What is a feed-in tariff? Why does Australia need one?

What is a feed-in tariff?
Why does Australia need one to support our renewable energy industry?

May 2008
Australia is now committed to a renewable energy target of 20% by 2020. Currently only a miniscule part of Australia’s energy comes from renewable sources.

The Government must deliver a huge increase in Australia’s renewable energy if it is to meet its target of 20% of energy to come from renewable sources by 2020 (energy includes electricity, transport fuels and heat). Clearly a massive expansion of renewable electricity is required to meet the 2020 target.

Much of this will come from large scale projects such as wind farms, some hot rock developments and potentially wave and tidal power. However a substantial contribution will also need to be made by smaller-scale renewable technologies such as solar panels on domestic roofs or community combined heat and power derived from household waste. Many large or small businesses will also have to generate much of their own electricity through onsite renewable technologies.

Overseas studies indicate that  30-40% of the total electricity could be provided by small scale renewable sources by 2050. A study by Dr Brenda Boardman of Oxford University’s Environmental Change Institute for Friends of the Earth UK on how to cut carbon emissions from the domestic sector by 80%, found that in addition to energy efficiency, every home will need renewable technologies installed to generate clean heat or electricity.

Translated into Australia that is approximately 10 million installations required at a rate of 240 000 a year each year for the next 42 years. But even a 60% cut in carbon emissions from the Australian housing stock by 2050 will require a significant take-up of micro generation renewable technologies. Now in order to create such an installation capacity, Australia needs a vital renewable energy industry. The emerging existence of this industry is now threatened by the nonsensical $100 000 means test for solar power rebates.  

A simple answer readily available
Energy Matters together with the renewable energy industry believes that in order to start the process of serious renewable energy penetration into Australia there is an urgent need for the Government to introduce a feed-in tariff scheme. The feed-in tariff is vital to support an expansion of smaller scale and decentralised renewable electricity systems.

The feed-in tariff works by guaranteeing a long-term premium payment electricity generated from renewable sources and fed into the grid. The Government would fix the level of the tariff to be paid for each renewable technology and set the length of contract.

At this point in time 45 overseas countries, seventeen of them in Europe have adopted a feed-in tariff system with considerable success. In March figures from the German government show that, driven by feed-in tariff legislation, in 2007 Germany generated 14.2% of its electricity from renewable sources. Turnover in the German renewable industry rose by 10% last year to 24.6 billion euros and employment in the sector rose to 249,000 (compared to a Australian sector that employs an estimated 3 000 people. The German government calculates that in 2007 savings of 57 million tonnes of CO2 were directly attributable to the country’s feed-in tariff legislation.

A feed-in tariff has many advantages over a rebate system as it gives certainty for the industry and guarantees for investors, is transparent, easy to administer, promotes diversity of supply and is flexible. The Nicolas Stern Review said on feed-in tariff compared to other support mechanisms such as rebates…(page 366):

"Both sets of instruments have proved effective but existing experience favours price-based support mechanisms. Comparisons between deployment support through tradable quotas and feed-in tariff price support suggest that feed-in mechanisms achieve larger deployment at lower costs.

Central to this is the assurance of long-term price guarantees. The German scheme…provides legally guaranteed revenue streams for up to twenty years if the technology remains functional. Whilst recognising the importance of planning regimes for both PV and wind, the levels of deployment are much greater in the German scheme and the prices are lower than comparable tradable support mechanisms (though greater deployment increases the total cost in terms of the premium paid by consumers).

The House of Commons in England recently called for a feed-in tariff to be introduced to support small scale renewables. It recommended that: “the Government replace Rebates and export payments with a feed-in tariff with a single fixed rate per KWh, varying according to the type of generation.” The House of Commons Trade and Industry Select Committee in its report on local energy identified that “depending on its level, a feed-in tariff could be used to encourage the development of local energy.”

A feed-in tariff is a proven cost-effective mechanism for developing renewable electricity capacity, which could be brought in alongside any rebates and would then over time allow rebates to be faced out.  An Australian feed-in tariff would not eliminate the need for other policies to support the renewable energy sector for example with research assistance; nevertheless it is especially crucial that renewable electricity generating installations are given priority access to the grid.

It is time that the Australian Rudd Government is putting action behind their rhetoric to make carbon emissions reduction a priority and get on with introducing a national feed-in tariff.

Markus Lambert
Energy Matters