Analysis of the Effectiveness of the FIT (Feed-In Tariff) Mechanism

Abstract

In Japan, a policy mechanism called the "Feed-in Tariff (FIT)," which was designed to accelerate investment in renewable energy technologies, was introduced in July 2012. However, thus far, only solar power has been introduced, whereas other renewable energy options such as wind, geothermal or biomass have only made small progress; although, wind power, especially, has been found to have a very large potential for providing electricity in Japan. In addition, the price of electricity will essentially increase as a result of the FIT scheme. This indicates that the FIT may not always be a good option for accelerating the use of renewable energies. This study intends to analyze the effectiveness of the FIT mechanism in Japan and to propose another way to introduce renewable energies through the use of the concept of "marginal cost of power facility." The basic idea of this concept is that the financial resource of a subsidy for renewable energy is neither a tax nor an increase in the price of electricity, but is actually money saved on imported fossil fuels through the utilization of renewable energy.