Technical Report

NREL/TP-6A2-45551

Revised June 2009

State Clean Energy Policies 

Analysis (SCEPA) Project: An 

Analysis of Renewable Energy 

Feed-in Tariffs in the United States

Toby Couture

E3 Analytics 

Karlynn Cory

National Renewable Energy Laboratory
National Renewable Energy Laboratory

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Contract No. DE-AC36-08-GO28308

Technical Report

NREL/TP-6A2-45551

Revised June 2009

State Clean Energy Policies 

Analysis (SCEPA) Project: An 

Analysis of Renewable Energy 

Feed-in Tariffs in the United 

States

Toby Couture

E3 Analytics 

Karlynn Cory

National Renewable Energy Laboratory

Prepared under Task No. IGST.8300 
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ERRATA SHEET

NREL REPORT/PROJECT NUMBER: TP-6A2-45551 

TITLE: State Clean Energy Policies Analysis (SCEPA) Project: An Analysis of 

Renewable Energy Feed-in Tariffs in the United States

AUTHOR(S): Toby Couture, E3 Analytics; Karlynn Cory, NREL

ORIGINAL PUBLICATION DATE: May 2009

DATE OF CORRECTIONS: June 2009 

The following corrections were made to this report:

Section 2.7, Page 16 – In the first paragraph, New Jersey is now eliminated from the list. 

Section 7.0, Page 31 – In the first paragraph (second sentence), New Jersey is now 

eliminated from the list. 
iii

Acknowledgments

The authors would like to thank the following individuals for their support and assistance 

throughout the course of this work: Elizabeth Doris of the National Renewable Energy 

Laboratory (NREL), who reviewed the report multiple times and provided valuable 

feedback throughout the research and writing process; Wilson Rickerson of Rickerson 

Energy Strategies Paul Gipe (independent consultant) James Newcomb, Lori Bird, and 

Claire Kreycik of NREL; and John Farrell at the Institute for Local Self-Reliance, all of 

whom provided insightful comments on various drafts of the paper. Finally, we offer 

deep gratitude to Jennifer Josey for her fantastic review and editing assistance.

; ;
iv

List of Acronyms

ARRA American Recovery and Reinvestment Act of 2009 

CEC California Energy Commission 

CPUC California Public Utilities Commission

CVPS Central Vermont Public Service Corporation 

DOE U.S. Department of Energy 

DSIRE Database of State Incentives for Renewables and Efficiency

EWEB Eugene Water and Electric Board

FIT Feed-in tariff

GPP Green power program 

GRU Gainesville Regional Utilities

GWh Gigawatt hour 

HB House Bill

IEPR Integrated Energy Policy Report 

IOU Investor-owned utility 

ITC Investment Tax Credit 

kW Kilowatt

kWh Kilowatt hour

LMP Locational marginal pricing

MGE Madison Gas & Electric

MPR Market price referent

MW Megawatt

MWh Megawatt hour

NREL National Renewable Energy Laboratory 

PBI Production-based incentive 

PG&E Pacific Gas and Electric Company

PPA Power purchase agreement

PTC Production Tax Credit

PURPA Public Utilities Regulatory Policies Act

PV Photovoltaic 

RE Renewable energy

REC Renewable energy certificate

RES Renewable Energy Sources 

RPS Renewable portfolio standard

SCE Southern California Edison 

SCEPA State Clean Energy Policies Analysis 

SOC Standard Offer Contract 

TWh Terawatt hour
v

Executive Summary

The use of feed-in tariffs (FIT) is gaining popularity in the United States as a policy 

option for encouraging renewable energy (RE) development. A number of states have 

recently implemented FITs and several utilities have launched utility-specific FIT 

policies to help meet their renewable portfolio standards (RPS) (Rickerson et al. 2007). 

Experience around the world suggests that FITs could be used effectively to meet a 

number of U.S. state policy goals, including job creation, economic development, and 

meeting state RE targets.

FIT policies offer a long-term guarantee of payments to RE developers for the electricity 

they produce. These payments can encompass both electricity sales and payments for 

renewable energy certificates (REC). This guarantee of payments is often coupled with 

the assurance of access to the grid, which is generally extended to all interested parties, 

including but not limited to homeowners, business owners, utilities, and non-government 

organizations (Rickerson et al. 2008). 

Well-designed FIT policies offer a cost-efficient method for fostering rapid development 

of RE resources, thereby benefiting ratepayers, RE developers, and society at large. FIT 

policies offer a stable investment environment featuring long-term certainty of payment 

terms. Transparent contracts help minimize the administrative and regulatory barriers to 

RE development, which can help accelerate the overall pace of RE deployment. 

Moreover, FITs can be fine-tuned to encourage particular project attributes with respect to 

technology type or project size and they can be flexibly adapted to match different 

electricity market structures. On the other hand, FIT policies have a few disadvantages, 

including the fact that they do not directly address the challenges posed by the high initial 

costs of RE development (Lantz 2009) and that they may result in less-than-optimal 

project siting (Klein et al. 2008). 

Following best practices can help to ensure the success, cost efficiency, and overall 

performance of FIT policies. Importantly, most successful FIT policies base the prices 

offered to suppliers on the levelized cost of RE generation to ensure a reasonable rate of 

return. Other best practices include offering long-term, must-take contracts; 

differentiating FIT prices by technology type, project size, and resource quality; tariff 

degression, a design feature that incorporates an incremental decrease in the FIT prices 

over time to encourage innovation and accelerate the pace of deployment; incorporating 

the costs of the policy into the electricity rate base; and minimizing transaction costs by 

providing streamlined administrative procedures.

FIT policies can be implemented to support all renewable technologies including wind, 

solar photovoltaic (PV), solar thermal, geothermal, biogas, biomass, fuel cells, and tidal 

and wave power. Provided the payment levels are differentiated appropriately, FIT 

policies can increase development in a number of different technology types over a wide 

geographic area while contributing to local job creation and increased clean energy 

development in a variety of different technology sectors. The success of FIT policies 
vi

around the world, notably in Europe, suggests that they will continue to grow in 

importance in the United States as evidence mounts that they provide an effective 

framework for the promotion of RE development and job creation. 
vii

Table of Contents

List of Figures ................................................................................................................. viii

List of Tables .................................................................................................................. viii

SCEPA Project Background ............................................................................................ 1

1.0 Introduction ................................................................................................................. 1

1.1 What is a Feed-in Tariff ............................................................................................ 2

1.2 Advantages of FIT policies ....................................................................................... 3

1.3 FIT Policy Challenges............................................................................................... 4

1.4. Feed-in Tariff Policy Design in Europe ................................................................... 6

2.0 FIT Policies Currently Enacted in the United States .............................................. 7

2.1 Gainesville, Florida ................................................................................................... 8

2.1.1 Comparison to European FIT Policies ............................................................... 9

2.2 Wisconsin .................................................................................................................. 9

2.2.1 Comparison to European FIT Policies ............................................................. 10

2.3 California ................................................................................................................ 10

2.3.1 Comparison to European FIT Policies ............................................................. 12

2.4 Vermont .................................................................................................................. 12

2.4.1 Comparison to European FIT Policies ............................................................. 13

2.5 Washington ............................................................................................................. 13

2.5.1 Comparison to European FIT Policies ............................................................. 14

2.6 Oregon..................................................................................................................... 14

2.6.1 Comparison to European FIT Policies ............................................................. 14

2.7 FIT Policies Currently Proposed in the United States ............................................ 16

3.0 Key Elements of FIT Policy Success........................................................................ 17

4.0 FITs: A Tool for Achieving State Goals .................................................................. 19

5.0 Interaction Between FITs and other State and Federal Policies .......................... 22

5.1 RPSs and FIT Policies ............................................................................................ 22

5.1.1 Potential Interactions ....................................................................................... 22

5.2 Net Metering and FIT Policies ................................................................................ 23

5.2.1 Potential Interactions ....................................................................................... 24

5.3 Federal PTC/ITC and FIT Policy Interactions ........................................................ 24

5.3.1 Potential Interactions ....................................................................................... 25

6.0 Quantifying the Impacts of FITs ............................................................................. 26

6.1 U.S. FIT-based RE Deployment ............................................................................. 26

6.2 Jobs, Manufacturing, and RE Industry Impacts ...................................................... 27

6.3 Electricity Cost Impacts .......................................................................................... 27

6.3.1 Merit Order Effect ............................................................................................ 29

6.3.2 Wind Power Generation Impact ....................................................................... 29

7.0 Conclusions ................................................................................................................ 31

References ........................................................................................................................ 33
viii

List of Figures

Figure 1. Feed-in tariff policy implementation within the United States ........................... 8

Figure 2. Breakdown of electricity costs in Germany (2007) ........................................... 28

Figure 3. Estimated ratepayer savings in Spain and Denmark due to wind power .......... 30

List of Tables

Table 1. Feed-in Tariff Price Calculation Methodology ..................................................... 2

Table 2. U.S. Feed-in Tariff Policy Design ...................................................................... 15

Table 3. State Policy Drivers ............................................................................................ 20
1 

SCEPA Project Background 

The State Clean Energy Policies Analysis (SCEPA) project is supported by the 

Weatherization and Intergovernmental Program within the Department of Energy’s 

(DOE) Office of Energy Efficiency and Renewable Energy. This project seeks to 

quantify the impacts of existing state policies, and to identify crucial policy attributes and 

their potential applicability to other states. The goal is to help states determine which 

clean energy policies or policy portfolios will best accomplish their environmental, 

economic, and security goals. Experts from the National Renewable Energy Laboratory 

(NREL) are implementing this work, with state officials and policy experts providing 

input and review. This report analyzes renewable energy (RE) feed-in tariff (FIT) 

policies, their impacts on RE development, and their current status within the United 

States. 

For more information on the SCEPA project, access NREL’s Applying Technologies 

Web site at http://www.nrel.gov/applying_technologies/scepa.html. 

