A Feed in Tariff (FiT) is a means for governments to set above-market rates for electricity generated from renewable sources.

By obliging electricity utility companies to buy renewable electricity at a fixed price for a fixed number of years, renewable installations become cost effective for the installer. A feed in tariff is effectively a subsidy designed to increase the exploitation of renewable energy sources, and to help governments to meet their carbon reduction obligations.

How Feed in Tariffs Work

As long as the retail price of electricity is cheaper than the cost of electricity generated from renewable sources, it is difficult to persuade anyone to move away from fossil fuels. However, by offering above market prices – e.g. paying renewable generators 30p per kWh unit instead of the <10p per kWh retail electricity price – utility companies and home-owners will see that there is money to be made by installing PV solar panels and wind turbines etc.

The UK Government has now announced feed in tariffs for small wind turbines and photovoltaic solar panels:

36.5p/kWh for small solar photovoltaic systems up to 4kW, and 28p/kWh for systems up to 10kW.

These tariffs will replace the current ROC system. Payments will begin on 1st April 2010, but all small wind and solar systems commissioned from now on will be eligible for both LCBP grants and the new feed in tariff.

WHAT IS THE PROPOSED SOLAR PV FEED-IN TARIFF?

 It is hoped that the proposed feed in tariff will begin in April 2010, and will last 20 years. Over these 20 years the p/kWh received for generation for new systems will decrease at a rate of 7%.

This stops people from waiting to invest due to beliefs that the price for the technology will come down, as the later you invest- the less you will receive for your generation.

It has been proposed in this manner to encourage investment now.

It has been aimed that the return on solar PV investment should fall between 5-8%.

The proposed tariffs depend on system size and can be seen below (existing systems are eligible for the rates but will not be paid alongside ROCs).

These rates will be paid for each unit of electricity generated even if you use it in your own house/building. As well as this if you have any excess electricity it can be exported back to the grid and you will get an extra 5p/kWh.

For example: 2.52kWp solar PV system producing 2100kWh/year (smaller than 4kWp on an existing building) using half of the electricity the system produces in the building and exporting half of the electricity back to the grid would earn/save:

Earn ((Half the electricity generated 2100/2 kWh x £0.365) + (Half the electricity generated 2100/2 kWh x £0.415)) + Save (Save buying half the electricity generated 2100/2 kWh x £0.13/kWh)

= £955/year!

At present there are low carbon building programme grants worth £2,500 available for domestic investors. This grant alongside the proposed future feed in tariff would make the return on a typical solar PV system (costing £13,400 for 2.55kWp, generating 2126kWh/year) around 8.87% (based on half the electricity being exported and half being used onsite).

Even without the initial grant the return would be an astounding 7.22%.

Case Study

Mr & Mrs Davies paid £7950 minus £2500 grant for a 1.44 kWp Solar PV System producing around 1186 units per year.

Their annual household usage was 3870 units. % covered by solar panels: 30%, amount saved off their bill (assuming each unit is 15p): £177.90

From April next year, you will qualify for the UK Feed-in-tariff. 

This pays 36.5 for every unit you generate (whether I use it or not)

WARNING – not all technologies qualify for the 36.5p – don’t assume that if you generate electricity by another method, you get such a high payment.

Therefore:-

Solar System generated in one year: 1186 kWh units
Feed-in-tariff: £432.89
Amount saved off bill (assuming each unit is 15p): £177.90
(You’ll still be saving any electricity off your bill as in the first estimates)
Annual saving: £610.79
Payback assuming everything stays the same: 8.92 years