Feed-in tariff
A feed‑in tariff (FIT) is a policy mechanism that guarantees renewable energy producers a fixed, above‑market price for each kilowatt‑hour (kWh) of electricity they feed into the grid, typically under long‑term contracts.
How a feed‑in tariff works
- The government or regulator sets a specific price per kWh for eligible renewable technologies (solar PV, wind, biomass, etc.).
- Producers install a system, connect it to the public grid, and sell every kilowatt‑hour they generate at the FIT price, regardless of market fluctuations.
- Contracts usually last 15‑20 years, providing revenue certainty that helps secure financing.
Why it matters
- Investment security: Predictable cash flow lowers the risk premium demanded by banks and investors.
- Cost reduction: As more projects are built, technology costs fall, eventually allowing the FIT to be lowered in a controlled way.
- Grid diversification: Guarantees encourage a mix of generation sources, enhancing resilience.
Example: Israel
- In 2023 Israel’s Ministry of Energy set a FIT of 0.74 NIS/kWh (≈ US$0.22/kWh) for solar PV installations up to 10 MW, with a 20‑year contract term.
- The rate applies only to electricity that is exported to the national grid; self‑consumed power is valued at the retail tariff.
- The scheme is indexed annually for inflation, ensuring real‑term stability for investors.
Impact on solar adoption
- The FIT has been a primary driver of Israel’s rapid PV growth, pushing installed capacity from under 200 MW in 2010 to more than 5 GW by 2024.
- Small‑scale rooftop owners benefit from a clear revenue stream, while large‑scale developers can secure project financing with confidence.
- By guaranteeing a price above wholesale rates, the FIT accelerates the transition to clean energy, reduces reliance on imported fuels, and supports national climate targets.
Key points to remember
- A FIT is price‑guaranteed, not a subsidy; producers earn revenue directly from the grid operator.
- Rates vary by technology, system size, and sometimes location.
- When the market matures, many countries replace FITs with competitive auctions or net‑metering schemes, but the principle of long‑term price certainty remains central to renewable‑energy policy.