1.0 Introduction

Renewable energy (RE) feed-in tariffs (FIT) are a policy option that is currently growing 

in popularity throughout the United States. A number of states have recently begun 

implementing FITs and a few utilities have launched utility-specific FIT policies to help 

meet their renewable portfolio standards (RPS) (Rickerson et al. 2007). Experience 

around the world suggests that FIT policies could be effectively used to meet a number of 

U.S. state policy goals, including job creation, economic development, and meeting state 

RE targets.

This analysis begins by defining FITs, including a brief description of the advantages of 

FIT policies. Section 2 explores the different FIT policies currently implemented in the 

United States, with a discussion of a few proposed policies. Section 3 discusses a few of 

the best practices in FIT policy design, while Section 4 examines how FITs can be used 

to target state policy goals. Section 5 deals with current and potential future interactions 

between FITs and other state and federal energy policies. Section 6 provides an overview 

of the impacts FIT policies have in terms of RE deployment, job creation, and economic 

development while also touching on ratepayer impacts based on data from a few leading 

European countries. The paper concludes with a brief discussion of the future of FIT 

policies in the United States while highlighting a few areas where greater research is 

required. 
2

1.1 What is a Feed-in Tariff

A feed-in tariff (FIT)1 is an energy supply policy that offers a guarantee of payments to 

RE developers2 for the electricity they produce. Payments can be comprised of electricity 

alone or of electricity bundled with renewable energy certificates (REC)3

FIT policies can be understood as an advanced form of production-based incentive (PBI), 

where a payment is awarded for the actual electricity produced ($/kWh). PBIs are 

distinguished from capacity-based incentives like rebates, where a payment is awarded on 

the basis of how much capacity is installed ($/watt). 

. These 

payments are generally awarded as long-term contracts set over a period of 15-20 years. 

As an advanced form of PBI, FIT payments can be determined in three ways: 1) based 

on the actual levelized cost of RE generation. This is the most common choice for FIT 

policies around the world because it awards a payment level sufficient to ensure the 

profitability of RE investments; 2) based on the utility’s avoided costs,

4 either in real 

time, according to a locational marginal pricing5 (LMP) formula, or based on utility 

projections of long-run fossil fuel prices, as under the Public Utilities Regulatory Policies 

Act (PURPA); or 3) offered as a fixed-price incentive that is established arbitrarily and 

without regard to avoided costs or to levelized RE project costs. The three FIT payment 

calculation methodologies are shown in Table 1. 

Table 1. Feed-in Tariff Price Calculation Methodology

Methodology Description

1: FIT payments based on 

levelized RE project costs

Where the FIT payment is methodologically based on the 

levelized cost of RE generation, plus a target rate of return 

(e.g., Gainesville, FL)

2: FIT payments based on 

utility avoided costs

Where the FIT payment is based on utilities’ avoided cost (e.g., 

CA, Central Vermont Public Service Corporation in VT, Xcel in WI)

3: Fixed-price incentives

Where the FIT is awarded as a fixed-price incentive, without 

regard to avoided cost, or the cost of RE generation (e.g., WE 

Energies’ solar buy-back, WA)

 

1 FIT policies are known variously as renewable energy payments, fixed-price policies, production-based 

incentives, feed laws, and standard offer contracts. Their more sophisticated forms are known as advanced 

renewable tariffs.

2 “Developers” can include citizens, local governments, municipalities, farmers, businesses, utilities, 

corporations, non-profits, etc. Unless specified otherwise, FIT payments are generally available to all 

interested parties.

3 RECs represent the environmental attributes of renewable energy generation.

4 “Avoided costs” refers to the estimated cost of supplying electricity if it were done by means of other 

supply sources. Interpretations of what constitutes avoided costs differ widely from one jurisdiction to the 

other. It is meant to represent the value of new generation to the utility.

5 LMP is a strategy put forward by the Federal Energy Regulatory Commission to improve the efficiency of 

wholesale power markets. It assigns different prices to the value of electricity produced at various nodes of 

the electricity network on the assumption that the price signals will influence the overall balance of supply 

and demand in the transmission system. LMP reflects the market cost of delivering new supply to a given 

area of the grid based on transmission and generation constraints. See http://www.isone.com/nwsiss/grid_mkts/how_mkts_wrk/lmp/index.html. 
3

The first option—FIT payments based on levelized RE project costs—has been and 

continues to be the most successful FIT option in terms of driving rapid RE deployment, 

largely because it provides investors with a price adequate to ensure a reasonable return 

on investment. It is also the most common FIT design used in Europe. In contrast, the 

avoided cost and fixed-price incentive options are more common in the United States, 

and have experienced more limited success.

In addition to the FIT payment calculation methodology, a decision must be made as to 

how the basic structure of the FIT payment will be determined. There are two basic ways 

to structure a FIT payment: 1) the fixed-price model where fixed prices are established 

independent from prevailing electricity prices. This is the model most commonly used in 

Europe (Klein et al. 2008, Ragwitz et al. 2007, Mendonça 2007); 2) the premium price 

model where a technology-specific premium or bonus is offered above the spot market 

price (Held et al. 2007, Klein et al. 2008). Both of these approaches have different 

implications for investment risks.

FIT payments can be differentiated in a variety of ways to account for the type of 

technology, project size, quality of the resource, and the RE project location. In most 

cases, the payment level is adjusted to reflect the cost of generating electricity from the 

type of project while allowing for a modest profit.

In addition to offering a guarantee of payments, FIT policies typically guarantee grid 

access, allowing both small and large projects to connect to the grid according to uniform 

interconnection standards (Klein et al. 2008). FIT payments can therefore be understood 

as an open form of power purchase agreement (PPA) similar to those found in 

conventional electricity supply contracts. In contrast to PPAs, however, FIT policies tend 

to be designed specifically for RE technologies and generally provide non-discriminatory 

access to supply electricity to the grid through a standard contract. 

1.2 Advantages of FIT policies

Well-designed FIT policies have several advantages over other RE policies such as 

upfront rebates, net metering, and quota-based policies like renewable portfolio standards 

(RPS). First, a growing body of evidence from Europe demonstrates that FIT policies 

have on average fostered more rapid RE project development than these other policy 

mechanisms (see Section 6.0) (Fouquet 2007, Mendonça 2007, Held et al. 2007, Klein 

2008, Ragwitz et al. 2007, Stern 2006). Additionally, they have been found to be more 

cost-efficient in terms of the average cost-per-kWh paid for RE generation than policies 

like RPSs that make use of competitive solicitations (de Jager and Rathmann 2008, 

Fouquet, 2007, Ragwitz et al. 2007). This suggests that their implementation could help 

secure the benefits of RE development at lower cost to society, and to ratepayers.

Initial evidence suggests that there are two primary reasons FIT policies are more costefficient than other policies. First, policies that make use of competitive solicitations like 

RPSs involve a higher degree of risk for the developer, putting upward pressure on the 

required returns (de Jager and Rathmann 2008, Ernst & Young 2008, Dinica 2006). The 

reduction of these investment-level risks under FIT policies can also help reduce capital 
4

costs, ultimately reducing the cost of renewable electricity (de Jager and Rathmann 2008, 

Ernst & Young 2008). Second, projects vying under the competitive solicitation 

processes tend to be financed by larger institutional or corporate investors who provide 

equity as opposed to debt financing. Since equity is more expensive than debt, leading to 

a higher weighted average cost of capital, further upward pressure is placed on the 

levelized costs of energy (Cory et al. 2009a). 

Successful FIT policies are generally designed to allow for an adequate recovery of 

project costs plus a reasonable rate of return, thereby increasing investor security. 

Furthermore, by offering transparent payment levels and uniform contract terms at the 

outset, FIT policies help create a framework with low administrative and regulatory 

barriers for promoting RE deployment (de Jager and Rathmann 2008). 

A further advantage of FIT policies is that because average citizens and business owners 

can participate, they tend to reduce the social opposition to RE development. This may 

prove to be particularly important in the years ahead, and may become an important 

condition for the broader expansion of RE technologies (Mendonça et al. 2009). 

Overall, FIT policies also help provide flexibility. When differentiated according to 

technology type, they can be designed to encourage any RE technology, as well as a 

particular subset of technologies depending on local resource availability. By 

differentiating the payment levels according to different project variables, including 

project size, FIT policies allow RE investments to be profitable for citizens, small 

business owners, and large commercial-scale developers. This flexibility, ensured by the 

differentiated payment levels, helps leverage capital investment toward renewables and 

drives rapid RE deployment in a number of different technology classes. 

1.3 FIT Policy Challenges

Despite their advantages, there are a few central challenges of FIT policies. These can be

broken down into five basic categories. 

The first challenge is that FIT policies do not address the barrier posed by the high upfront costs of RE systems, in contrast to rebate programs and other up-front “capacitybased” incentives. FIT policies are designed to offer stable revenue streams through longterm purchase contracts, requiring that the high up-front costs be amortized over a long 

period of time. It is generally assumed that the guaranteed terms offered by FIT policies 

will help developers and investors overcome the high up-front costs by financing a larger 

portion of the project with debt financing. However, FIT policies do little to address upfront costs directly. Despite this challenge, experience from both Europe and North 

America indicates that up-front incentives may not be as effective at spurring broad 

market adoption or at driving innovation and technological cost reductions (Lantz 2009, 

Jacbosson and Lauber 2005, Nielsen 2005). 

Second, FIT policies can put near-term, upward pressure on electricity rates, particularly 

if high-cost technologies like solar photovoltaics (PV) are included in large amounts (i.e., 

thousands of MW). The risk of cost impacts grows in proportion to the rate and scale of 
5

deployment of these costlier technologies. One way to resolve this issue is to cap the total 

annual capacity of high-cost RE resources. Additionally, experience in Europe has shown 

that the large-scale deployment of wind power, for instance, has actually helped lower

electricity rates (see Section 6.3; also de Miera et al. 2008, Morthorst 2006). Also, it is 

important to weigh the broader social and economic benefits of the rapid RE

development generated under successful FIT policies against any near-term pressure on 

rates. Analysis in Germany has found the tradeoff between higher near-term rates and 

industry development, economic growth, environmental costs, etc. has been positive (see 

Section 6.3) (BMU 2008b). 

