Technical Report NREL/TP-6A20-65503

January 2016

Sadie Cox and Sean Esterly

National Renewable Energy Laboratory

Feed-in Tariffs: 

Good Practices 

and Design 

Considerations 

A CLEAN ENERGY REGULATORS INITIATIVE REPORT
Feed-in Tariffs:

Good Practices and Design 

Considerations

Sadie Cox and Sean Esterly

National Renewable Energy Laboratory

Technical Report NREL/TP-6A20-65503

January 2016
NOTICE

This manuscript has been authored by employees of the Alliance for Sustainable Energy, LLC 

(“Alliance”) under Contract No. DE-AC36-08GO28308 with the U.S. Department of Energy (“DOE”).

This report was prepared as an account of work sponsored by an agency of the United States 

government. Neither the United States government nor any agency thereof, nor any of their employees, 

makes any warranty, express or implied, or assumes any legal liability or responsibility for the accuracy, 

completeness, or usefulness of any information, apparatus, product, or process disclosed, or 

represents that its use would not infringe privately owned rights. Reference herein to any specific 

commercial product, process, or service by trade name, trademark, manufacturer, or otherwise does 

not necessarily constitute or imply its endorsement, recommendation, or favoring by the United States 

government or any agency thereof. The views and opinions of authors expressed herein do not 

necessarily state or reflect those of the United States government or any agency thereof.
iii

Acknowledgments

The authors would like to thank Ron Benioff, Jenny Heeter, Victoria Healey, Jaquelin Cochran, 

Jeffrey Logan, David Mooney, and Terri Walters of the National Renewable Energy Laboratory, and 

Ian Lloyd of the U.S. Department of Energy for their review and insights. All information and any 

omissions are the responsibility of the authors, not the reviewers. 
iv

Table of Contents

Introduction................................................................................................................................................... 1

Policy Design and Good Practices................................................................................................................... 2

Setting and Revising FIT Payment Levels............................................................................................. 2

Considering a Cost Containment Approach........................................................................................... 4

Establishing Long-Term Contracts and Guaranteeing Grid Access....................................................... 4

Considering Forecasting Requirements.................................................................................................. 4

Streamlining Administration and Approvals.......................................................................................... 4

Considering Linkages with Other Policies............................................................................................. 5

Considering FITs in the Context of High Renewable Energy Penetration Levels................................. 5

Conclusion ..................................................................................................................................................... 6

References...................................................................................................................................................... 7

Appendix. Additional Support and Resources................................................................................................ 8

List of Text Boxes

Text Box 1. Ghana: Sending Consistent FIT Policy Signals.................................................................. 2

Text Box 2. FIT Payment Level Approaches......................................................................................... 3

Text Box 3. South Africa: Designing Data-supported, Two-stage Tender Processes to Ensure Project 

Viability and Successful Policy Outcomes...................................................................................... 4

Text Box 4. Indonesia: Designing FITs to Align with Specific Subnational Circumstances and 

Development Goals.......................................................................................................................... 5
1

Introduction

Feed-in tariffs (FITs), along with renewable electricity standards, are one of the most widely adopted 

renewable energy support policies around the world. As of 2013, 98 national and subnational 

governments had implemented FITs, nearly three times the number that had adopted them in 2004 

(REN21 2015). In recent years, FIT activity has focused primarily on revisions to current policies, 

underscoring the need for stable and predictable, yet flexible, policy environments. This policy brief 

provides a primer on key FIT design elements, lessons from country experience, and support 

resources to enable more detailed and country-specific FIT policy design.

FITs are designed to increase deployment of renewable energy technologies by offering long-term 

purchase agreements for electricity generation at a specified price per kilowatt-hour, thereby 

providing market certainty for developers (Couture et al. 2010). Traditionally, FITs have been set as 

a fixed tariff. However, policymakers have recently been moving towards designing FITs as a 

premium in addition to the current market rate for electricity, known as feed-in premiums (Rickerson 

et al. 2007; REN21 2015). Ultimately, effectively designed FITs can attract private investment to 

support renewable energy expansion and local economic development (NREL 2014).

Key FIT policy design elements and good practices that have been drawn from global experience and 

lessons and which can be tailored to meet country-specific goals are described in the following 

sections.
2

Policy Design and Good Practices

Setting and Revising FIT Payment Levels

To align with specific policy goals, 

policymakers should vary FIT 

payments by technology, project size, 

location and resource quality. Specific 

approaches are noted in the text box on 

this page. In each case, project 

developers need to be assured a 

revenue stream at a predictable 

payment and terms to ensure a 

reasonable profit for the project.

