What are they?
The feed-in tariff system is designed as an incentive for energy producers to move away from conventional fossil fuels to renewable energy sources. Essentially, it is government legislation which guarantees a fixed, premium rate for renewable electricity fed into the national grid. The power companies are obliged by the government legislation to buy the renewable electricity, the additional costs of which are passed onto the customers.
They are becoming increasingly popular as they now make installing solar panels financially viable for people wishing to do their bit for the environment, and also for those people looking for an investment with a guaranteed return.
Key Benefits
- Generation tariff set at 21pence per kilowatt hour.
- Electricity that you use is free, saving an extra 12.5 pence per unit.
- Export tariff set at an additional 3.1 pence per unit.
- Income GUARANTEED for 25 years.
- 6% – 9% return on investment.
- Rates are INDEX LINKED to inflation.
- All tariff income is TAX FREE.
- Reduced carbon footprint.
- Increased property value.
How the scheme works
If you are eligible to receive the FIT then you will benefit in 3 ways:
1. Generation tariff – a set rate paid by the energy supplier for each unit (or kWh) of electricity you generate. This rate will change each year for new entrants to the scheme (except for the first 2 years), but once you join you will continue on the same tariff for 20 years, or 25 years in the case of solar electricity (PV).
2. Export tariff – you will receive a further 3.1p/kWh from your energy supplier for each unit you export back to the electricity grid, that is when it isn’t used on site. The export rate is the same for all technologies.
3. Energy bill savings – you will be making savings on your electricity bills , because generating electricity to power your appliances means you don’t have to buy as much electricity from your energy supplier. The amount you save will vary depending how much of the electricity you use on site.
Domestic FIT installations are likely to have their export deemed (estimated) at 50% in most cases until smart meters are rolled out.
The Tariff
The UK government is committed to reducing its carbon emissions through the adoption of renewable energy sources, particularly in regards to the generation of power in order to combat climate change. The Energy Act of November 2008 set out a series of provisions in order to help the government meet its targets. The need for a feed in tariff comes from the fact that it is far more expensive to produce energy from green sources than it is from fossil fuels. This of course renders the retail price of fossil fuel electricity cheaper than that from renewable producers. In order to attract renewable investors, it is therefore necessary to incentivise those wishing to invest in the installation of renewable plant.
| Solar PV | Solar PV | Wind | Wind | Micro CHP | |
| 21p per unit |
21p per unit |
34.5p per unit |
26.7p per unit |
10.0p per unit |
|
| Scale | ≤4 kW (retro fit) | ≤4 kW (new build) | ≤1.5 kW | >1.5 – 15 kW | ≤2kW |
| Tariff Length | 25 | 25 | 20 | 20 | 10 |
| Started? |  |
|
|
|
|
Feed-in tariff legislation fixes an above market rate for utility companies to buy electricity from renewable energy producers, sthe cost of which isspread across every customer of the relevant utility company. It is this fixed tariff paid by the utilities which makes renewable energy an attractive prospect for investors as it guarantees them a return over a long period and has been highly successful at attracting investment where it has been implemented across Europe. Germany for example now produces over 14 per cent of its energy from renewable sources, something which has been attributed to the generous and comprehensive feed-in tariff system implemented by the German government.
