This short paper explains Feed-in Tariffs (FiTs), which are payments for electricity fed into the supply grid from a renewable energy source. FiTs can be mandated by the government or offered voluntarily by an electricity retailer.
The primary aim of FiTs is to encourage the adoption of renewable energy. FiTs make the installation of renewable electricity systems more affordable for the owner of the system. They do this by reducing the payback times (the length of time it takes to recover the cost of installation) through savings in electricity fees. ‘Early adopters’ of new technologies tend to pay high prices for systems which are often not as efficient as later designs. By using a FiT to stimulate demand, governments assist early adopters financially but also, through increased demand, drive the industry to develop new and more efficient systems.