To support scaled-up deployment and 

innovation, FIT payments for new 

projects should also be adjusted 

incrementally as technology costs 

change (NREL 2014). However, 

payment changes should be made 

transparently and predictably, as erratic adjustments may increase project developer uncertainty and 

reduce investment (In 2013, most adjustments to FITs were a reduction in the tariff to adjust for 

changes in the market, according to REN21 2015). Policymakers may choose to address this 

challenge by setting a pre-established percentage for annual declines in the FIT payment, as well as 

less frequent broader policy revisions (e.g., every 3–5 years). Payment adjustments can be informed 

by collecting detailed data related to technology market evolution and prices. Supporting a stable and 

predictable policy environment that is also flexible and iterative is critical for positive outcomes 

(NREL 2014).

Setting the payment level is the most complex element of the FIT design process and requires robust 

analysis to balance cost recovery with avoiding excessive developer profits (see Text Box 2) (NREL 

2014). Payments can be either dependent on or separate from the market price for electricity. A 

premium-price FIT combines the electricity market price and a premium (either stable for the life of 

the contract or designed to fluctuate), thus adding a degree of uncertainty for the developer due to 

varying market prices. A fixed-price FIT provides the same payment for the duration of the contract, 

which, although it is simpler, can result in excessive developer profits if electricity prices increase 

substantially (NREL 2014). Ultimately, policy costs can be integrated with the electricity rate base 

(NREL 2014).

Text Box 1. Ghana: Sending Consistent FIT 

Policy Signals

The Clean Energy Solutions Center, via its Ask an 

Expert service, partnered with the Ghana Energy 

Commission on the design and development of a FIT by 

sharing FIT design resources and best practices. To 

ensure consistent policy signals, Ghana’s FIT 

established a fixed, 10-year tariff rate from the time of 

power purchase agreement that varies by technology 

and is subject to review every two years. The 

collaborative effort facilitated both effectiveness and 

speed of policy development and eventual policy 

implementation that will encourage scaled-up 

deployment of renewable energy in Ghana.
3

Text Box 2. FIT Payment Level Approaches

Policymakers typically design FIT payment levels using the following approaches: 

• Levelized cost of renewable electricity generation provides a per kilowatt-hour (kWh) cost 

of renewable energy generation for the full duration of the project including construction 

and operation. Key inputs include capital, fuel, operation and maintenance and finance 

costs as well as projected plant utilization. This approach can be tailored by technology 

and project size, and it is often most effective at driving renewable energy deployment, as 

it clearly defines the return to investors.

• Value of renewable electricity is calculated based on the utility’s avoided cost of 

generation added to the ancillary grid benefits, such as peak power and stability, and the 

value of societal benefits, such as climate change mitigation and reduction in negative 

health impacts associated with lower emissions. This value can be difficult to accurately 

assess, but it can be estimated to determine the FIT payment level. 

• Resource quality can be used to differentiate FIT payment levels, allowing the payment to 

be appropriately aligned with generation costs at specific sites. Designing tariffs in relation 

to resource quality can improve project siting flexibility and support reductions in grid 

balancing costs through geographically dispersing renewable energy development, thus 

improving overall reliability. For wind power, the “reference turbine approach” bases 

payments on comparison of a reference yield with turbine generation over a five-year 

period. Various other approaches, such as “annual percentage yield” have also been used 

by countries to set FIT payments in relation to resource quality. 

• Auction-based procurement through tender mechanisms can be used as a hybrid 

approach to determine FIT payment levels. Under this approach, governments tender or 

request bids for projects from which a utility or distribution company will purchase 

electricity. Tenders are usually designed with a total capacity of projects that will be 

funded, with the government or utility choosing multiple winning bids until the total capacity 

equals the tender capacity goals. When compared with traditional FIT payment schemes, 

this competitive bidding often results in lower project costs (Philibert 2011). However, this 

process can encourage inexperienced developers to submit bids that are too low, resulting 

in a project that is ultimately unsuccessful. Policymakers can mitigate this problem through 

designing a two-phase tender process that requires bidders to demonstrate experience 

and technical capability before they submit a complete bid. As described below, some 

countries are combining FIT and auction-based approaches to support RE deployment.

Sources: Couture et al. 2010; EIA 2015
4

Considering a Cost Containment Approach

If a FIT is set at a very favorable rate for project developers, it may encourage rapid deployment but 

also result in high costs and “boom and bust” scenarios. Policymakers may choose to place caps on 

project participation to address this issue. However, it is important to recognize that cost containment 

options could introduce additional market uncertainty and inhibit investments. Cost containment 

options include:

• Establishing a maximum installed capacity that will be supported (e.g., 200 megawatts per 

year)

• Reducing the FIT payments on a set schedule when capacity goals are met (e.g., one payment 

for the first 200 megawatts installed and another payment for the next 200 megawatts 

installed)

• Ending the FIT when the available program funds have been exhausted.

