Feed-in Tariff Mechanism

Germany's feed-in tariff (FiT) paid solar producers 50 euro-cents per kWh in 2004, roughly 10x the wholesale electricity price. It was deliberately overpaying for expensive power. Two decades later, solar is the cheapest electricity source in history. The FiT was not a subsidy for generation; it was a subsidy for learning.

A feed-in tariff guarantees renewable energy producers a fixed price per kWh for a long contract period (typically 15-20 years), with mandatory grid access. The key design features: the price is set above market to make early-stage, expensive technologies profitable; prices decline for new contracts (a "degression") as technology costs fall; and the cost is spread across all ratepayers through a surcharge on electricity bills.

Germany's EEG surcharge. At its peak (2017), the surcharge added nearly 7 euro-cents/kWh to household electricity bills, contributing to some of the highest retail prices in Europe (~35 cents/kWh); Germany abolished it in mid-2022, moving the cost to the federal budget. German households effectively subsidized solar's learning curve to the benefit of the entire world.

Was the cost worth it?

The answer depends on your frame. German ratepayers paid an estimated 250 billion euros in above-market costs through the FiT between 2000 and 2022. Global solar module prices fell 99% over the same period, driven largely by the demand the German FiT created. If you attribute even a fraction of solar's cost decline to Germany's market creation, the global return on that 250 billion euro investment is enormous. Germany paid; the world benefited. This free-rider dynamic explains why no single country has since replicated Germany's approach at the same scale.

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