The feed-in tariff in Europe

In contrast to the US, most European countries have adopted feed-in tariffs. While RPS policies typically seek to create electricity price competition, feed-in tariffs require utilities to purchase power from renewable energy generators at a fixed price. These fixed prices are structured either in the form of long-term payments based on generation cost (as in Germany) or in the form of a fixed premium on top of the spot market price for electricity (as in Spain). Most of the laws also require utilities to interconnect all eligible renewable generation, thereby guaranteeing that renewable electricity can `feed in` to the grid. As of February, 2007, eighteen countries in the EU had feed-in tariffs. This figure rose to 23 including Turkey in April 2010.

Like RPS, feed-in tariff designs vary widely. The three wind power leaders in the EU, Germany, Denmark, and Spain have had feed-in tariff policies in place since the 1990s. Some of the systems (especially those of the newer EU member nations) are fairly new and untested.
Successful feed-in tariffs have several characteristics.

In the 1980s there was a voluntary agreement between Danish utilities and the Danish Wind Turbine Association whereby utilities purchased wind generated electricity at 85% of the retail electricity rate. The German Stromeinspeisungsgesetz (StrEG) (1991-2000) was patterned after this system and has been especially successful, with a fixed price for renewable energy set at 90% of the retail electricity rate. In 2000, when retail rates in Germany declined to a point that renewable energy development slowed under the StrEG, Germany introduced the Erneuerbare-Energien-Gesetz (EEG), under which a fixed price was established independent of retail rates. This system still applies.

Through the EEG, renewable generators receive a fixed payment for 20 years, but payment streams decline over time such that a generator beginning production in 2007 will receive a lower payment stream than a generator beginning production in 2006. This declining payment structure is intended to account for improved efficiencies from economies of scale and encourage cost reductions over time. The EEG also differentiates between renewable technologies and each resource receives a different guaranteed price per kWh.