Feed-In Tariff (FIT)

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Definition of 'Feed-In Tariff (FIT)'

A feed-in tariff (FIT) is a government policy that requires electricity suppliers to pay a set price for electricity generated from renewable sources, such as solar and wind power. The FIT is designed to encourage investment in renewable energy by making it more financially attractive for businesses and individuals to install renewable energy systems.

The FIT is typically set at a level that is higher than the wholesale price of electricity, in order to ensure that renewable energy generators are able to make a profit. The FIT can be paid for by a variety of sources, including government subsidies, taxes on electricity consumers, or a combination of both.

The FIT has been used by a number of countries to promote the development of renewable energy. In Germany, for example, the FIT has been credited with helping to make the country a world leader in the development of solar and wind power.

There are a number of advantages to using a FIT to promote renewable energy. First, the FIT provides a predictable and stable source of revenue for renewable energy generators, which can help to make them more attractive to investors. Second, the FIT can help to level the playing field between renewable energy and conventional energy sources, which can make it more difficult for renewable energy to compete in the marketplace. Third, the FIT can help to reduce greenhouse gas emissions and promote a cleaner environment.

However, there are also a number of disadvantages to using a FIT. First, the FIT can be expensive for governments to implement. Second, the FIT can lead to higher electricity prices for consumers. Third, the FIT can create distortions in the electricity market, which can make it difficult for conventional energy sources to compete.

Overall, the FIT is a complex policy with both advantages and disadvantages. The decision of whether or not to use a FIT is a political one, and there is no easy answer.

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