Financial Attractiveness of Solar Photovoltaic Feed-in Tariffs in the United States

Abstract

Feed-in tariffs (FITs) are policies that guarantee renewable energy producers fixed payments for electricity over long-term contracts. This study asks whether solar photovoltaic (PV) investments under U.S. FIT programs are financially competitive relative to common investment benchmarks, since a PV investment is only truly attractive when it meets or exceeds these benchmarks. This question matters because policymakers rely on FITs to promote renewable energy deployment. Using solar cost data from the International Renewable Energy Agency (IRENA) and FIT program data from Database of State Incentives for Renewables and Efficiency (DSIRE), I calculated the Levelized Cost of Energy(LCOE), and Internal Rate of Return (IRR). Results show that although declining costs have made recent projects profitable, IRRs remain below benchmark levels, indicating FIT programs are not financially attractive. These findings highlight that effective FIT design is essential for policymakers seeking to promote renewable energy investment.