Under a feed-in premium (FIP) scheme, electricity from renewable energy sources (RES) is typically sold on the electricity spot market and RES producers receive a premium on top of the market price of their electricity production.
FIP can either be fixed (i.e. at a constant level independent of market prices) or sliding (i.e. with variable levels depending on the evolution of market prices). Fixed FIP are simpler in design but there is a risk of overcompensation in the case of high market prices and of undercompensation in the case of low market prices. Therefore, fixed FIP are usually combined with predetermined minimum and maximum levels (“floor” and “cap”) either for the FIP or for the total remuneration (FIP + market price). Sliding (or “floating”) FIP are calculated on a continuous basis as the difference between (technology-specific) market prices (usually averaged over a certain period of time, e.g. one month) and a predefined reference tariff level (often corresponding to existing FIT). If market prices are higher than the reference tariff level, no FIP is paid. In some cases, there is also a minimum market price used for FIP calculation to increase sensitivity of RES operators to market prices and to reduce costs for the RES support scheme in the event of low or even negative market prices. (Source: Energypedia)