 

Third, well-designed FIT policies require a significant up-front administrative 

commitment to design the policy and to establish FIT payments based on the levelized 

cost of RE generation. Detailed analyses on technology cost and resource quality are 

needed to ensure FIT payments are adequate to guarantee cost recovery without leading 

to windfall profits. 

Fourth, FIT policies designed to include guaranteed grid interconnection, regardless of 

location on the grid, could lead to less-than-optimal project siting. Accordingly, if 

projects are sited far from load centers or transmission or distribution lines, 

interconnection costs increase, putting upward pressure on policy costs. However, this 

challenge can be largely overcome if FIT policies encourage siting projects near load 

centers by creating an incentive (either a bonus or a higher price based on higher spotmarket prices), or if the policies require developers to bear a portion, if not the entirety, 

of the costs of connecting projects to the grid. Both of these financially-based solutions 

create incentives and could encourage more efficient, less costly project siting (Klein et 

al. 2008). However, requiring the developer to cover all costs related to interconnection, 

including grid upgrades, may make certain projects where significant resource potential

exists uneconomic when considered in isolation. If utilities are required to share the costs 

of interconnection and grid infrastructure upgrades, it is likely that higher levels of RE 

penetration will occur as more of a region’s RE potential will be harnessed. 

Finally, due to changes in technology costs and market prices over time, FIT policies 

must be adjusted periodically to account for these changes. Accounting for changes in 

technology costs accurately remains a challenge. Changing payment levels too often can 

be undesirable as well, as it creates investor uncertainty and increases overall market risk. 

Some jurisdictions such as Germany choose to adjust their policies via tariff degression, 

where FIT payments decline by a pre-established percentage every year, coupled with 

periodic policy adjustments that occur every three or four years (BMU 2008). Others 

such as Spain choose to adjust FIT policies annually by updating the entire suite of FIT 

premium payments to track observed changes in technology and operational costs (RD 

661/2007). Despite these short-term adjustments, both Germany and Spain retain longterm commitments to the policy (see Section 6.3). To be successful, these adjustments

require a detailed methodology to track market changes effectively from year to year. 

Ultimately, the challenge is to provide a flexible policy framework without jeopardizing 

investor confidence (Klein et al. 2008). 
6

Due to the potential near-term impact that rapid deployment of RE technologies could 

have on electricity rates and overall policy costs, caution should be taken when including 

costlier RE technologies in FIT policies. For instance, some jurisdictions may choose to 

put caps on costlier renewable resources like solar PV, while technological advancement 

gradually reduces technology costs over time. As RE technologies become more costcompetitive, or as carbon pricing and/or market changes put upward pressure on the costs 

of fossil fuels sources, these caps can be progressively raised or removed. For more costcompetitive RE resources like wind power, it may be advantageous not to include caps to 

better capitalize on the hedge benefits of lower-cost RE resources.

As with any policy, benefits and challenges surround FIT policies. However, many of the 

challenges can be resolved with careful policy design and proper cost-benefit analysis. 

Additionally, because of the intrinsic benefits created by FIT policies in terms of RE 

development, policymakers may accept a tradeoff between the positive economic effects 

and any near-term impacts on electricity prices.

1.4. Feed-in Tariff Policy Design in Europe

Since FIT policies have had the most success in European countries like Germany and 

Spain, it is worth examining the design features that have led to their success. Typically, 

FIT policies in Europe offer payments that are based on the actual cost of generation 

from RE sources, while allowing for a reasonable profit. They also guarantee connection 

to the grid, while giving priority to RE sources (Klein et al. 2008). 

Further design features that account for the success of FIT policies in Europe are the 

long-term contracts they provide, along with the streamlined procedures for project 

approval. They also design their FIT policies to allow for a high degree of price 

differentiation, allowing RE investments to be profitable in a wide variety of technology 

types, at a wide range of different sites, as well as in a wide spectrum of different project 

sizes. These various differentiations make European FIT policies more sophisticated than 

their North American counterparts. This has led some analysts to distinguish them as 

“advanced renewable tariffs” (Gipe 2009).

FIT policies in Europe also have fewer caps on project and program size, and where such 

caps exist, they impose less restrictive limits on how much RE deployment can occur, 

leaving greater room for development while increasing overall investor confidence. 
7

2.0 FIT Policies Currently Enacted in the United States

FIT policies are being experimented with in the United States, though at a smaller scale 

and less comprehensively than in a number of European countries. To date, several 

utilities in California, Florida, Oregon, Vermont, Washington, and Wisconsin have 

implemented different variations of FIT policies. This section briefly explains the 

structure of the various state-level FIT policies currently enacted in the United States.

It is important to distinguish between utility-based and state-level FIT policies. The 

United States has a number of utility-based FIT policies which differ considerably in 

design and effectiveness. They are generally put forth by utilities to help meet utilityspecific goals, which may range from meeting RPS targets to encouraging distributed 

generation. Wisconsin and Oregon are examples of this as both states have utilities that 

offer fixed-price FIT payments for RE sources. State-wide FIT policies, in contrast, are 

mandated at the state level and require utilities operating within their jurisdiction to 

purchase electricity generated from RE sources. Note that this obligation can apply only 

to investor-owned utilities (IOU) or to all utilities within the state. Two examples of state 

level FIT policies include California and Washington.

Figure 1 provides an overview of the current status of FIT policies in the United States,6

most of which are best characterized as ‘avoided cost’ based FIT policies or fixed-price 

incentives rather than full-fledged FITs based on the cost of RE generation (Rickerson 

and Grace 2007). To date, the only FIT policy in the United States based on the cost of 

RE generation has been adopted by Gainesville Regional Utilities (GRU) in Florida, 

designed for solar PV. It is important to note, however, that as of April 2009, no U.S. 

state has implemented a FIT policy based on the cost of RE generation. 

There are substantive differences between the FIT policies found in the United States and 

those currently implemented in Europe. A brief discussion is included at the end of each 

state analysis, highlighting the ways each of these U.S. state FIT policies differ from 

those found elsewhere in the world. 

 

6 On June 26, 2008, Congressman Jay Inslee (D) submitted the Renewable Energy Jobs & Security Act, 

H.R.6401, a federal FIT proposal, to the United States Congress. This bill outlines a FIT policy that

includes 20-year contracts for all RE technologies, including solar, wind, geothermal, biomass, and biogas 

facilities, with fixed payment levels set nationwide to encourage the development of the top 30th percentile 

of the country’s renewable resources. The Inslee Bill (H.R. 6401) would have the FIT policy financed by a 

nationwide, non-bypassable system benefit charge.
8

Figure 1. Feed-in tariff policy implementation within the United States

Source: www.wind-works.org. 

2.1 Gainesville, Florida

On February 5, 2009, the board of directors at the Gainesville City Commission approved 

Gainesville Regional Utilities’ (GRU) proposal for a FIT policy tailored to solar PV

(GRU 2009a). This particular policy is unique in the United States as it is the first FIT to 

be based on the levelized cost of generating electricity from RE sources, with an 

estimated rate of return, thereby making it close in design to FIT policies in Europe. GRU 

expects that smaller developers will be able to obtain roughly a 5% rate of return on their 

investment, which is expected to make solar PV a financially viable investment (GRU 

2009a). 

The GRU FIT policy was implemented at the municipal utility rather than the state level 

and was available March 1, 2009. It is designed to help developers make use of existing 

state and federal incentives (GRU 2009a). Included in the contract terms is the stipulation 

that GRU retains any RECs generated, as well as any “carbon rights” that may accrue in 

the future. 

The GRU FIT policy will enable residents served by GRU to install solar PV systems and 

sell their electricity directly to GRU for a fixed price contract of $0.32/kWh for systems

smaller than 25 kW, and $0.26/kWh for free-standing systems larger than 25 kW. FIT 

payments will be awarded for a period of 20 years. The payments will decrease by 

approximately 5% beginning in 2010, such that projects installed in 2011, for instance,

will receive $0.30/kWh (<25 kW) and $0.25/kWh (>25 kW) (GRU 2009b). This payment 

decrease is known as tariff degression (Klein et al. 2008). Additionally, the program 

includes an annual program cap so that no more than 4 MW of new installed solar 

capacity will be installed in any one year (DSIRE 2009b, GRU 2009b). 
9

2.1.1 Comparison to European FIT Policies

Gainesville’s FIT policy degression is one of three features the tariff has in common with 

Europe for fixed-price FIT design. This degression means that the annual payment 

awarded to solar developers for the electricity generated declines by a certain percentage 

(in this case, 5%) every year. This is done to both track and encourage cost reductions in 

the technology while fostering greater efficiencies and innovation. 

The second similarity is that FIT payments are differentiated by project size. A higher 

tariff rate is offered for projects less than 25 kW than the rate offered to projects greater 

than 25 kW. This is an important feature of successful and cost-efficient FIT policies as it 

helps projects of various sizes to be profitably developed without awarding windfall 

profits to larger systems that benefit from economies of scale. The primary function of 

project size differentiation is to factor these economies of scale into the contracted FIT 

payment. 

The third similarity is that the contract length is structured over 20 years, providing a 

reliable horizon for investors. While the guarantee of stable revenue streams over 20 

years is a feature commonly used in Europe, it is far less common in the United States. 

The GRU FIT policy differs somewhat from most in Europe as it is designed solely for 

solar PV rather than being extended to a wider variety of RE technologies. It also 

involves a fairly small annual program size cap; although, the cap may be appropriate to a 

small municipal utility such as GRU, whose peak capacity is 632 MW (GRU 2008). 

2.2 Wisconsin

While the state of Wisconsin does not have a FIT policy, a number of utilities operating 

in the state have chosen to implement their own. Therefore, Wisconsin’s FIT policies are 

utility-based and include all three kinds of FITs: fixed-price incentives, avoided cost 

FITs, and one loosely based on RE project costs. 

