What is a feed-in tariff and how does it promote renewable energy deployment?

• A. A tax credit for fossil fuel users
• B. A government ban on renewables
• C. A subsidy for nuclear power
• D. A policy that guarantees a fixed, long-term price for renewable electricity fed into the grid, encouraging investment and reducing revenue risk.

Answer: (D)

A feed-in tariff is a policy that guarantees a fixed, long-term price for renewable electricity when it is fed into the grid. This price certainty creates a reliable revenue stream for project developers, making financing easier and reducing the perceived risk of investment in renewable energy. Because lenders and investors can count on stable returns, more capital flows into wind, solar, and other renewables, accelerating deployment and helping costs come down over time as scale and learning occur. The fixed tariff is often paid for a set period and may include grid access guarantees, sometimes funded through a small consumer surcharge.

Other options don’t fit because a tax credit for fossil fuels would not promote renewables, a government ban would suppress them, and a subsidy for nuclear targets a nonrenewable option. A tariff designed to pay a stable price for renewable electricity is precisely the mechanism that encourages investment and growth in renewables.