Establishing Long-Term Contracts and Guaranteeing Grid Access

In addition to setting the payment level, 

it is important to define the length of 

contracts. Under existing FITs, contract 

lengths typically range from 10 to 25 

years, with longer contracts often 

resulting in lower cost of financing. 

Many FITs are also coupled with 

guaranteed access to the grid. 

Guaranteed access can help to ensure 

electricity generated under the FIT is 

not stranded and is a protection for 

invested public funds (Couture et al. 

2010).

Considering Forecasting 

Requirements

Under a FIT policy—and to support 

grid operators in balancing renewable 

energy generation with system 

demand—project developers can be 

required to provide project forecasts. 

This can be burdensome, especially for 

smaller plants, but it can be useful 

particularly for larger renewable energy 

projects (Couture et al. 2010).

Streamlining 

Administration and 

Approvals

To avoid bottlenecks and reduce the time and costs associated with approvals and administration, 

policymakers can establish a streamlined FIT processing approach that clearly identifies participating 

Text Box 3. South Africa: Designing Datasupported, Two-stage Tender Processes to 

Ensure Project Viability and Successful 

Policy Outcomes

Based on robust analysis of various policy options, 

the Government of South Africa chose to establish a 

competitive tender process—rather than a FIT—to 

support solar deployment (Eberhard et al. 2014). 

Under this process, bidders are first required to 

demonstrate their expertise, with the government 

then choosing preferred bidders to submit full 

proposals. An installed capacity cap was established 

for each round, providing transparency and market 

certainty to developers and ensuring the 

government’s capacity goals are met but not 

exceeded. Since policy inception, there have been 

three bidding processes with costs declining with 

each subsequent round. In this case, the experience 

gained from projects undertaken in previous rounds 

led to reduction of barriers to deployment and 

associated costs. To support a successful bidding 

process the government also provided reliable solar 

irradiation data to inform bids from project 

developers (Stadelmann et al. 2014). South Africa’s 

two-stage tender process incorporated a number of 

effective design elements to ensure project viability 

and successful outcomes.
5

entities (e.g., individuals, corporations, nonprofits and government) and mandates specific roles and 

procedures (Couture et al. 2010).

Considering Linkages with Other Policies

In some markets, policymakers are considering links between FITs and other support policies, such 

as tender and auction processes and net metering. For example, FITs and auctions can be coupled in 

relation to project size, with FITs supporting smaller projects and auctions supporting larger projects. 

As RE markets evolve differently in various country contexts, policymakers can consider links 

between FITs and other policies that may enhance deployment opportunities (Couture et al. 2015). 

Further information on emerging hybrid designs can be accessed in Couture et al. (2015)

Considering FITs in the Context of High Renewable Energy 

Penetration Levels

As a number of countries and 

jurisdictions reach high levels of 

renewable energy penetration, they are 

adapting FITs to address new needs and 

opportunities (High renewable energy 

penetration can be defined as at least 15% 

of annual electricity generation from 

renewable energy, according to Miller et 

al. [2013]). For instance, FITs can be 

used to enhance grid support services 

through incorporating frequency and 

voltage support incentives. To contain 

costs, FITs can also be designed to allow 

transmission system operators to curtail 

wind while still compensating for the 

renewable energy generated. Finally, 

integrating FIT-supported RE generation 

into centralized markets can also allow 

for greater efficiency of the dispatch 

system. Under this approach, renewable 

energy generation can be bid into day-ahead and intra-day markets, which can allow for optimized 

generation. In high penetration contexts, linking FITs to wholesale market prices can also increase 

efficiency of policy outcomes and decrease costs (Miller et al. 2013; Miller and Cox 2014).

Text Box 4. Indonesia: Designing FITs to Align 

with Specific Subnational Circumstances and 

Development Goals

The cost to generate and provide electricity in Indonesia 

varies greatly by location due to the remote locations of 

populations across the country’s many islands. 

Additionally, there are regions in the country where 

electrification rates are as low as 30 percent, such as in 

Papua (APEC 2013). To address the cost differences and 

the goal to increase electrification rates, Indonesia 

designed its FIT with different rates based on the location 

of the project. In regions where it is least expensive to 

generate electricity currently (e.g., Java and Bali), the FIT 

is approximately 50% lower than the FIT in Papua, where 

electricity costs are higher. Indonesia provides a strong 

example of a country harnessing the flexibility of FIT 

design to support varying circumstances and 

development goals at the subnational level.
6

Conclusion

FITs are an important policy tool supporting global deployment of renewable energy technologies. 