As of October 2005, WE Energies offers a fixed-price incentive for solar PV projects 

through a pilot project program. Currently, the contracts are structured over 10 years and 

offer a payment of $0.225/kWh for systems ranging from 1.5 kW to 100 kW in capacity 

(DSIRE 2009c). A cap is also included on the total program size of 1 MW. WE Energies 

purchases both the electricity and RECs, and project developers receive a check once the 

net amount accumulated exceeds $100. Projects are also connected via a separate, supply

oriented meter, distinguishing the policy from net metering (DSIRE 2009c). The policy is 

valid until September 30, 2011; however, enrollment has been discontinued due to full 

subscription. 

WE Energies also offers a FIT payment for biogas systems that is based on the utilities’ 

avoided cost (DSIRE 2009d). The payment varies from $0.155/kWh for on-peak 

production to $0.04/kWh for off-peak production, roughly reflecting the utility’s cost of 

generation during these times. The policy is available for projects up to 1 MW in size, for 

a total program size of 10 MW. FIT payments are structured according to a 15-year 
10

contract with WE Energies; the policy is will expire on December 31, 2009, or when the 

10 MW cap is reached, whichever comes first (DSIRE 2009d). 

Another Wisconsin utility, Madison Gas & Electric (MGE), started offering a similar 

fixed-price incentive for solar PV systems between 1 kW and 10 kW in size in March 

2007 (DSIRE 2009e); there is a 300 kW cap on program size. The policy is only 

available to customers serviced by MGE who have opted into its Green Power Tomorrow 

program, which includes an additional $0.01/kWh surcharge on the utility retail rate. The 

contract period is 10 years; all electricity sold is bundled with the RECs which are then 

transferred to MGE (DSIRE 2009e). Additionally, MGE has a fixed-price incentive that 

states the amount of energy consumed by the owner via the green power program (GPP) 

must be larger than the total AC output of the system. 

Finally, as of January 1, 2008, Xcel Energy offers a FIT payment for wind power of 

$0.066/kWh and biomass and biogas electricity of $0.073/kWh (DSIRE, 2009f). Other 

technologies are technically eligible for a fixed-price incentive as well, though the actual 

payment is negotiated on a case-by-case basis. Contracts are based on a 10-year period, 

ranging from a minimum project size of 20 kW to a maximum of 800 kW for biomass 

and biogas projects. A cap is also included on the total program size at 0.25% of retail 

sales over the previous year (Donovan 2009).7

 

The FIT payment levels offered are based on Xcel’s approximations of RE project costs, 

derived from their own internal modeling (Donovan 2009). Although Xcel calculated its 

FIT payments with the intention of basing them on the costs of RE generation, the prices 

have been set too low and have been insufficient to drive significant RE development 

(Donovan 2009). This example underscores the importance of setting the FIT payment 

levels accurately to ensure they are adequate to cover project costs; policies that fail to do 

so are unlikely to be successful unless other supplementary incentives are in place.

2.2.1 Comparison to European FIT Policies 

There are a few key differences between FIT policies in Wisconsin and those currently 

implemented in Europe. First, Wisconsin’s FIT policies have not been accurately based 

on the levelized cost of RE generation. Because they are utility-based FIT policies, 

utilities are not allowed to participate. Also, because the programs include a number of 

caps on the individual project size, as well as on the total program size, these FIT policies 

are limited in their ability to drive large-scale RE deployment. 

2.3 California

Although FITs are widely understood to be a European policy, they originated in the 

Unites States under the Public Utilities Regulatory Policies Act (PURPA) of 1978 

(Rickerson & Grace 2007). In the early 1980s, California was the state to most 

 

7 Based on Xcel’s 2005 Wisconsin retail sales of just over 6,000 TWh, this works out to just over 15 GWh.
11

aggressively implement PURPA. In fact, Standard Offer Contract (SOC)8 No. 4 helped 

encourage the development of almost 1,200 MW of wind power in California between 

1984 and 1994 (Gipe 1995). However, PURPA was based on the notion of utility 

“avoided costs,” and contracts in California were locked in based on projections of the 

long-run price of natural gas.9 When actual natural gas prices dropped well below the 

projections, SOCs payments kept rising and proved costly to the ratepayer, giving 

PURPA a negative connotation that persists in the United States. (Guey-Lee 1999). 

In July of 2007, the California FIT policy was passed into law by Assembly Bill 1969 

(CPUC 2008a), requiring utilities to file tariffs for the purchase of renewable electricity 

from a number of eligible facilities, including water and waste-water facilities. The total 

program size was capped at 478.4 MW (CPUC 2006). The tariff payment level was 

determined according to the market price referent (MPR) at the time of commercial 

operation of the plant; it is fixed at this level over a period of 10, 15, or 20 years (AB 

1969). 

The MPR, used primarily for implementing California’s RPS, is the anticipated average 

annual cost of generation from the power plant that would otherwise be supplying the 

load in that area (CPUC 2008a), making it a slightly more nuanced form of the avoided 

cost payments previously awarded under California’s SOC No. 4. The MPR in California 

is currently determined by the market price of natural gas (Grace et al. 2008a). The 

California Public Utilities Commission (CPUC) specifies that the tariffs are to be: 

adjusted according to the time of delivery; differentiated as either peak, shoulder, or offpeak; and are to differ depending on whether the electricity is supplied in the summer or 

winter, and by which utility (CPUC 2008a). There is also a limit on individual project

size of 1.5 MW. Although Resolution 4137 extended the FIT policy to apply to all IOUs, 

most only offer FIT payments to water and waste-water facilities. Pacific Gas and 

Electric Company (PG&E) and Southern California Edison (SCE), however, do extend 

the payments to other RE technologies (CPUC 2008a).

This MPR approach means that California’s FIT policy is based on avoided-costs, as 

opposed to one based on the levelized cost of RE generation. It is important to note that it 

is different from PURPA in that it is updated annually, and it is also more closely tied to 

current utility avoided cost, unlike California’s SOC No. 4, which was pre-determined at 

the beginning of the contract, based on projections of the long-run avoided cost. 

The FIT policy has had little impact in California so far. This is largely due to the fact 

that the suite of rebates and up-front subsidies10

 

8 “Standard Offer Contract (SOC)” has sometimes been used interchangeably with “feed-in tariff”. It is 

important to distinguish modern cost-based FIT policies, which are often highly differentiated in their 

design and overall payment structure, from previous SOCs born of the PURPA policy, which were based 

on varying interpretations of the notion of avoided cost. 

 is not available to certain technologies 

9 Avoided costs are estimated by location and depend on the marginal electricity resources for that location. 

In some states, this could have been based on natural gas, oil, or nuclear. 10 These up-front subsidies range from $1.55/watt to $2.30/watt as of October 2008 (CPUC 2008b). Note 

that these up-front payments differ from one utility to the next.
12

under the FIT policy (CPUC 2008b). Because the payment levels offered remain too low 

to drive development in most RE technologies, the California FIT is not viable as a standalone policy. Approximately 97% of developers and residents opt for the high up-front 

rebates available under the program instead of the FIT payment due to the higher rate of 

return they ensure (CPUC 2008b).

There are a number of other initiatives in California that could advance FIT policies in 

the state. The California Energy Commission (CEC) recently recommended moving 

toward a cost-based FIT policy and held a series of workshops on potential designs 

(Grace et al. 2008a, b, c). California’s 2008 Integrated Energy Policy Report (IEPR) also 

directs the CPUC to immediately implement a FIT policy for projects under 20 MW, 

stating explicitly that FIT payments should be based on RE project costs rather than tied 

to the MPR (IEPR 2008). It also directs the CPUC to consider FIT policies for projects 

above 20 MW. All of this activity in California, combined with the realization that the 

state is falling behind schedule for meeting its RPS targets (Grace et al. 2008a), means it 

is likely that a more comprehensive FIT policy could be implemented in the state in the 

near future. 

2.3.1 Comparison to European FIT Policies 

There are three primary differences between California’s current FIT policies and those 

commonly found elsewhere in the world: 1) California’s payment levels are determined 

according to avoided costs rather than the cost of generation; 2) for most utilities in the 

state, the FIT payments are only available to water and waste-water facilities, 

significantly limiting potential growth in RE deployment; 3) California has a cap on both 

project and program size, hindering the developers’ ability to harness economies of scale. 

These size caps also limit the ability of the FIT to drive large-scale RE deployment in the 

state of California.

2.4 Vermont

Two IOUs offer FIT programs in Vermont. As of July 30, 2004, the Central Vermont 

Public Service Corporation (CVPS), the largest utility in Vermont, offeres a FIT based on 

their utility avoided cost for farm-based projects generating electricity from anaerobic 

digesters (DSIRE 2009g). The incentive payment is based on 95% of the LMP, plus an 

incentive of $0.04/kWh. 

CVPS purchases both electricity and RECs and it sells the RECs to participants of the 

utility’s GPP (DSIRE 2009g). The contract period for the purchases is five years, and the 

project must operate under a separate supply oriented meter. Since this policy effectively 

offers a bonus, or premium, above the average avoided cost price, it can be considered a 

premium-price FIT policy (Klein et al. 2008). The tie to the market price, via the LMP 

formula, arguably makes the policy riskier from a developer’s standpoint due to the loss 

of price certainty. Also, the total allowable capacity under the program is limited by the 

participants in CVPS’s GPP (DSIRE 2009g), limiting the scale of the RE development in 

the state.
13

In addition to CVPS, Green Mountain Power (a Vermont IOU) offers a fixed price 

incentive for net metered solar PV systems (DSIRE 2009h). Owners of the system 

receive $0.06/kWh for the electricity they produce. A cap is included on the individual 

project size of 250 kW, and a second meter must be installed to track the total production 

of the system. No capacity limit or time duration is included, and under this policy, 

owners also retain the solar RECs for the electricity they produce.

