Before feed-in rates were offered for solar power starting on 1 April 2000, there was a tremendous difference between the cost of such systems and the amount paid for solar power. In 1999, around 8 eurocents per kilowatt-hour was paid for one kilowatt – hour. If array owners sold all of their power to the grid, they would get just under €1500 over 20 years for a 1 kilowatt-peak system (20 years at 900kWh/year at 0.08 €/kWh = €1440). But back then, such a system would have cost around €10,000 and therefore never have even come close to paying for itself.
To provide a proper return, the Solar Energy Association of Aachen came up with the idea of offering feed-in tariffs for solar power at the beginning of the 1990s. The cost of a kilowatt-hour of solar power from a properly installed array would then provide a slight profit margin in addition to covering investment costs and operating costs. The rates were specified at the time of grid connection for a period of 20 years. And because the cost of new solar power systems was dropping (see 3.5), newly installed systems would receive slightly lower feed-in tariffs. At the end of the 1990s, some 90 eurocents per kilowatt-hour was paid.
• Money is only paid if the system actually produces electricity. Here, the incentive is to get the system back up and running whenever there is a malfunction. Because owners have to pay the investment costs themselves, there is an incentive to keep them down. As a result, prices drop.
• The funding does not come from the public budget; rather, utilities pass the costs on to all power consumers, insuring that the programme remains implemented when politicians look for things to cut from the budget.
The principle behind feed-in tariffs is based on one already applied by utilities, who calculate the retail electricity rate based on various costs of different kinds of power plants. When solar power is added to the sources of electricity, power prices only increase slightly.
In 1999, some 20 municipal utilities offered feed-in tariffs. None of the large conglomerates did. Figure 11.8 shows that feed-in tariffs for solar power gave photovoltaics a tremendous boost in the beginning.
The basic idea behind feed-in tariffs is to give investors in solar power systems a return on their investment, an idea that was later adopted in the Renewable Energy Act when it was revised in 2004.
Feed-in tariffs differ from other support programmes common at the time in one crucial respect: the funding does not apply to the installation of the system itself, but rather to the power produced. This system has a number of clear advantages: