# Feed-In Tariff (FIT): Explanation, History, and Uses

![Two workers walking in a wind farm, renewable energy technology.](https://www.investopedia.com/thmb/7mIRYPvBZ4ob49zUmWtS5KfPopQ=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/GettyImages-1366878913-700fc484562044f886c81d1c813e239d.jpg)

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## What Is a Feed-In Tariff (FIT)?

A feed-in tariff (FIT) is a policy designed to encourage the development of [renewable energy sources](https://www.investopedia.com/articles/markets/070814/why-you-should-invest-green-energy-right-now.asp). It offers energy producers a guaranteed, above-market price for the electricity they supply to the grid. FITs aim is to make renewable energy projects financially attractive by providing long-term contracts and fixed prices, which help reduce the risks associated with these investments.

### Key Takeaways

*   A feed-in tariff (FIT) is a policy designed to support the development of renewable energy sources by guaranteeing an above-market price for producers.
*   FITs usually involve long-term contracts, from 15 to 20 years.
*   FITs are common in the U.S. and around the world, most notably in Germany and Japan.

## Understanding Feed-In Tariffs (FITs)

Feed-in tariffs are used to promote renewable energy sources in the early stages of their development, when production is often not [economically feasible](https://www.investopedia.com/terms/f/feasibility-study.asp). Feed-in tariffs usually involve long-term agreements and prices tied to the energy production cost in question. The long-term contracts and guaranteed prices shelter producers from some risks inherent in renewable energy production, encouraging investment and development that otherwise might not occur.

## Feed-In Tariffs and Small Energy Producers

[Anyone who produces renewable energy](https://www.investopedia.com/articles/personal-finance/053115/how-become-renewable-energy-entrepreneur.asp) is eligible for a feed-in tariff, but those who take advantage of it are often not commercial energy producers. They can include homeowners, business owners, farmers, and private investors. Generally, FITs have three provisions.

1.  **Guarantee Grid Access:** Energy producers are assured they will have access to the grid.
2.  **Long-Term Contracts:** These contracts typically last for 15 to 25 years, providing stability for energy producers.
3.  **Cost-Based Purchase Prices:** They offer guaranteed, cost-based purchase prices, meaning that energy producers are paid in proportion to the resources and capital expended in order to produce the energy.

> **Important**
>
> One of the first feed-in tariffs was implemented in the U.S. by the Carter administration in 1978, but they are now used around the world.

## History of Feed-In Tariffs 

The U.S. was a pioneer in feed-in tariffs. The Carter administration first implemented them in 1978 in response to the [energy crisis](https://www.investopedia.com/terms/1/1979-energy-crisis.asp) of the 1970s, which famously created long lines at gas pumps. Known as the National Energy Act, the FIT was meant to promote energy conservation and the development of renewable energy, such as [solar and wind power](https://www.investopedia.com/articles/investing/053015/pros-and-cons-solar-energy.asp).

## The Growth in Use of FITs

Since then, FITs have become widely used internationally. Japan, Germany, and China have all used them successfully over the past decade or so, and in total dozens of countries have used them to one degree or another to drive the development of renewable energy. It is estimated that about three-fourths of global solar energy is linked to feed-in tariffs.

## A Shift Away From FITs

Despite the successful role feed-in tariffs have played in promoting the development of renewable energy, some countries are turning away from relying on them, instead seeking more market-driven sources of support and more control over the supply of renewable energy produced. That includes Germany and China, two of the more prominent FIT success stories. Nonetheless, FITs still play a vital role in the development of renewable energy resources around the globe.

## Which States Have a Feed-in Tariff?

As of 2025, three states have a feed-in tariff, according to the Database of State Incentives for Renewables and Efficiency. Those states are California, New York, and Indiana. In addition, many other states have tax credits or other incentives to encourage small-scale renewable energy production.

## How Does a Feed-in Tariff Work?

A feed-in tariff provides a guaranteed, long-term price for renewable energy that is at or above current market rates. This guaranteed price reduces the risk and uncertainty of new renewable energy installations, encouraging new producers to make initial investments.

## How Do You Qualify for Solar Energy Credits?

The [IRS](https://www.investopedia.com/terms/i/irs.asp) offers a 30% credit on new clean energy facilities installed on residential homes between 2022 and 2032. After 2032, the credit falls to 26%. This can apply to solar panels, solar water heaters, wind turbines, fuel cells, and certain other clean energy technologies, and they must be installed in a residence where you live, rather than an investment property. To claim the credit, file [Form 5695](https://www.investopedia.com/terms/e/energy-tax-credit.asp) with your annual taxes. You may also qualify for state renewable energy credits.

## The Bottom Line

A feed-in tariff is a policy measure intended to incentivize installation and adoption of solar or other clean energy sources. It does this by guaranteeing a high price for renewable energy on the grid, thereby allowing producers to reduce the risk of new installations.  

> **Article Sources**
>
> 1.  Duke University Nicholas School for the Environment. "[The Case for State Solar Feed-in Tariffs in the USA](https://blogs.nicholas.duke.edu/env212/the-case-for-state-solar-feed-in-tariffs-fits-in-the-usa/)."
>     
> 2.  Database of State Incentives for Renewables and Efficiency. "[Feed-in Tariffs](https://programs.dsireusa.org/system/program)."
>     
> 3.  Internal Revenue Service. "[Residential Clean Energy Credit](https://www.irs.gov/credits-deductions/residential-clean-energy-credit)."