2.4.1 Comparison to European FIT Policies 

Vermont’s FIT production incentives differ in a number of respects from those common 

in Europe. First, they are targeted at specific technologies (anaerobic digesters and solar 

PV, in particular), rather than being designed for a wide variety of RE technologies. Also, 

neither FIT is based on the actual cost of RE generation. CVPS’s FIT program also 

involves a comparatively short contract period, significantly reducing the investment 

certainty. CVPS’s program is integrated into the utility’s GPP, effectively capping the 

total program size and limiting the potential for broader market growth. The fact that 

GMP’s program does not include a cap on the total program size is a feature that it shares 

with certain European FIT polices.

2.5 Washington

In 2005, the state of Washington successfully passed a fixed-price incentive targeted at 

residential, commercial, and local government projects (SB 5101, DSIRE 2009i). Under 

the policy, solar PV, solar thermal, wind, and anaerobic digester systems are all eligible 

and are offered at a range of $.12/kWh to $.54/kWh, depending on the technology type 

and whether or not the project uses in-state manufactured components (DSIRE 2009i). 

However, a maximum FIT payment amount per project, per year is set at $2,000, 

significantly limiting the eligible project size. 

In addition, utilities in Washington are not obligated to participate; rather, they have the 

choice of offering the policy or not (Nelson 2008). The policy is financed through the 

utilities’ in-state tax liability and can be offset annually by means of the $2,000 perproject payments (Nelson 2008). The only direct costs incurred by the utilities are 

transaction costs (Nelson 2008). To minimize the transaction costs, the utility only 

verifies the meter once a year and pays out the corresponding amount on a yearly rather 

than monthly basis. The tariff amount is paid on all kWh generated, effectively 

distinguishing it from net metering policies. Washington’s production incentive could 

therefore be understood as a form of “gross metering,” where a payment is offered for all 

electricity produced, regardless of whether it is consumed onsite or not (Rose et al. 2008). 

Note that for projects that qualify under Washington’s FIT production incentive, the 

payments are only available through June 30, 2014, no matter when the project starts 

(DSIRE 2009i). This means there is a relatively short contract period over which the 

payments are offered, significantly reducing the likelihood that the revenue streams 

generated will be adequate to make RE projects profitable. 

As mentioned above, preferential rates are offered to projects purchasing in-state 

components to help boost the local RE industry. For instance, solar PV projects are 
14

offered a base price of $.15/kWh. This base price is then modified according to two 

multipliers: 1) if the inverter is purchased from in-state manufacturers, a 1.2 multiplier is 

factored in; 2) if the solar panels are purchased from in-state manufacturers, a multiplier 

of 2.4 is factored in: 

 ($.15/kWh x 1.2) + ($.15/kWh x 2.4) = $.54/kWh 

2.5.1 Comparison to European FIT Policies 

There are a few key differences between Washington’s FIT policy and those found in 

Europe. First, Washington has no purchase obligation whereas Europe does. Also, the 

state’s period payments are available for five years or less (instead of the 15-20 common 

in Europe). The policy is funded through utility tax liabilities rather than through the rate 

base, and an implicit cap on project size is imposed by capping the total allowable 

payment per project per year. Additionally, the state gives preferential treatment to 

locally manufactured RE technology components. 

2.6 Oregon

In early 2007, the Eugene Water and Electric Board (EWEB), the largest publicly owned 

utility in Oregon, initiated a pilot project for solar PV, offering a production incentive of 

$0.15/kWh where the fixed-price incentive payment is based on the utility’s avoided cost

(Morehouse 2009). After the initial pilot program met EWEB’s expectations, the program 

was expanded (Morehouse 2009). However, on January 25, 2008, EWEB dropped the 

actual FIT payment amount from $0.15/kWh to $0.12/kWh (DSIRE 2009j). 

EWEB offers the fixed-price incentive for electricity produced from solar PV systems 

larger than 10 kW, with no upper limit on eligible project size. All electricity produced is 

fed into the grid via a separate supply oriented meter, and generators are paid based on 

their total production. This FIT payment is available for a contracted period of 10 years 

and all RECs generated by the system are transferred to EWEB.

2.6.1 Comparison to European FIT Policies 

Several differences exist between EWEB’s FIT production incentive and those common 

in Europe. First, EWEB’s FIT payment is only available to solar PV projects and the 

contract period is somewhat shorter than those found in Europe. However, the most 

crucial difference is that the payment level is not based on the cost of RE generation, but 

on the utility’s avoided cost. 

Table 2 provides an overview of FIT policy design in the United States as of April 2009. 
15

Table 2. U.S. Feed-in Tariff Policy Design

State Utility FIT Type(i) Tech 

Eligible

Price 

(c/kWh)

Contract 

Duration 

Project 

Size 

Caps 

Program 

Size 

Caps 

CA IOUs only Avoidedcost Based Most(ii)

6 to 

about 

20

10, 15, or 20 

years

1.5 MW 478

MW

FL 

Gainesville 

Regional 

Utilities 

(GRU)

Based on 

the Cost of 

Generation 

(Solar)

Solar 32 20 years None 4 MW 

per year

OR

Eugene 

Water & 

Electric 

Board

Fixed-price 

Incentive Solar 12 10 years

Only 

projects 

>10 kW

None

VT

Central 

Vermont 

Public 

Service

Avoidedcost Based Biogas

95% of

LMP

+ 4-6 

5 years None Tied to 

GPP 

Green 

Mountain 

Power

Fixed-price 

Incentive Solar 6 Unspecified 250 kW None

WA Almost all 

(60+)

Fixed-price 

Incentive

Solar 15-54 Until 

06/30/2014 N/A(iii) N/A (iv)

Wind 12-18 Until 

06/30/2014 N/A(iii) N/A(iv)

Biogas 15 Until 

06/30/2014 N/A(iii) N/A(iv)

WI

Xcel 

Energy

Loosely 

Based on 

Cost of 

Generation

Wind 6.6 10 years 20 kW1 MW 0.25% of 

retail 

Biomass/ sales

Biogas 7.3 10 years 20 kW800 kW

WE 

Energies

Fixed-price 

Incentive Solar 22.5 10 years 1.5 kW100 kW 1 MW

Avoidedcost Based Biogas 4-15.5

(peak) 15 years 1 MW 10 MW

Madison 

Gas & 

Electric

Fixed-price 

Incentive Solar 25 10 years 1-10 kW 300 kW

(i) See Table 1 for a definition of FIT type.

(ii) FIT policies are only available to technologies other than water and waste-water facilities in PG&E and 

SCE’s service area.

(iii) The maximum annual payment is $2,000 per system, effectively capping the eligible project size.

(iv) Utilities offset the FIT purchases through their in-state tax liabilities, implicitly capping the total program 

size to the extent of the utilities’ tax liabilities.
16

2.7 FIT Policies Currently Proposed in the United States

As of March 2009, state representatives have proposed FIT policies in a wide range of 

U.S. states, including Arkansas, California, Florida, Hawaii, Illinois, Indiana, Michigan, 

Minnesota, New York, Oregon, Rhode Island, Vermont, Washington, and Wisconsin.11

California and Washington are examining the possibility of expanding their existing FIT 

policies (IEPR 2008 and HB 1086, respectively) and Hawaii saw a number of solar FIT 

proposals in its legislature in 2007. Throughout this flurry of legislative activity, a trend 

toward designing FIT policies similarly to those found in Europe can be seen. Many 

jurisdictions that already have either state- or utility-based FIT policies are exploring 

ways of improving them, and this could help increase the success of FIT policies in the 

United States in the future.

In addition to state legislative proposals, governors are also proposing FIT policies. 

Hawaii, for example, has included a more comprehensive FIT policy within its most 

recent energy plan (FIT-Hawaii 2009). As part of the Hawaii Clean Energy Initiative, 

Hawaii identifies reaching 40% of the state’s electricity from renewable sources by 2030 

as one if its objectives, with the long-term goal of supplying 70% of the state’s energy 

needs with clean energy sources (FIT-Hawaii 2009). 

State energy offices are also proposing FIT policies. Florida, Ohio, and Maine are 

considering FIT policies at the state-level (Gipe 2009b), and California recently held 

hearings at the CEC to examine different policy options for an expanded FIT policy, with 

the aim of replicating the success of its European counterparts by improving the policy 

design (CEC 2008). 

Finally, the municipalities of Palm Desert, Santa Monica, and Los Angeles in California 

have also recently proposed FIT policies; however, none were implemented as of April 

2009 (Gipe 2009b; Ferguson 2009). 

 

11 For a full list of current U.S. state FIT proposals, see Gipe 2009b.
17

3.0 Key Elements of FIT Policy Success

FIT policies can be implemented in any jurisdiction and can support all renewable 

technologies including wind, solar PV, solar thermal, geothermal, biogas, biomass, fuel 

cells, and tidal and wave power. These policies can increase the development of a number 

of different technology types over a wide geographic area based on local resource 

availability, so long as the payment levels are differentiated appropriately. As with any 

policy, there are a number of best practices that can help ensure policy success and 

improve overall policy performance and cost-efficiency. This section examines the key 

elements that contribute to FIT policy implementation success. 

Since Europe has a high concentration of FIT policies and the longest experience in 

policy implementation (see Section 6.0), this section draws on that experience to identify 

key FIT policy design elements. These lessons provide a useful framework for 

identifying best-practices, and could help promote better FIT policy design in the United 

States. 

The key elements of a successful FIT policy, as identified by leading European research 

(Klein et al. 2008, Ragwitz et al. 2007, Langniss 2008), include: 

1. Offer a stable FIT policy. The promise of a policy being in place for at least five

years (preferably more) provides certainty that the policy will exist, even if it 

takes several years to develop a renewable power project. While the actual 

payment levels can be adjusted moderately, the promise of policy stability is 

critical. This security creates project financing certainty. It also helps attract 

manufacturers and supports other job-creating industries. Policy stability

communicates a clear, long-term commitment to RE development.

2. Offer long-term (15-20 years) contracts to provide investment security. 

Longer contract terms lower the levelized cost of the project, which can help 

reduce the overall rate impact of RE development. The longer the contract term, 

the longer the period during which investment costs can be recovered, resulting in 

a lower levelized cost (likewise, the shorter the contract term, the higher the 

levelized cost). 