Innovative policies building on the FIT approach, such as reverse auctions, offer significant potential 

for accelerating renewable energy expansion (Couture et al. 2015). The key FIT design elements 

described in this brief provide a starting point for considering a country-specific and tailored policy 

approach to support deployment of renewable energy in various country contexts.
7

References

APEC (Asia-Pacific Economic Cooperation). 2013. APEC Energy Overview 2013. Asian Pacific 

Energy Research Centre. 

http://aperc.ieej.or.jp/file/2014/3/18/APEC_Energy_Overview_2013.pdf.

Couture, Toby D., David Jacobs, Wilson Rickerson, and Victoria Healey. 2015. The Next 

Generation of Renewable Electricity Policy: How Rapid Change Is Breaking Down 

Conventional Policy Categories. Golden, CO: National Renewable Energy Laboratory. 

http://www.nrel.gov/docs/fy15osti/63149.pdf.

Couture, Toby D., Karlynn Cory, Claire Kreycik, and Emily Williams. 2010. A Policymaker’s 

Guide to Feed-in Tariff Policy Design. Golden, CO: National Renewable Energy Laboratory. 

http://www.nrel.gov/docs/fy10osti/44849.pdf.

Eberhard, Anton, Joel Kolker, and James Leigland. 2014. South Africa’s Renewable Energy IPP 

Procurement Program: Success Factors and Lessons. Public Private Infrastructure Advisory 

Facility. http://www.ppiaf.org/sites/ppiaf.org/files/publication/South-Africa-REIPPReport_final_web.pdf.

EIA (U.S. Energy Information Administration). 2015. Annual Energy Outlook. Washington, 

D.C.: EIA. http://www.eia.gov/forecasts/aeo/electricity_generation.cfm.

Miller, M., L. Bird, J. Cochran, M. Milligan, M. Bazilian, E. Denny, J. Dillon, J. Bialek, M. 

O’Malley, and K. Neuhoff. 2013. RES-E-NEXT: Next Generation of RES-E Policy Instruments. 

Utrecht, Netherlands: International Energy Agency Renewable Energy Technology Deployment. 

http://iea-retd.org/wp-content/uploads/2013/07/RES-E-NEXT_IEA-RETD_2013.pdf.

Miller, Mackay, and Sadie Cox. 2014. Overview of Variable Renewable Energy Regulatory 

Issues: A Clean Energy Regulators Initiative Report. Golden, CO: National Renewable Energy 

Laboratory. http://www.nrel.gov/docs/fy14osti/61350.pdf.

NREL (National Renewable Energy Laboratory). 2014. “Feed-in Tariffs.” Last modified 

September 8. http://www.nrel.gov/tech_deployment/state_local_governments/basics_tariffs.html.

REN 21 (Renewable Energy Policy Network for the 21st Century). 2015. Renewables 2014: 

Global Status Report. Paris: REN 21. 

http://www.ren21.net/status-of-renewables/global-status-report/. 

Rickerson, Wilson H., Janet L. Sawin, and Robert C. Grace. 2007. “If the Shoe FITs: Using 

Feed-in Tariffs to Meet U.S. Renewable Electricity Targets,” The Electricity Journal 20 (2007): 

73–86. doi:10.1016/j.tej.2007.03.007.

Stadelmann, Martin, Gianleo Frisari, and Anja Rosenberg. 2014. The Role of Public Finance in 

CSP: Lessons Learned. San Francisco: Climate Policy Initiative. 

http://climatepolicyinitiative.org/wp-content/uploads/2014/06/The-Role-of-Public-Finance-inCSP-Lessons-Learned.pdf.
8

Appendix. Additional Support and Resources

Targeted technical assistance regarding the design and implementation of renewable energy 

policies is provided by: 

• Clean Energy Solutions Center Ask an Expert—The Solutions Center Ask an Expert service 

is available at no cost to government agency representatives from any country and the 

technical institutes assisting them. If your request qualifies for assistance, you will be 

matched with the Solutions Center expert who is most qualified to help you, for up to 40 

hours of assistance. For more information, see cleanenergysolutions.org/expert.

• Climate Technology Center & Network (CTCN)—Climate Technology Center & Network 

(CTCN)—The CTCN provides technical assistance in response to requests submitted by 

developing countries via their National Designated Entities (NDEs). Upon receipt of such 

requests, the CTC quickly mobilizes its global Network of climate technology experts to 

design and deliver a customized solution tailored to local needs. The CTCN does not provide 

funding directly to countries, but instead supports the provision of technical assistance 

provided by experts on specific climate technology sectors. For more information, see ctcn.org/technical-assistance. 

Additional resources—including good practice resources and publications, policy examples and 

databases, webinars and training resources, and a glossary—are available at 

cleanenergysolutions.org/policy-briefs/fit/resources.