FIT Legacy

Germany's feed-in tariff created the global solar industry but left Germany with some of the highest electricity prices in the world. Spain's FiT triggered a solar boom followed by retroactive subsidy cuts that destroyed investor confidence. Ontario's FiT produced expensive local manufacturing requirements that raised costs without lasting industrial benefit. The FiT's legacy is a pattern: spectacular success at driving deployment, followed by political backlash over costs.

Germany's bill. The previous lesson counted the cost: some of Europe's highest household rates, with twenty-year contracts signed at 50+ cents/kWh in 2004 paying out until 2024. The burden is real and regressive: low-income households bear a higher share of it relative to income.

Spain's retroactive cuts. Spain offered generous FiTs in 2007-2008, triggering a solar rush. When the government realized the fiscal cost, it retroactively cut rates for existing projects. Investors who built projects under one set of rules had returns slashed by another. International arbitration tribunals have ruled against Spain in multiple cases.

The policy lesson. FiTs work best as temporary instruments that buy down the learning curve and then phase out. Countries that set degressions (automatic rate reductions for new contracts) avoided the worst cost overruns. Countries that locked in high rates without adjustment mechanisms paid the most and generated the strongest backlash.

Have any countries designed FiTs well?

Japan's 2012 FiT included aggressive degressions from the start, reducing rates 50% over five years while still driving significant solar deployment. The key: rates that decline as fast as costs, maintaining just enough margin to attract investment without creating windfall profits.

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