3. Base payment levels on the levelized cost of RE generation to ensure a 

modest profit for developers and investors. An adequate FIT price to cover 

costs, plus a reasonable return, provides investors with the certainty that they have 

a high likelihood of making a decent return on the RE investment. This can 

significantly reduce the complexity and the risks of RE project financing. Further, 

due to the stability and predictability of the revenue streams, investors can often 

obtain a larger proportion of debt financing, lowering overall financing costs. 
18

4. Introduce incremental payment decreases (annual tariff degression). Some

technologies are expected to experience innovation and economies of scale, 

resulting in significant cost reductions. For these technologies, it is important to 

reduce the payment level each year for projects installed in subsequent years, in a 

transparent and pre-determined manner. In other words, the schedule of annually 

decreasing payments is determined and established for multiple years, it is 

published, and it is not adjusted during the multi-year timeframe. This helps 

reduce the costs of the policy over time and creates an incentive for rapid 

deployment, further cost-reductions, and improved efficiencies in the future. This 

creates added competition between manufacturers, stimulating innovation. 

5. Differentiate payment levels by technology type, project size, and resource 

quality to offer project-appropriate FIT payments. Technology differentiation 

can promote supply diversity and higher levels of RE penetration. Differentiating 

FIT payments by project size allows projects to be scaled to the particular site and 

interconnection point, while lowering payments for larger projects to account for 

economies of scale. It can also promote distributed generation. Finally, 

differentiating FIT payments by resource quality can improve siting flexibility, 

reducing the chance of overpayment at the best sites (e.g., the windiest sites).

6. Incorporate the added costs of a FIT policy into the electricity rate base. The 

certainty of the FIT payment being tied back to ratepayers provides certainty that 

investors will receive payments, no matter the state of the economy. This also 

allows costs to be distributed through electricity rates equitably. Marginal costs 

may be integrated into the rate base, either incrementally or by means of a system 

benefit charge. 

7. Streamline approval processes to reduce administrative barriers and 

transaction costs. This can help improve the economics of smaller projects while 

allowing citizens, farmers, and other groups to become active participants in RE

generation, thereby ensuring broader economic benefits for the state.
19

4.0 FITs: A Tool for Achieving State Goals

There are several major drivers that motivate states to consider implementing FIT 

policies. In particular, FIT policies have been known to help states ramp up the 

deployment of RE sources, drive economic development and job creation, and other 

significant economic and social benefits. This section examines some common goals 

states have and briefly assesses how well-designed FIT policies can meet those goals. 

A common reason for introducing a FIT policy at the state level is to help states ramp up 

the deployment of RE sources (Grace et al. 2008a, HB 5812, HB 5855, Minnesota 

216B.1601). In states where these targets are aggressive, they require policies that will 

create sustained growth in the industry and will lead to rapid RE deployment. Research is 

beginning to show that a FIT policy can be used in conjunction with an RPS as an 

alternative procurement mechanism to help utilities meet RPS mandates (Rickerson et al. 

2007, Grace et al. 2008c, Cory et al. 2009b). 

One of the major goals for states nationwide is to drive economic development and job 

creation in the green energy sector. FIT bills proposed in Michigan, Illinois, Minnesota, 

and Indiana cite this as a leading reason for implementing a FIT policy (Gipe 2009b). 

Indeed, data from countries like Germany and Spain demonstrate that well-designed FIT 

policies can positively impact job creation and economic growth, opening up the 

prospects for significant expansions of future export opportunities (see Section 6.2 Jobs, 

Manufacturing, and RE Industry Impacts) (EEG 2007, López 2006). FIT policies, 

particularly in Europe, are often specifically designed to encourage a number of different 

technology types to stimulate job creation in a variety of RE technology industries. 

FIT policies can also be used to help increase a jurisdiction’s energy security by reducing 

the dependence on imported fuels or electricity. In particular, they can help reduce 

dependence on natural gas while helping promote long-term rate stability.

Significant economic and social benefits can also be yielded by FIT policies. For 

example, peak shaving can be encouraged by differentiating FIT payments according to 

their time of delivery, or by offering bonus payments for dispatchable technologies 

(Klein et al. 2008). This may be particularly important in jurisdictions where peak 

electricity is generated by single-cycle natural gas turbines, which are highly exposed to 

price spikes and volatility (Carley 2009). Dispatchable RE resources like biogas and 

biomass can help reduce the use of natural gas for peak generation, benefiting industry as 

well as residential electricity customers either through softening regional natural gas 

prices or by providing lower cost supply in times of high demand. A FIT policy’s longterm contract also provides an added price stability benefit (de Miera et al. 2008). 

If they are designed to target distributed supply, FIT policies can also help alleviate 

congestion in areas where transmission is limited, providing valuable benefits for the 

electricity system while diminishing the scale of brownouts and blackouts (Bouffard and 
20

Kirschen 2008). More distributed supply sources can also help reduce line losses while 

deferring the need for grid upgrades (Bouffard et al. 2008).

Table 3 outlines various policy goals that a FIT policy could help a state achieve. 

Table 3. State Policy Drivers

State Policy

Drivers Specific State Policy Objectives FIT Policy Impacts Notes

Economic 

Objectives

Job creation High • Due to the guaranteed terms 

and low barriers to entry 

offered by FIT policies, they 

have been highly successful 

at driving economic 

development and job 

creation 

• Fixed prices for renewable 

energy sources can also help 

stabilize electricity rates

Economic development High

Economic transformation High

Stabilize electricity prices Moderate

Lower long-term electricity prices12 Low/Moderate

Grow the state economy High

Revitalize rural areas High

Attract new investment High

Develop community ownership13 High

Develop future export opportunities High

Environmental 

Objectives

Clean air benefits (Mercury, 

particulates, etc.) Moderate

• The rapid RE development 

seen in jurisdictions with FIT 

policies has helped reduce 

the environmental impacts of 

electricity generation, while 

providing valuable air quality 

and other environmental 

benefits.

• Differentiating FIT payments 

by resource type can also 

target various biomass waste 

streams.

Greenhouse gas emissions reduction Moderate

Preserve environmentally sensitive 

areas Low

Minimize human impacts of energy 

development Moderate

Manage waste streams (biogas, 

landfill gas, biomass, agricultural 

wastes, forestry wastes, etc.) High

Reduce exposure to carbon 

legislation Moderate

Energy 

Security

Objectives

Secure abundant future energy 

supply High

• Well-designed FIT policies 

can improve overall energy 

security by helping diversify 

energy supply and helping 

domestic energy resources 

be more widely harnessed.

Reduce long-term price volatility High

Reduce dependence on natural gas14 Low/Moderate

Promote a more resilient electricity 

system15 Moderate

Renewable 

Energy 

Objectives

Rapid RE deployment High • By creating favorable 

conditions for RE market 

growth, FIT policies can help 

jurisdictions meet RE targets.

• FIT policies have also helped

countries move toward a 

green energy economy.

Technological innovation High

Drive RE cost reductions High

Meet RPS targets High

Reduce fossil fuel consumption Moderate

Provide base-load generation Low/Moderate

Stimulate green energy economy Low/Moderate

Reduce barriers to RE development Moderate/High

 

12 Cost reduction is more likely to be ensured if lower cost RE resources like wind and biogas are included. 13 Community ownership will depend on how high the payment levels are set, and whether or not 

communities are able to participate.

14 Dependence on natural gas will be reduced primarily in areas where natural gas is the marginal supply. 15 Greater grid resilience will be fostered if more distributed resources are encouraged, and particularly if 

they are sited in highly congested areas.
21

The extent to which a FIT policy will help achieve these goals depends primarily on the 

design options incorporated into policy. It may also depend on a number of factors that 

are external to the policy design. However, experience has consistently shown that welldesigned FIT policies can help reach these and other economic, environmental, and 

energy-related goals by leveraging significant amounts of capital toward the RE sector 

(see Section 6.0 Quantifying the Impacts of FITs) (EEG 2007, Mendonça 2007, Klein et 

al. 2008, Rickerson et al. 2007, Grace et al. 2008c). Therefore, when designing a new 

policy, it is important to consider the ways that policy will interact with other policies, 

and how those interactions could work synergistically or detrimentally with the existing 

policy environment. Section 5.0 Interaction Between FITs and other State and Federal 

Policies explores how FIT policies may interact with existing policies in the United 

States. 
22

5.0 Interaction Between FITs and other State and Federal 

Policies

Interactions between existing state and federal policies can influence the way a FIT 

policy is implemented, and may even limit the specific policy design options available for 

implementation in the United States. This section explores the potential interactions 

between FIT policies and other current state and federal policies that relate to RE. 

Interactions with state RPSs, net metering, as well as the interactions with the federal 

Production Tax Credit (PTC) and Investment Tax Credit (ITC) are also examined. 

5.1 RPSs and FIT Policies

Although it has been argued that FIT policies are not compatible with an RPS framework, 

recent analysis has shown that this is not the case (Rickerson et al. 2007, Grace et al. 

2008b, IEPR 2008). In fact, FIT policies can be used as tools to help meet and promote 

pre-existing state RPS objectives. Strictly speaking, an RPS is a mandated target, 

representing a minimum amount of either capacity or generation to be supplied from RE 

sources by a certain date. This target acts as a minimum amount of renewable electricity 

that must be delivered to customers (otherwise, a penalty or alternative compliance 

payment is typically paid). 

The relevant question when considering FIT-RPS policy interactions is which 

implementation mechanism should be chosen to help meet the renewable mandate. The 

mechanism most commonly used to meet the RPS mandates in the United States is 

competitive solicitations,16

5.1.1 Potential Interactions

 where project developers are required to put forward 

competitive bids to obtain contracts (Wiser et al. 2008). European countries, in contrast, 

have overwhelmingly opted for the FIT policy as their implementation mechanism of 

choice to meet their RE goals (Ragwitz et al. 2007). 

A recent series of analyses conducted for the state of California outlines a number of 

different ways a FIT policy could act in concert with an RPS policy (Grace et al. 2008a). 

