Feed In Tariff can be successful only if it gives a good return on investment for procuring and installing renewable energy systems. This return on investment should be more than what consumers will get, if they invest their money in a savings bank.
Feed In Tariff is an incentive issued by the Government for generation of power using renewable sources of energy (like solar, wind, hydro, etc). For every unit of power generated (every kWh), a certain amount of money is credited to the account of the energy producer. In case of renewable energy, the energy producer can also be the consumer.
In the UK, the Government initiated the Feed In Tariff scheme, mainly aimed at encouraging consumers and individual users to generate their own energy using renewable sources. Solar panels, micro wind turbines, micro hydro generators and many other renewable energy technologies were encouraged through this Feed In Tariff scheme.
In order to justify the higher initial investment required for procuring renewable energy systems, the Government offered to pay a certain amount of money for every kWh of power generated through renewable sources.
The most important factor for the success of Feed In Tariff scheme was the ROI - Return On Investment. The rates offered per kWh of energy generated was good enough for most consumers to get back their investments in 10-15 years. But since the Feed In Tariff scheme was guaranteed for 25 years, all the money made by consumers after the pay-back period (for 10 years, at least) was profit.
Cumulatively, the Feed In Tariff offered a ROI (Return of Investment) of 8-12% per annum over the 25 year period. Had the customers invested that money in a Bank, they may get only 4% on a normal savings bank account.
With Feed In Tariff, customers can not only install renewable energy systems and generate energy, but they can also use the energy generated by themselves. That means, they save more money due to lower monthly electricity bills. With rising electricity costs (from the grid), this profit can only increase with time.
This model encouraged a lot of renewable energy installations during the first year it was in operation. The country added almost 1 GW of Solar energy capacity through residential solar panel installations alone!
The Feed In Tariff also encouraged investments from many manufacturers (mostly from other countries) which generated additional jobs for the country. The Feed In Tariff was responsible for the reduction of solar module prices (per watt) as more solar panels were now produced within the country and manufacturers could realize substantial savings in scale.
Though the UK Government later reduced the Feed In Tariff rates (for new customers) and the solar panel installations decreased, it was still responsible for creating a buoyant ecosystem in the first year of operation itself and was responsible for kick-starting the residential solar revolution.
The point of such a long post is, Governments should ensure that Feed In Tariff will provide an attractive Return On Investment (ROI) and show clearly how soon it can be achieved. This can considerably increase the number of solar panel installations on the rooftops of people who can afford such systems today.
It's very important to decentralize energy generation using renewable energy systems as it can achieve energy security faster. Don't you think every Government and every country should have a good Feed In Tariff in place to encourage micro renewable energy generation? I think it's high time we got a centralized Feed In Tariff policy that provides a decent Return on Investment. And not the namesake generation tariff announced by some states.
