We Canadians

They  may not be the best thing since sliced bread but they are pretty  close, at least in the field of renewable energy. Feed In Tariff s (FITs) have worked wonders in many European countries including Germany, which is now the second largest producer of solar energy in the world.

Many people, especially in North America, don’t understand what  FITs are and how they work. I didnt myself, until I did some research on the subject. In fact, the concept is quite simple - and very innovative.

As an example, assume a person decides to set up a rooftop solar panel in his home to generate electricity. If he uses this electricity directly in his home, he might reduce the electricity consumption just a little and save a few dollars on his electricity bill. These savings would  not  be enough to justify the cost of the solar panels; the payback time would be far too long.

However, with the FIT program, the producer feeds the solar electricity  directly  into the grid and the utility company pays for this at a greatly enhanced tariff, generally several times the rate of electricity supply.The key element, here, is that the renewable energy is not consumed directly but fed back into the grid.

So where does the utility company get the money to pay the tariff? It simply puts a small additional charge on the utility bills to all its consumers. The cost is negligible when it is spread over a large consumer base. In Germany, the cost of  is less than two dollars per month per customer.Thus, the FIT program supports itself without requiring  major investment by the Government.

The other key element of the FIT is the use of smart meters. Ordinary meters only measure the flow of electricity to the customer; smart meters can measure the flow of energy to the grid. So, in a typical system, the renewable source would be connected to the grid through a smart meter.

The FIT concept offers many advantages.

It is revenue neutral, other than for some administrative costs. As a result, the utilities can offer generous Feed In Tariffs - it does not cost them anything extra!

FITs reward micro-producers of electricity; you dont need to install a large wind farm to enjoy the benefits. Even a simple rooftop installation of solar photovoltaic panels can start earning money.

FITs solve the problem of energy storage; the grid itself serves as the reservoir of energy. Thus, users are assured a reliable source of power 24/7 without having any form of storage of their own.

FITs also assure stability; producers sign a long term contract with a guaranteed tariff. This way, they can plan their project and arrange financing without much difficulty.

FITs can be tailored precisely to the type of energy source; a better tariff can be offered for more expensive sources of renewable energy. Typically, highest tariffs are given for solar rooftop panels; tariffs are lower for wind farms and bio-mass type projects.

The one problem with FITs is that the tariff structure  has to be crafted very carefully. If tariffs are kept low, there will be few takers. If the tariffs are kept high, it is like giving away money and the cost to other consumers may be too high.  It is very much an interventionist approach because a power authority fixes the tariff rates. Many Americans are opposed to this type of intervention on principle and as a result FITs have not yet proved very popular in North America.

Unfortunately, renewable energy projects require subsidy in one form or another, otherwise they are not viable.  The FIT is the simplest way to provide this incentive, with minimal administrative costs.

Ontario  has done its homework to create a good FIT program.  It had launched an incentive program in 2006 with somewhat similar incentives. However, the tariffs had been kept low for solar energy and the program did not draw much interest in this area. Tariffs have now been almost doubled for some types of solar panels and this could be the beginning of a new age of solar power. The program, would, however require some tweaking from time to time.

So, it is quite possible the generous tariffs we see today will not be on offer for too long.