First, the FIT could be an alternative to the current method for awarding contracts, which 

is based on competitive solicitations. Alternatively, a FIT could provide opportunities to 

ensure that RE development continues between competitive solicitation cycles (Grace et 

al. 2008c). 

A third option would be to have the two policies acting in parallel, with FITs targeting 

specific technology types, ownership models, or project sizes. For example, FIT policies 

could be offered to smaller scale projects while leaving the basic competitive solicitation 

mechanism for utility-scale projects. This is the approach currently employed in states 

like California, Washington, and Oregon. Due in part to Federal Power Act provisions 

that treat projects larger than 20 MW differently, a 20 MW cap on project sizes is 

 

16 Also known as “tendering”.
23

beginning to emerge (Grace et al. 2008c). Another possibility is that FIT policies could 

be designed to allow those who do not have the requisite tax liabilities to participate in 

RE development.17 This would not take anything away from existing RPS solicitation 

processes, while providing an alternative procurement mechanism for parties that do not 

have access to the financial and technical resources required to put forward bids in the 

competitive solicitation process.

Finally, in light of the project failure rate in states like California where developers often 

underbid to obtain the contracts and are left unable to profitably develop their proposed 

projects (Wiser et al. 2005), it has been argued that FIT policies could be designed to 

gradually take the place of existing solicitations policies (Grace et al. 2008c). If payment 

levels are differentiated to account for economies of scale while still ensuring modest 

profit margins, RE development of all scales could take place through FIT policies, 

removing the risk premium and potentially lowering RE costs while allowing a wider 

diversity of project developers to participate through the guaranteed contract terms and 

technology-differentiated prices FITs offer.

Regardless of the approach an individual state employs, no immediate conflict exists 

between FIT and RPS policies; rather, the two policies can be designed to work 

synergistically with one another. 

5.2 Net Metering and FIT Policies

It is important to consider how FIT policies will interact with existing net metering 

policies. First, there could be confusion over how the two policies are distinguished from 

one another, so this distinction should be clarified up front. Also, there are several 

different ways net metering and FIT policies could interact, and with each of those 

possibilities come specific considerations.

Net metering is a policy that allows customers to generate their own electricity to offset 

power that would otherwise have been purchased from the grid (Rose et al. 2008). From a 

utility standpoint, net metering is therefore a demand or load reduction policy. In the 

event that on-site supply exceeds on-site demand, a credit is typically offered for excess 

generation which, depending on the state, may be carried over from month to month, or 

from one year to the next.18

FIT policies, on the other hand, require a separate meter to track actual generation, and 

the owner of the system is awarded payment for the entirety of the electricity produced. 

This makes FIT policies a supply oriented policy rather than a load-reduction policy. FIT 

policies also generally differentiate payments by technology type, resource quality, and 

 

17 Given the reliance of RE developers on either the PTC or the ITC in the United States, this will likely be 

less of an issue in the near-term in light of the recent changes to the federal tax incentive structures that 

help developers convert the previously tax-liability-dependent credits into cash grants (Zindler 2009). 

These new changes could play a significant role in unleashing capital investment toward RE development, 

if implemented effectively.

18 For more details of state specific policies, see the Database of State Incentives for Renewables and 

Efficiency (DSIRE) at www.dsireusa.org. 
24

project size, something net metering does not do. The payments awarded are also not 

determined by the residential, commercial, or industrial retail rates, as most net metering 

credits are; rather, they tend to be based on the cost of different types and sizes of RE 

projects. This creates a more robust incentive for all interested developers,19

5.2.1 Potential Interactions

 helping 

overcome what has been a significant barrier to the success of net metering policies in the 

United States.

There are different possibilities for how interactions between net metering and FIT 

policies can take place. The first approach is gross metering, where a FIT payment is 

made for all electricity produced, regardless of whether it is consumed onsite or not. This 

requires that a supply meter be installed to monitor the system output at the inverter. 

Electricity can then supply on-site loads, or it can be sent to the grid in the event that onsite supply exceeds demand. Washington is currently implementing gross metering for its 

FIT policy (Nelson 2009). 

Another approach is to allow both policies to coexist in parallel with one another, 

allowing end-users to choose to net meter their systems with the grid (receiving the 

available credit for their excess) or receive a FIT payment for the entirety of the 

electricity sold. Customers that chose the FIT policy would need to install a separate 

meter. Which option end-users would choose would depend largely on the prevailing 

electricity prices, the size of their system, and the price offered by the FIT policy. 

A hybrid approach is being implemented in Germany as of January 2009. It allows 

qualifying solar PV systems smaller than 30 kW to remain net metered (Klein et al. 

2008). These PV systems are compensated at a rate of €.25/kWh for electricity consumed

onsite and €.43/kWh for exported energy. The difference (€.18/kWh) represents what the 

project owner pays for power from their system (Klein et al. 2008). It is important to note 

that this difference is marginally lower than Germany’s average electricity rate; therefore, 

project owners are encouraged to consume energy produced onsite, reducing overall 

demand on the electricity system.

Whether existing net metered systems will be grandfathered into a newly implemented 

FIT policy is also something to consider. If systems have received up-front rebates or 

other forms of incentives, offering to grandfather them into a FIT program could be 

considered preferential treatment. Given that one of the goals of a FIT policy is to 

encourage new RE deployment and not to favor incumbents, grandfathering may not be 

desirable. This is a decision that will likely have to be taken on a state-by-state basis as 

FIT legislation is drafted differently in different areas. 

5.3 Federal PTC/ITC and FIT Policy Interactions

The primary federal incentives to encourage RE technology development have, until 

recently, been either PTCs or ITCs. Under the American Recovery and Reinvestment Act 

 

19 “Interested developers” includes end-use customers.
25

of 2009 (ARRA), a new option of direct cash grants has been added. 20

5.3.1 Potential Interactions

Eligible projects 

are those that come into service before the end of 2010, or those that begin construction 

between 2009 and 2010 (Zindler 2009). These cash grants are designed to provide an upfront payment of 30% of the total investment costs; however, this is a temporary option. 

For those technologies eligible for the PTC, the choice is between annual payments based 

on production and an up-front 30% incentive (either as a tax credit or cash grant). A 

recent joint report produced by the Lawrence Berkeley National Laboratory and NREL 

evaluated this choice, both quantitatively and qualitatively (Bolinger et. al. 2009). 

One of the consequences of these federal incentive structures, whether offered as direct 

grants or as tax incentives, is that they lower the up-front costs of RE projects. This puts 

downward pressure on the FIT payment required to drive RE investments, leading to 

marginally lower payments than those required elsewhere to encourage market growth. In 

other words, FIT policies in the United States may have to be designed to factor in the 

presence of these federal incentives to reduce the possibility of overpayment. These 

considerations could be important in jurisdictions where a lot of RE development is 

anticipated in the next few years, and are likely to be important in designing cost-efficient 

FIT policies in the United States in the future. 

In the design of its FIT policy, for instance, GRU calculated the solar rate based on the 

assumption that those developing the projects would be able to benefit from the 30% 

ITC. In other words, its targeted rate of return rests on the assumption that those investing 

in the projects will be able to obtain this federal incentive, as well as the accelerated 

depreciation provision (Regan 2009). In this way, FIT policies can be designed to either 

assume, or account for, the existence of other state and/or federal incentives.

 

20 Note that under the ARRA, renewable projects eligible for the PTC have a choice between the PTC and 

the up-front 30% cash grant. The choice between the two depends on the overall value of the incentives to 

the project, which differs by technology. The quantitative and qualitative factors that go into this decision 

are analyzed in Bolinger et al. 2009. 
26

6.0 Quantifying the Impacts of FITs

As comprehensive, advanced FIT policies like those in Germany, France, and Spain have 

not yet been implemented in the United States, it is difficult to draw comparative 

conclusions between economic and RE impacts in the United States and Europe. 

However, experience from Europe demonstrates the impact FIT policies can have on 

green industry growth and RE deployment (BMU 2008, López 2006). This experience 

provides lessons that can be useful for future adoption and implementation in the United 

States.21 

This section briefly examines the impacts on RE deployment, job creation, and the 

electricity cost impacts that can be discerned from data available in the United States.22

6.1 U.S. FIT-based RE Deployment

Although FIT policies implemented in the United States have their share of limitations, 

the majority of which are due to issues of policy design, they have not been entirely 

ineffective. States like California, Washington, and Oregon have put their policies to 

work and successfully developed a number of RE installations. 

As mentioned in Section 2.0 FIT Policies Currently Enacted in the United States, 

California implemented the first FIT policy under SOC No. 4 in 1984. As a result, 

California successfully developed more than 1,200 MW of wind power between 1985 

and 1992 (Gipe 1995). Over those seven years, SOC No. 4 saw just under 16,000 wind 

turbines installed, which collectively produced an annual output of roughly 2,750 GWh 

of electricity, enough to power 450,000 Californian homes (eWPRS 2009). Collectively, 

California’s turbines represented roughly 70% of the total installed wind capacity in the 

world at the time, effectively launching the commercial wind industry in North America 

and making California the world leader in wind power generation (Gipe 1995). 

Under Washington’s FIT policy initiated in 2005, the state has seen the development of 

more than 760 solar PV projects, eight small-scale wind power projects, and two biomass 

projects (Nelson 2008). These developments were made possible by the fixed-price 

incentives that allow small RE projects to obtain financing. 

Since launching its FIT policy in 2007, EWEB has contracted approximately 30 solar PV 

projects—more than 1.5 MW of installed capacity. This includes a few larger (>100 kW) 

projects as well as a number of smaller commercial and residential systems (Morehouse 

2009). 

 

21 A more comprehensive analysis of these impacts will be included in an upcoming NREL report 

analyzing the impacts of FIT policies in countries like Germany and Spain, where rapid RE market growth 

has led to the creation of several hundreds of thousands of jobs in recent years.

