In the 2000s Germany made a splash in the growing renewable energy market. In 2007, Germany managed to exceed the target 3 years faster than the target in 2010. What did Germany do to successfully exceed the target? Apparently Germany adopted the EEG policy mechanism or better known as Feed in Tariff. At the end of 2019, there were 113 countries that participated in using this mechanism, including Indonesia.
So, what is Feed in Tariff? Feed in Tariff or FIT aims to grow investment in renewable energy. There are 3 basics of the FIT Purchase obligation where every kWh produced by energy producers will be purchased according to the generation cost. Fixed tariff fixed tariff determined by stakeholders/utility Long term contract This contract mechanism lasts a long time, generally 15-20 years. Then, how to set the price? There are 3 indicators, 1. Technology specific tariff 2. Size specific tariff 3. Location specific tariff. What are the advantages of using this mechanism? High level of investment security, energy producers will have fixed revenues and returns, making it easy to get funding from investors/banks. Supporting certain technologies. so that new technology does not need to compete with old technology.
But, there are still disadvantages to this system. First, it is difficult to set tariffs for uncontrolled market growth if energy tariffs are very high. So that the right decision is needed to determine energy tariffs. Second, it is difficult to anticipate technological developments to reduce electricity prices. One of the features of FIT in various countries is FIT degression, where electricity prices will be lowered over a certain period to reduce the cost of the technology used.
Read further explanation here.