A feed-in tariff (FIT) is a type of policy that guarantees producers a price that is higher than the market in order to encourage the development of renewable energy sources.Long-term contracts, ranging from 15 to 20 years, are typical for FITs.
FITs are widely utilized in the United States and other countries, most notably in Germany and Japan. A policy mechanism used to encourage investment in renewable energy sources is the feed-in tariff. This typically entails guaranteeing small-scale energy producers an above-market price for the energy they supply to the grid, such as solar or wind energy.
In order to stimulate renewable energy sources during the early stages of their development, when production is frequently not economically viable, feed-in tariffs are seen to be important. Feed-in tariffs typically involve long-term contracts and rates that are linked to the energy in question’s production costs. Long-term agreements and guaranteed prices protect producers from some of the risks involved in the production of renewable energy, encouraging investment and development that might not happen otherwise.
