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The UK Feed In Tariff is the incentive scheme for Domestic and Commercial property owners to generate renewable electricity. You get paid to produce electricity from renewable energy technologies – regardless of whether you use that electricity or not! This page will explain the legislation, how it affects you and how you can benefit from it. Once you have read this, why not visit our home page and see how we can help you further…
What Is the UK Feed-In-Tariff?
In April 2010 the UK Government introduced Feed In Tariffs to encourage the installation of renewable electricity generating technology in all types of buildings across the UK. Under this scheme you are paid a fixed rate for every Kilo Watt Hour (kWh) of renewable electricity that you generate, regardless of whether you use the electricity yourself or not. For electricity that you do not use you will be paid an additional rate for every KWh that you “Feed back” into the national grid, whilst you will also save money on your electricity bills as you will purchase less electricity from your supplier.
Technologies Covered:
Systems covered include most forms of renewable electricity generation, including Solar PV, Hydro Electric power and Wind power, up to an output size of 5MW. Systems over 5MW are covered under the Renewables Obligation (5MW is enough electricity for a large factory or a total village!).
Eligibility:
The FIT system is open to everyone including households, businesses, schools, hospitals, local councils, and community projects – in fact any renewable electricity project under 5MW.
Note that the FIT scheme is for renewable ELECTRICITY generating technologies. Therefore, technologies such as solar heat and insulation etc are not included in the scheme and will come under a separate Renewable Heat Incentive (RHI) to be launched in 2011.
For a Renewable electricity generating system to be eligible for a FIT payment, they must be installed by an MCS (Microgeneration Certification Scheme) accredited company. Once installed, you will receive a MCS certificate that then enables you to apply for FIT payments.
Tariff Rates:
The FIT has 2 payment components:
- Generation Tariff: a fixed payment by your electricity supplier for each KWh of electricity you generate, regardless of whether you use it or not. This payment is fixed for the first year and then linked to the RPI . The total programme will last for 25 years (for solar electricity), and 20 years (for Wind electricity) from installation date.
- Export Tariff: a payment that has a floor price of 3.1p/kWh from your electricity supplier for each unit of renewable electricity that you generate but do not use and thereby “Feed Back” into the national grid. The amount that you feed-back into the grid will eventually be measured by Smart Meters, which will be installed in every house in the future under a Government scheme. However, until the use of Smart Meters is more widespread, the Government has set out that 50% of total electricity generation will be “assumed” to have been exported. The 3p/kWh is also a “floor” price, and renewable energy generators (i.e. participants in the FIT scheme) can negotiate higher Export Tariffs with their energy supplier.
The following shows the current Generation Tariffs:
The Generation tariff is linked to the RPI and changes every April. Ofgem will calculate the new tariff rates and publish them at the end of each March. The total length of the scheme is guaranteed for 25 years for Solar PV and 20 years for Wind technologies.
The Export Tariff is set with a floor price of 3.1p/kWh. However, this is a Minimum price. Higher prices can be negotiated with energy suppliers, and this will obviously be dependant on the market rate at any time during the 25 years of the scheme. Should the market rate increase over the years, then it will be likely that energy suppliers will negotiate higher “Export” rates also. Note that to avoid the need for additional Export Meters to be installed before a roll out of Smart Meters, the Government allows renewable energy generators to assume an export rate of 50%. Those that think they export more can install export meters/smart meters of their own accord. Others can just take this 50% export rate until Smart Meters are rolled out across the country.
For homeowners, the FIT income is Income tax FREE.
For companies, they must pay tax, but can accrue depreciation tax benefits on the systems installed.
For systems installed after April 2012 the Generation Tariff for the first year of the system decrease to take into account the expected fall in the costs of installing renewable energy systems as they become more widespread (and due to technological advances)
Benefits of the FiT:
The Government has created a very good incentive scheme that not only makes it cost effective to install renewable energy systems, but also makes the decision a financially viable investment decision. There are several benefits that are immediately obvious:
- Receive a fixed and guaranteed income for generating renewable energy that is inflation linked (Generation Tariff)
- Export energy back to the grid to receive a further payment that also protects you from rising energy costs as it is a floor price (Export Tariff)
- Reduce electricity bills as you will be producing your own electricity
- Income generated is INCOME TAX FREE for households, whilst companies can gain other tax benefits (although they must pay corporation tax on FIT payments).
Cash Flow Analysis:
Let us assume you install 10 x 250W panels on your roof. This would give a Wp system size of 2500Wp – or 2.5kWp (Kilo Watt Peak). Using SAP 2005 we then estimate that your system will produce at least 2,100kWh of electricity every year.
Therefore, assuming you are on the standard domestic FiT tariff, you will receive a payment of 21.0p for every kWh that you produce:
21.0p x 2,100kWh = £441.00 = Generation Payment from FiT
Let us also assume that you only use 50% of the electricity you produce (this is what the Government allows you to assume until Smart Meters are installed in every home by 2014). Thus, by exporting the other 50% of the electricity you generate, you also get paid:
3.1p x 2,100kWh x 50% = £32.55 = Export Payment from FiT
Finally, if you are exporting 50% of the electricity you generate, you will therefore be using the other 50%. This electricity is free and replaces electricity you would otherwise have bought from your supplier. Assuming current electricity prices from your supplier are around 13p per kWh, you would therefore be saving the following from your annual electricity bill:
13p x 2,100kWh x 50% = £136.50 = Annual Reduction in Electricity Bill
Hence, in total you would make annual savings of:
£441.00 + £32.55 + £136.50 = £610.05 = Total Annual Savings
The £473.55 is a payment that is made from your ELECTRICITY SUPPLIER to you. Every time you get an electricity bill, it will show this credit (for quarterly bills the credit will be a quarter of this on each bill).
Let us assume that the system cost £6,500 fully installed including VAT. From that we can work out the following:
The consumer saves £610.05 every year (inflation linked) for 25 years. This gives a total figure of £15,251.25.
This gives an annual ROI of 9.38%!
- Also, these returns are:
- Inflation linked
- Guaranteed for 25 year
- Protect you from rising energy bills
- For many businesses, schools and housing associations, costs can fall significantly when they purchase larger systems. This is because the installation costs are reduced, and bulk purchase discounts can be achieved. It is not unreasonable to expect an annual ROI of 15%+ and APR of 6% (inflation linked!)
