If you are considering a renewable electricity system for your home or business (solar, wind, geothermal, hydro, etc.), you will want to look closely at the government’s new feed-in tariff system (FITs). Working out what you will earn from the tariff is an integral part of the planning process, especially in regard to payback times. The idea behind the FIT is that you make money from not only the energy you produce and use, but also what you don’t use, as the surplus is ‘sold’ back to the national grid. In this article I shall explain what the FIT system is, how it works and examine how much money you could make if you were to install a renewable energy system to your property. This is intended to be a concise guide, so I shall try not to ramble on too much.

What are FITs?

FITs are a government-backed scheme where businesses and homeowners will get paid for producing their own electricity from renewable sources. The money for the scheme is supplied by the energy companies via a levy on electricity sales, and is administered by Ofgem. The scheme is an offshoot of the Renewables Obligation (RO), which came into effect in 2002. The RO is aimed at large-scale renewable electricity production by placing an obligation on energy suppliers to source a percentage of their electricity from renewable sources. The FIT is aimed mostly at the domestic and small business level where ‘microgeneration’ systems are installed (microgeneration is basically a term for small-scale energy production). The FITs policy came into effect on 1^st April 2010 (Aprils Fools Day?) and covers any renewable electricity installation from 15^th July 2009 onwards – there are some exceptions, which I’ll cover later.

FITs are broken down into two separate tariffs; the generation tariff and the export tariff.

The generation tariff pays you a fixed rate for every kilowatt hour (kWh) of electricity you generate and use in your property. The levels are dependent on the type and size of the installation, with solar PV and wind earning the highest levels.

The export tariff pays you for every kWh of electricity you generate but don’t use, and consequently export back to the grid. The fixed rate for this is 3p per kWh, no matter the size and type of installation this time.

Lower electricity bills. The third bonus of the FIT is that by installing a renewable system, you will also benefit from clean, green electricity all the time that the sun is shining, the wind is blowing, the water’s flowing or the digester’s digesting (?!). This is beneficial as it lowers your electricity bill from the outset, but becomes really useful when the system has paid for itself, because everything from that point is either pure profit or good clean, home grown energy.

A full list of the tariffs:

A couple of extra points to note on the tariffs are:

• They are both index-linked so will rise with inflation.
• Households generating electricity primarily for their own use will be free from tax on any FIT income. That’s generous.
• You will have the opportunity to negotiate a higher price for the electricity you export with your supplier (if you have the stomach for it) or take the 3p rate. This will be done on an annual basis.
• The tariffs will run for 20 years (25 for solar PV) and are guaranteed at your initial rate (plus index-linked increments), so you have plenty of time to get your system paid for and to start producing truly free energy.
• The amounts of electricity exported will eventually be metered, but up until the point where meters are universally installed, the export element will be estimated at 50% of the power generated by the system. For somewhere like a school fitted with solar PV and generating unused power for 6 weeks in the summer holidays – a sizeable export to the grid – it will be possible to fit a meter and be paid the appropriate export tariff level, as the exported electricity could be substantially higher than the 50% mark.
• The best (and easiest) way to claim the tariff is to find a third party who will do the running for you, but you could do it yourself, of course.
• In April 2012 the tariff levels are due to be adjusted to compensate for the fact that some renewable technologies are forecast to get cheaper as the number of installations increases; so make sure you get in early.
• There are also grants available to help with installation costs: have a look at the article Green Grants on the learning portal for more information.

Eligibility

Anyone who has installed a renewable electricity system of up to 5 megawatts (MW) from July 15^th 2009 is eligible to claim the tariff. Systems installed prior to this date may qualify, so long as they were registered for the Renewables Obligation.

To encourage the installation of new renewable systems, refurbished and second-hand equipment is ineligible. What strikes me as slightly odd is the fact that the more innovative technologies, such as wave and tidal power do not qualify either. I understand that this is not a bottomless pot of cash, but surely we need so see some kind of incentive to encourage both the development and installation of innovative technologies at a microgeneration level? The UK has a huge abundance of tidal and wave power, and many citizens living by the coast, so it would be great to see a push in this direction as well. Anyway, I promised not to ramble on, so back to the FITs…

Shorter payback times

One of the FITs intentions is to decrease the payback time of a new system: i.e. the time it takes to pay back the initial investment. In times gone by, when people paid for their renewable system and then relied simply on the amount of energy used to pay it back, we were looking at payback times averaging 15-20 years. Now, with the FITs in place that average payback time has been reduced to about 7-9 years, making the investment in renewable electricity far more appealing. Of course how much your system will pay you is dependent on the type of installation and also the size, but it’s estimated that around £1000 per annum can be expected.

In summary then…

Microgeneration has long been seen as key to increasing the UK’s proportion of energy produced from renewable sources and the FIT is real step in the right direction, besides, the Germans have been doing this for years. A major advantage of FITs over a simple grants scheme is that cost and payback times are relative to each other, meaning that if you do consume a large amount of electricity and have to install a large renewable system, this will accordingly generate more energy to sell back to the grid. The more energy you sell, the faster you payback your system, thus negating the higher installation costs. Simple. Additionally, you can increase the amounts sold back to the grid by becoming more energy efficient at home – another great incentive to do this.

As of April next year, there will also be a system very similar to FITs for those who install renewable heat systems, such as ground source heat pumps and solar thermal collectors. This will be called the Renewable Heat Incentive, so keep an eye out for that scheme too if you feel renewable heat would suit you better. Do remember that there is plenty of assistance for choosing the right system for your home or business out there, as well as help along practically every step of the way. Whatever system you choose, there has never been a better time to invest in renewable energy.

References and further reading

Department for Energy and Climate Change – www.decc.gov.uk

Feed-In Tariffs. www.fitariffs.co.uk

Renewable Heat Incentive. www.rhincentive.co.uk