This may be a case of teaching Grandma to suck eggs, but I thought a word or two of explanation of the feed-in tariff scheme may be appropriate. Although we now consider the US to be a laggard in terms of climate change etc, they have been in the forefront of renewable energy generation for some time. So the first reference I can find to feed-in tariffs (from not very extensive research) is in a speech by President Jimmy Carter in the 1970s.
Essentially the feed-in tariff is a scheme that subsidises investment in renewable energy where the market won’t by itself lead to that investment.
Under the UK scheme, all relevant generators receive two payments for their electricity. The first is the generation tariff which is paid on all energy generated whether it is used on site or exported. This is by far the biggest part of the income stream. The second payment is for electricity exported. This is relatively low, and is set at 3p per kWh. The effect of this is to provide an incentive to use the electricity on site, replacing expensive imported power with cheap home generated power, and also saving the transmission loss, estimated to be about 2%. The feed-in tariff rates vary according to scale and type of technology, but the net effect is intended to provide a return on capital of between 5% and 8% for appropriately sited investments.
Where does the money come from? Well, it’s not from general taxation, but it will come from all the electricity retailers in the UK, apportioned by a process of “levelisation” to each retailer in proportion to its market share. This will increase the retailer’s costs, and will lead to an increase in the price that all consumers pay. Data from Germany, where a feed-in tariff scheme has been in place since 2000, suggests that the increase has averaged out at just €4 per household per month. There is also a suggestion from Spain that the feed-in tariff has actually lead to a reduction in the retail price of electricity because the replacement of natural gas with solar and wind has reduced the demand for and hence the price of the gas.
Over time, it seems certain that the price of finite oil and gas can only rise, whereas the cost of renewable energy will fall as the technology becomes more established. Thus the feed-in tariff acts to accelerate the transition from high to low carbon energy much faster than the market would if left to its own devices.
This link takes you to the feed-in tariffs section on the Department of Energy & Climate Change website:
