Feed-in Tariff (FiT)

Imagine a dairy cooperative telling a new farmer, years before he owns a single cow, that whatever milk he produces for the next twenty years will be bought at a fixed, guaranteed price, no negotiation needed. That certainty is exactly what convinces someone to take on the risk and cost of buying cows in the first place. A Feed-in Tariff, or FiT, did precisely this for India's earliest wind and solar investors.

Under a FiT, a state electricity regulatory commission administratively sets a fixed price per unit that a renewable generator will receive for a long period, typically twenty to twenty-five years, regardless of where market prices move. In the 2000s and early 2010s, when solar and wind technology was still expensive and unproven at scale in India, this guaranteed price was often the only thing that made a lender comfortable financing a renewable project at all.

The tool largely did its job and then outgrew itself. As panel and turbine costs fell sharply through the 2010s, administratively fixed FiTs increasingly overpaid generators relative to what the technology could actually be built for. From around 2017 onward, India shifted the bulk of large-scale renewable procurement to competitive reverse-auction bidding, where developers bid down the tariff they are willing to accept and the lowest bidder wins the Power Purchase Agreement, routinely landing well below older FiT levels.

FiTs have not disappeared entirely. Many states still use a simplified feed-in structure for small rooftop and small-scale renewable systems, where running a full competitive auction for every tiny installation would be impractical.

Whenever an old wind or solar project from the mid-2010s is described as expensive relative to today's tariffs, a legacy Feed-in Tariff, agreed when the technology genuinely cost more to build, is usually the reason, not any inefficiency on the generator's part.