Feed-in tariffs (FIT) are fixed electricity prices that are paid to renewable energy (RE) producers for each unit of energy produced and injected into the electricity grid. The payment of the FIT is guaranteed for a certain period of time that is often related to the economic lifetime of the respective RE project (usually between 15-25 years). Another possibility is to calculate a fixed maximum amount of full-load hours of RE electricity production for which the FIT will be paid. FIT are usually paid by electricity grid, system or market operators, often in the context of Power purchasing agreements (PPA).
Currently, in most RE support schemes, the level of FIT is determined on the basis of a calculation of the levelized cost of electricity (LCOE) produced from RE. This allows the RE investor to recover the different costs (capital, O&M, fuel, financing) while realizing a return on his investment that depends on the assumed financing costs. In some cases, FIT have been calculated on the basis of avoided costs for the electricity system or the society, including e.g. environmental externalities. Thirdly, it is also possible to determine the FIT level by means of a tendering mechanism. (Source: Energypedia)
