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Solar Fred Info: What’s a Feed in Tariff?

When people talk about solar incentives, a Feed in Tariff (FiT) is often mentioned as a quick-start solution to getting people to go solar. So what’s a Feed in Tariff and why isn’t every state doing it?

Here’s a brief explanation:

  • What is it: A Feed in Tariff is an incentive system to promote solar, wind, and other renewable energy sources.
  • An FiT sets a higher than normal kilowatt rate for the clean power produced, which is paid to the person or business that generates the power over a set period of time, usually around 20 years.
  • So if you buy and put up solar panels with an FiT program, your residence or business would basically become a utility. You generate as much power for the grid as you can with your renewable energy sources, and the utility is required to pay you a certain rate for that power produced.
  • Usually, there are different rates for different kinds of renewable energy. Solar usually gets the highest rate because of its high up front costs, but that may be changing as solar panel prices decrease.
  • Usually, the FiT replaces net metering. In other words, you’re just selling all of your electricity to the grid.
  • In net metering system, you’re storing extra energy that your panels produce in the grid, and then your utility keeps track and sells you back the “net” amount to you when you need it.
  • What about your own power needs with an FiT? Well, you’re paying your usual coal fired rate, whatever that is. The difference is that every month, you get a check from the utility that MORE than compensates for your electric bill. In fact, you’re making money…after you’re done paying off the cost for your solar system, typically in 5 to 10 years, depending on the FiT rate being paid to you.
  • For example, if you’re regular electric bill is say $50/month, and your solar system is selling an average of $250 a month worth of solar power to the utility using the FiT, you’re putting $200/month towards paying for your solar panels. That’s $2400 a year. If the cost of your panels was $12,000, you’ll be paid back in 5 years. For the next 15 years, by law, you’re set to make $200/month from your solar panels! But wait. Don’t quit and retire yet.
  • Solar Fred Caution#1: People love feed in tariffs because they work. For as long as the FiT program lasts, there’s a huge upswing in solar sales. Unfortunately, these programs are short lived. Governments, such as Germany and Spain, famous for their solar FiTs, limit the number of participants by the amount of total power generated under the FiT. Those limits create a boom and bust cycle, where everyone is racing to put up solar panels until the limit is reached. Then suddenly, all of these solar installers are out of a job because the demand is gone. No more FiT, and people feel like there’s no reason to sign up. That being said, this boom usually brings down the normal upfront cost of solar. Because of the German/Spain FiT bust, panel prices are at an all time low right now due to oversupply.
  • Solar Fred Caution #2: It should also be noted that in America, FiTs are usally designed for large solar farms. That’s not the case in Germany and Spain, where anybody could strap 20 solar panel to a small shack and be paid for the power produced. Keep in mind that the residents of that small shack probably used 2 panels worth of power, so people really could take advantage of all the sunlight they had in order to get the largest payment.
  • Solar Fred Caution #3: Tax payers generally don’t fund FiTs. Utility rate payers do. That means if your home doesn’t have a lot of sun or you live in an apartment, you’re paying higher rates for your electricity to fund the FiT program. On the other hand, low income residents are usually protected from these higher rates….and theoretically, the higher rates encourage everyone else to conserve energy, use CFLs, increase insulation, etc, and thereby lowering their normal usage and negating the extra cost.
  • Where can you get your FiT? Currently, the only open program, as of July 15th, 2009, is just starting in Vermont. Actually, it’s not officially starting until January, 2010. It’s still to be determined whether residents will be able to participate. California and Oregon also have bills in their legislators that are pending.

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4 thoughts on “Solar Fred Info: What’s a Feed in Tariff?

  1. Tor a.k.a. "Solar Fred" says:

    Dale, thanks for commenting. I think a national FiT is going to be on hold until we pass Cap and Trade legislation or something similar. Though, you never know. I agree that we need a more national policty, but not sure that FiT is the way to go unless the upfront costs can somehow be addressed. Also, different interests are going to support FiTs. Utility scale will benefit more, but homeowners might be better served with a net metering formula that offers a payment for any net excess at the end of the year…. Complicated. But I hope something national gets settled within Obama's time in office, hopefully his first term. Not going to make any predictions about his second. :)

  2. wingsinger says:

    Nice compilation about FiT. But what's the status of a national U.S. FiT? H.R. 6401 died last year, haven't heard much since.Dale – EnergyWright.com

  3. Tor a.k.a. "Solar Fred" says:

    Thanks, Margaret. Good info on the Florida program. I thought it was toast and didn't realize they were refunding. As to California's FiT program, I believe it's more cost effective and profitable to use the California Solar Initiative (CSI) incentives with net metering. You can't combine the two. See this:http://www.cpuc.ca.gov/PUC/energy/Renewables/different.htmBut you're right, I should have mentioned California's program. It may be right for some and is available for residents. Again, I would caution that net metering with he CSI is probably best over the long term.

  4. Margaret says:

    As always, Tor, a great, accessible break-down of an important aspect of solar. Why do you think California's program has generated so much less attention than the cash rebates of the CSI? Also of note is the FIT program introduced this year by the city of Gainesville, Florida: http://tinyurl.com/btqxhy They've already maxed out funding for their 2009 and 2010 cycles, and are accepting applications for 2011. Gainesville Regional Utilities offers pretty outstanding rates in the program, which explains their early success: $0.26-$0.32/watt for 20 years.-Margaret, GetSolar.com

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