Feed-in-Tariff (FIT), Net Metering and Renewable
Portfolio Standard (RPS) are all policy designs to accelerate the investments
in renewable energy. Although they all have same objective goals, there are
significant differences in terms of targeted groups, economic incentives and
effectiveness of the programs.
FIT’s are generally fixed term contractual agreement
that guarantees a fixed price for per unit of electricity produced from a
qualified renewable source. The contract also guarantees grid access for the
producer. There are different variations in FIT design based on types of
generation source, size of the plant, geographic location. FITs were first
introduced in the US in the 1978 under PURPA, they are now much more popular in
European countries especially Germany and Spain.
RPS is a requirement generally on the retail
electric suppliers to meet a certain amount to their load through eligible
sources of renewable energy. RPS usually do not provide direct subsidy to the
renewable generation but the policy creates a secondary renewable energy credit
(REC) market where the retail utilities can trade the RECs to meet their
mandatory requirement. The high demand for RECs provides incentive to produces
to invest in renewable energy. RPS programs are popular in the US where around
30 states have some form of their RPS with different variations on structure,
enforcement, size and application.
Net metering is similar to FIT programs but instead
of guaranteed tariff, it only allows the meter to “run backwards” when you
produce electricity thus offsetting the electric bill. There is not much
incentive to generate more than current use since you do not paid for the extra
generation. Also, since the bill is net metered, the price paid for renewable
generation is same as the current retail price which do not provide enough
economic incentive for producers to invest. The physical and geographical
location of your property is a barrier for installing renewable generation for
net metering.
Among the three programs, FIT’s is much stronger
policy to promote renewable energy. The long term guaranteed pricing offered by
the FITs shelters the investors from the market volatility and risks involved
in renewable energy generation. Although RPS and REC trading is market based
mechanism allowing flexibility for utilities, the volatility in the price of
RECs may inhibit investors in financing renewable projects. FITs provide
simplest and transparent policy that provides stable conditions for growth in
renewable energy generation. Properly designed FIT with a balanced cost-based
tariff can be the best way to increase investments in renewable energy.
Renewable energy sources offer numerous benefits to
our environment, energy security and economic benefits. FITs, RPS and net-metering
essentially try to include the positive externalities that the renewables offer
in its market price. It is not required than that policymakers have to choose
between the three programs. Well designed policy in an informed population can
include all of the policies to expedite renewable energy transition. However
the policies can only take you so much if the public is not well informed and
do have willpower to move forward.
