff?
A feed-in tariff (FiT) is a policy instrument used to encourage the growth of an industry in renewable energy generation by ensuring that those who produce electricity from solar, wind and other renewable sources have a guaranteed market for the electricity they produce, and therefore a return from their investment. FiTs oblige the energy companies (or ‘utilities’) responsible for operating the national grid to purchase electricity from renewable energy sources at a pre-determined price which is sufficiently attractive to stimulate new investment in the renewables sector. These renewable energy sources may include wind, biomass, small hydro, solar and wave power. Feed-in tariffs are an important policy incentive for promoting renewables since they enhance investor confidence by removing uncertainties regarding the selling price of electricity to the national grid.
In summary, the key objectives of the FiTs are to:
1) Facilitate resource mobilization by providing investment security and market stability for investors in renewable energy sources,
2) Reduce transaction and administrative costs by eliminating conventional bidding or negotiation processes,
3) Encourage private investors to operate power plants prudently and efficiently so as to maximize returns.
1.2 Benefits of feed-in tariff policies
Feed-in tariffs have been implemented with impressive results in Mauritius, Nepal, Sri-Lanka and Kenya. They have stimulated interest in renewable energy development in Uganda, South Africa and Tanzania. Led by Germany, Denmark and Spain, a growing number of industrialized countries are aggressively promoting renewables using the feed-in tariff model.
FiTs have proven to be effective policy instruments in overcoming a key long-term barrier to introducing renewable energy and making it economically viable. They provide guarantees attractive to investors, including access to the grid, long term power purchase agreements and a set price per kilowatt hour (kWh) that covers the costs associated with electricity production.
In brief, the key benefits of feed-in tariffs include:
If well structured, ensuring that all electricity produced from renewable sources has a guaranteed buyer by obliging grid operators and utilities to purchase the electricity and by giving priority to access the national grid.
Providing incentives for investors, who are assured of a market and return on their investment;
Assisting in establishing a secure environment for the financing of renewable energy projects, and promoting market stability for investors in renewable energy electricity
Accelerating implementation of renewable energy projects...
posted by B.F.A. Ofori-Atta