22 For a more comprehensive look at job and cost impacts in Europe, see BMU 2008a and 2008b; Lopez 

2006.
27

In addition to these examples, Gainesville Regional Utilities in Florida has experienced 

overwhelming interest in its recent FIT policy (Blake 2009). Although GRU imposes a 4 

MW cap on annual installed capacity, GRU has already generated interest for as much as 

40 MW of solar development (Regan 2009). This level of interest is likely due to certain 

elements of GRU’s FIT policy design. As mentioned earlier, Gainesville’s FIT is the first 

in the United States to be based on the cost of RE generation, plus an estimated 5-6% rate 

of return (see Section 2.1 Gainesville, Florida). This design element, combined with 20-

year contract terms, has made GRU’s FIT policy a stable environment for solar 

investments and helped garner interest from a wide variety of local, regional, and global 

investors (Regan 2009). The policy has successfully attracted millions of dollars of new 

investment to Gainesville, creating a valuable local economic boost in the midst of a 

recession (Blake 2009). 

6.2 Jobs, Manufacturing, and RE Industry Impacts

Experience in Europe demonstrates that FIT policies can be a significant driver of 

domestic job creation, industry development, and innovation (BMU 2008a, López 2008). 

At the end of 2007, the German RE sector supported 250,000 jobs, spurred by a 

combination of their FIT policies, strong domestic demand, and the growth of their 

export capacities in the green technology sector (BMU 2008a). 

U.S. data on FIT policy impacts on green jobs, manufacturing, and industry is limited as 

the policies are only being implemented in a few locations. Also, with the exception of 

California’s SOC No. 4, FIT policies are relatively new, making it difficult to present 

definitive data on their RE development impacts in the United States. However, a few 

general observations can be made. The state of California is the focus of this section.

Between 1984 and 1992, under California’s SOC No. 4, approximately 1,200 MW of 

new wind development occurred, fueled by the stable prices offered by the early FIT 

policy. According to a California database of wind industry information, on average, 

more than 50% of turbines installed in California over this period were domestically 

produced there (eWPRS 2009). Slightly less than 16,000 wind turbines were installed at 

the time, suggesting that nearly 8,000 turbines were manufactured within the state itself. 

Although the job creation impacts are fairly modest to date compared to successes in 

Europe, there is potential for greater impacts in this area as FIT policies become more 

widely implemented throughout the United States and become more sophisticated in their 

design. 

6.3 Electricity Cost Impacts

This section examines the impact FIT policies could have on electricity rates. First, the 

upward near-term pressure on rates is examined. Then, some of the potential stabilizing 

benefits are discussed followed by a brief analysis of various methods used to cap the 

impact on rates.

Due to the lack of reliable data for ratepayer impacts caused by FIT policies in the United 

States, it is instructive to examine European data. Since implementing its FIT policy in 
28

1991, and revamping it in its 2000 Renewable Energy Sources (RES) Act, Germany has 

become the world leader in both total installed wind and solar capacity, developing more 

than 22,000 MW of wind by the end of 2007, and more than 3,800 MW of solar, for a 

total of 34,018 MW of new renewable energy capacity (BMU 2008c). Based on analysis 

conducted by the German Ministry, the average cost of the RES Act on German 

households for this amount of renewable energy development was $3.82 per household 

per month in 2007 (BMU 2008b). 

Figure 2 represents the breakdown of the various components that contributed to the costs 

of electricity in Germany in 2007 (BMU 2008b). It reveals that the portion of the total 

electricity costs attributable to the RES Act was approximately 5% of the total average 

electricity costs.

Figure 2. Breakdown of electricity costs in Germany (2007)

Source: Based on BMU 2008b

Due to the marginally higher cost of RE sources, on average, over existing conventional 

generation, implementing an aggressive FIT policy is likely to put near-term upward 

pressure on electricity rates, as demonstrated by Figure 2 based on data from Germany. 

However, experience in Europe has begun to demonstrate that RE development can also 

help stabilize electricity rates (BMU 2008b, de Miera et al. 2008, Sensfuss et al. 2007, 

Morthorst 2006). In order to consider the ways RE development can contribute to 

stabilizing and even lowering electricity prices, the merit order effect and the impact of 

wind generation in particular are examined below. 
29

6.3.1 Merit Order Effect

The Fraunhofer Institute for Systems and Innovation Research (the Institute) in Germany 

recently examined the positive impacts attributable to what is called the “merit order 

effect” (Sensfuss et al. 2007). The merit order effect is intended to capture the impact of 

adding new supply into an existing system with an existing supply curve. The effect is 

most prominent in systems during times of high demand, particularly in systems with 

tight supply that rely on high-cost generation during those hours. By adding new supply 

to such systems, there can be an overall demand reduction for the highest cost 

conventional electricity supply resources, in turn reducing overall electricity prices. This 

reduction in demand from high-cost conventional supply sources tends to soften market 

prices, which can provide benefits for electricity ratepayers (Sensfuss et al. 2007). 

Based on simulations conducted by the Institute, the reduction in market prices due to the 

merit-order effect in periods of high demand reached as high as $46.4/MWh (Sensfuss et 

al. 2007). When summed up nationally across all electricity purchases, price savings in 

2006 were $6.35 billion (Sensfuss et al. 2007). 

6.3.2 Wind Power Generation Impact

Similar to the merit order effect, wind power development has lowered electricity rates in 

other jurisdictions as well. In the United States, there are a few locations where the cost 

of wind power development is in the range of $0.05-0.07/kWh (Bertello 2007). In these 

areas, wind is already cost competitive with the average wholesale cost of conventional 

supply23 (Wiser and Bolinger 2009). 

European countries are seeing a similar trend of lowered electricity rates. Recent data 

from Spain (see Figure 3) show that due to their aggressive wind power development 

over the past 10 years, electricity prices in 2005, 2006, and the first half of 2007 were 

11.7%, 8.6%, and 25.1% lower, respectively, than they would have been without wind 

power (de Miera et al. 2008). This decrease reflects the difference in electricity prices 

that would have occurred had that incremental supply been provided by natural gas 

instead. Danish data suggest a similar trend, where a reduction of 12-14% occurred in 

2005 due to wind power alone (Morthorst 2006). Both countries make use of FIT policies 

to encourage wind power development (Klein et al. 2008). 

 

23 Assuming that the federal PTC incentive is still in place.
30

Figure 3. Estimated ratepayer savings in Spain and Denmark due to wind power

Sources: de Miera et al. 2008, Morthorst 2006. 

Spanish data suggests that while an aggressive RE policy can increase costs, it can also, 

under certain circumstances, reduce electricity prices and mitigate volatility while 

providing a hedge against any upward pressure caused by rising fossil fuel prices (de 

Miera et al. 2008). 

The results of these various analyses suggest that although electricity generated from RE 

sources is costlier on average than that of conventional generation, other factors play an 

important role. A more comprehensive analysis of the net costs and benefits reveals that 

RE development can already lead to net positive benefits for both customers and for 

society at large (Morthorst 2006, BMU 2008abc, de Miera et al. 2008). 

In order to limit cost increases, a number of RPS policies in the United States have 

included overall cost caps, including New Mexico and Colorado (Cory and Swezey 

2007). FIT policies can be designed to include similar cost caps, limiting the overall rate 

impact of RE development. A similar goal can be achieved by imposing a size cap on the 

total installed capacity eligible under the policy. 

Some European jurisdictions have also begun limiting the rate impacts of FIT policies on 

specific sectors of the economy (e.g., energy intensive industries) or population (e.g., low 

income customers). The goal is to better manage any impacts of RE development on 

electricity rates for key sectors. 
31

7.0 Conclusions

FIT policies are growing in prominence worldwide, and interest appears strong in the 

United States with more than a dozen states looking at implementing their own FIT 

policies. In addition to Arkansas, California, Florida, Hawaii, Illinois, Indiana, Maine, 

Michigan, Minnesota, New York, Oregon, Rhode Island, Vermont, Washington, and

Wisconsin, four municipalities in the United States have also either considered or 

implemented FIT policies as of April 2009 (Gipe 2009). 

Among the primary reasons for implementing FIT policies are the stability and certainty 

they offer to RE project owners. By offering long-term contracts, FIT policies guarantee 

stable revenue streams, helping reduce the risks of RE investments while reducing the 

overall costs of RE financing. By offering long-term price security, FIT policies also 

remove many barriers to rapid RE development, creating conditions conducive to market 

growth. 

In Europe, FIT policies have proven to be a mechanism for stimulating large amounts of 

investment in the green energy sector, spurring the growth of both smaller energy startups and the more established players. Research has shown that FIT policies can also 

generate a wide variety of social and environmental benefits, while gradually contributing 

to the transformation of the overall energy supply mix. 

FIT policies can be considered an alternative to other RE policy mechanisms such as 

offering up-front rebates, a mechanism that is common in the United States. Through 

careful design and by making payment levels approximate RE project costs, the policies

can help projects be financed without up-front rebates, partly by making it easier for 

developers to take out loans structured over longer periods of time. 

FIT policies can also be designed to work in conjunction with other U.S. state policies 

like RPSs and net metering. Federal policies like the PTC and the ITC could help lower 

the FIT payments needed to drive investment, while their new structure could make 

project financing easier for a broader number of investors. 

Interest in FIT policies in the United States is expected to continue to grow in coming 

years. In Europe, the policy has successfully helped deploy significant amounts of RE

capacity, across a wide variety of technologies, in a relatively short period of time. As 

this new policy propagates through U.S. states and municipalities, it will be critical for 

FIT policy makers to follow best design and implementation practices to achieve their 

goals. 

A number of topics need additional research to better understand how FIT policies will 

operate in the United States. These include treatment of environmental attributes (or 

RECs), the relationship between FIT policies and the federal PTC and ITC incentive 

structure, the interaction between FIT policies and existing voluntary green power 

markets, as well as the role FIT policies can play to create jobs and spur market growth. 
32

Questions also remain about the technical aspects of a high-penetration RE scenario that 

can result from effective FIT legislation, and how the grid can be improved to better 

accommodate high levels of incremental and variable supply. 
33

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State Clean Energy Policies Analysis (SCEPA) Project: An Analysis 

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This report analyzes renewable energy feed-in tariff (FIT) policies and explores the different FIT policies currently 

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