Solar Electricity - Feed in Tariff (FiT)

After signing up to the 20% renewable energy EU target by 2020 and years of campaigning by environmental groups the government has finally agreed to reward households and businesses installing electricity-generating measures with enough of a return to make it a serious financial, as well as an environmental, investment, giving you an income that will rise in line with inflation. At the same time, you get to do more than your fair share in reducing the UK's carbon emissions.

In the week that the energy regulator Ofgem, warned the nation to expect 20% electricity price hikes by 2020, and warned future supplies were in jeopardy, investors in solar panels will have the added benefit of being a net provider of electricity, and largely insulated from future price hikes that could see household bills top £2,000 a year by 2020.

FiT’s are a per-unit support payment (p/kWh) for electricity generation and are already widely in operation in other EU Member States to support renewables. The Government claims the introduction of FiT’s on April 1 2010 will signify a major departure from how small low-carbon generators in the UK are currently rewarded.

The new FiT scheme is designed to “provide the right level of simplicity” to encourage non-energy professionals to invest in small-scale generation. It will provide non-taxable, cash-linked incentives to encourage those generators to consume the electricity they generate and become more energy efficient while they do so.

The FiT scheme will guarantee payments to homes with solar panels and other micro-generation. A "well-sited" 2.5 kWh PV solar scheme, the Department for Energy & Climate Change (DECC) says, should earn £900 a year and £140 in energy savings. And the financial case for going solar will improve with the announcement of the “Pay As You Save” (PAYS) green loans scheme, to be introduced later this year. See website for further details.

The scheme will operate on two levels and allows fixed payment from the electricity supplier for every kilowatt hour (kWh) generated, known as the “generation tariff”. Another payment will be made additional to the generation tariff for every kWh exported to the wider energy market, to be called the “export tariff”.

The renewable technologies that will qualify for FiT’s payments are anaerobic digestion, biomass, hydro, photovoltaic (PV) solar panels and wind. Only small-scale generators with a capacity of up to 5 megawatt (MW) can be considered for inclusion and both the installer and the equipment must be accredited by the Microgeneration Certification Scheme (MCS).

According to the proposals, generators will be guaranteed a market for their exports at a long-term guaranteed price. The generator may choose whether to sell exported electricity to the supplier at this guaranteed export tariff, or negotiate a price for exported electricity in the open market. In addition, generators will benefit because they will have the opportunity to use that electricity on-site to offset some or all of the electricity they would otherwise have had to buy.

With the new tariffs, the potential returns that this type of technology can reap are impressive. A typical domestic solar system of 12 panels, for example, could generate £1,048 in savings and income a year.

Overall, householders can expect a pay-back of between 5% and 8% a year, so the move will go some way to alleviate the initial costs. The Government has also confirmed that tariffs will be paid for up to 25 years, and, as the tariffs are linked to inflation, the real rate of return could end up as high as 10%.

Anyone who has had an installation commissioned since July 2009, when the policy was first announced, will be able to apply for the scheme. The incentives are also open to businesses, communities, farmers, schools and hospitals, although the payments vary.

On average domestic electricity costs 12 pence for every kWh used. The FiT scheme offers to reward you up to 43.3 pence for every kWh you produce for the next 25 years. If you produce more than you use it will be sold back to the national grid, for which you will be paid extra. The payments will rise with inflation.

EXAMPLE:

A typical domestic solar electricity system requires approximately 18 square meters of uninterrupted roof area. 18 square meters equates to 2.5 kWp. Annually this system will generate 2,125 kWh, this is over half of a typical UK home’s electricity bill (Energy Saving Trust average UK home consumption = 3,935 kWh). The typical cost of such a system is £12,500. Therefore, the profit over 25 years is over £35,000.

FiT FAQs:

Do I have to pay tax on my Tariff income?
It was announced in the Pre-Budget Report 2009 that the income from the tariffs will be free of income tax for householders who install systems primarily for their own use.

Would we be able to apply for feed in tariff if we are not connected to grid?
FiT’s are payable for off-grid applications (though they won’t attract the export bonus).

Will my existing renewable electricity system qualify?
Existing systems installed before 15th July will qualify only if they are less than 50 kilowatts (kW) and registered for the Renewables Obligation (RO).

Who pays for the FiT’s?
The system is administered by the official regulator Ofgem, and uses money from a levy on all electricity sales, collected and distributed by the licensed electricity suppliers. Therefore if you install a renewable energy system you get a treble benefit:

Your income from the Feed-in Tariff
An extra income for every kWh you export because you are producing some of your own power, you will buy less electricity and therefore pay less for it (and so less levy)

How long would I get this tariff for?
The Feed-In Tariffs will be paid for a period of 20 years from the date the system is first registered, except for solar photovoltaic systems where the period is 25 years. If the system doesn't last that long, of course it will stop producing kWh and no tariff will be paid. A well maintained solar PV installation is expected to carry on producing energy for 50 years +

How much is paid for each kilowatt hour?
This varies by type and size of system - see the tariffs table above.

Does this only apply to electricity? What about gas? What about heat?
The FiT’s apply only to electricity from low carbon sources. However a similar measure is being introduced in April 2011 to cover renewable heat and gas. This will be called the Renewable Heat Incentive (RHI) and you can see more about it on the website.

Is this the same as Green Tariffs?
No, green tariffs are offered by some licensed electricity suppliers when they are selling power sourced entirely or mostly from renewables.

Why are they called ‘feed-in’ tariffs?
This sort of tariff was first introduced in Germany in the 1990’s and it applied only to power which was fed in to the electricity grid. The tariffs in the UK apply to all the electricity the system produces, whether it is used on site or fed in to the grid.

Do the FiT’s apply to all types of renewable electricity?
As at the launch of the scheme the following technologies are eligible:

What is renewable electricity?
It is power produced from a sustainable source such as solar, wind, or biomass. Electricity from fossil fuels like coal, oil and gas or from nuclear stations is not renewable.

What is the Microgeneration Certification Scheme (MCS)?
The MCS is a scheme to provide assurance to customers for domestic scale generation systems. It provides both for accreditation of installers and certification of products. No MCS accreditation, no tariff! It is also linked to the Renewable Energy Assurance Scheme, which provides protection against mis-selling.