The NBS guide to feed-in tariffs

UPDATE : In July 2015 the Government consulted on potential changes to financial support for solar PV  . The outcomes of the consultation were published in December 2015.

The typical UK household spends over a thousand pounds a year on gas and electricity, based on usage of 3,200kWh of electric and 13,500kWh¹ of gas, per year.

Given the scale of the spend, it’s not hard to see why so many people are tempted by the prospect of actually getting paid by their supplier for the electricity they themselves use – not to mention any surplus they sell back to the grid.

In recent years, the price of photovoltaic systems (solar PV) has fallen, but so too has the amount paid to householders generating their own electricity. So, do the numbers still stack up? Is renewable energy still a tempting proposition for domestic householders? In this NBS guide we explore feed-in tariffs to help you decide.

What are feed-in tariffs?

Feed-in tariffs (FITs) were first introduced in the UK in April 2010 replacing government grants as a financial incentive to encourage the uptake of renewable electricity-generating technologies.

What kinds of technology are eligible?

A range of electricity-generating technologies are all eligible for the scheme, including solar electricity, wind turbines, anaerobic digesters, hydroelectricity, and micro combined heat and power (micro CHP) systems.

Who sets the FITs?

The UK Government's Department for Energy and Climate Change makes key policy decisions on FITs while Ofgem, the energy regulator, administers the scheme.

How are FITs funded?

According to Ofgem², 7% of a typical annual dual fuel bill (for the period April 2015 to March 2016) can be attributed to ‘green costs’. As well as funding feed-in tariffs this figure also includes costs relating to Renewable Obligation Certificates, Energy Company Obligation and a range of government rebates.

What are the benefits?

Generating your own electricity will mean that you need to buy less electricity from your energy supplier and, as a result, your electricity bills should fall post-installation.

Your supplier will also pay a set rate for each unit (or KWh) of electricity you generate – the Generation Tariff. This rate is payable regardless of whether you use the electricity yourself or export it back to the grid – a double savings benefit.

Every unit of electricity exported back to the electricity grid will also receive an Export tariff payment. This is currently estimated as being 50% of the total electricity generated by a system. In the future smart metering will allow an accurate reading to be taken but for now only large (and typically commercial) installations require an export meter to be fitted.

Feed-in tariff profits are payable from your energy supplier every quarter and are not taxed.

What are the feed-in tariff rates?

Feed-in tariffs vary according to the generating technology being used and the size of your system. For solar PV, a higher generation tariff is paid to those homes with an Energy Performance Certificate rating of D or above.

Find an energy assessor to get an Energy Performance Certificate for your home

Tariffs are fixed for 20 years from the date of installation (10 years for micro-CHP) with adjustments made annually for inflation (according to the Retail Price Index – RPI).

FITs for new applicants are regularly reviewed and adjusted every three months to take deployment rates into account to ensure the scheme remains sustainable. In recent years this has seen the reduction of FIT rates payable.

Tariffs at the time of writing (July 2015) are summarized below and the current tariff tables can always be found on the Ofgem website.

Solar PV

Hydro

Wind turbine

Micro CHP

How much does a solar PV system cost?

Domestic PV systems are getting cheaper. Today one costs somewhere in the region of £5,000 to £8,000 including installation fees³ – back in 2010 you could have expected to pay over £11,000.

The Government’s Green Deal scheme can be used to fund a range of home improvements including solar panels though the amount you can finance through the scheme will depend of the amount of energy your chosen measures are predicted to save.

Do I qualify?

To be eligible for feed-in tariff payments, it is necessary for your installer and the products they use to be Microgeneration Certification Scheme (MCS) certified. Hydro and anaerobic digestion systems have to go through a separate ROO-FIT process .

Once your generating technology has been installed your installer should look to register you on the MCS database which will get you a MCS certificate of compliance. An application form, the MCS certificate and an EPC certificate will then be needed to register for payments. Your supplier will then confirm when you need to supply meter readings and when FIT payments will become due.

Biomass boilers, solar water heating and certain kinds of heat pumps are not covered by the feed-in tariff scheme – payments may be available for those living in England, Scotland or Wales via the Domestic Renewable Heat Initiative scheme instead.

The feed-in tariff does not apply at all to Northern Ireland where a separate programme, run by the Northern Ireland Renewables Obligation (NIRO), is available. You can find out more about NIRO on the Ofgem website.

Is a solar PV system still a worthwhile investment?

Falling feed-in tariff rates mean current adopters are earning much less money for the electricity generated from their system than those who took the plunge five years ago. That said, if conditions are favourable (a south-facing roof free from shade works best), a system should still earn you money even in cloudy old Britain, though today it will take longer for savings to outweigh initial installation costs.

Which.co.uk⁴ estimates that a 3.5kWp installation costing £7,000 on a house in Birmingham fitted before the end of June this year would earn £408 from generation, £70 from export and householders might expect to save £81 a year on their current bill. With savings of £559 a year, over 20 years they could expect to make a net profit of £11,180 (or £4,180 discounting that initial investment). The system cost would therefore be offset in around 12 to 13 years. Houses in the South can expect to break even quicker, but those further north will take longer still.

You can find out how much you could earn through FITs for a solar PV system by using the Solar Energy Calculator on the Energy Saving Trust website. The Trust also run a telephone advice line on 0300 123 1234 or you can email energy-advice@est.org.uk.

With the falling costs of both panels and tariffs and a cut in the amount of time they are payable (just 20 years compared to the 25 years afforded to early adopters) solar panels are certainly a less appealing proposition than they were five years ago.

In determining a likely return on investment there are many variables to consider, including, but not limited to:

• The interest needed to service any loans taken out to fund the purchase of the system.
• The likely effect of inflation on generation and export tariffs in years to come.
• Your geographical location – the further south you are, the higher your energy generation is likely to be.
• The long term efficiency of your installation – assuming the same daylight input in year one and year 20 – will the output also be the same?
• Any additional costs needed to maintain the system / replace components.

Hardly, then, money for nothing, but for those looking to improve their environmental credentials and receive a modest return on investment (with some dependencies), well worth considering.

References

¹ Ofgem – Typical Domestic Consumption Values – 2015 Decision Letter (May 2015)

² Ofgem – Outlook for costs that make up energy bills (April 2015)

³ Ofgem – Outlook for costs that make up energy bills (April 2015)

⁴ Which.co.uk – Solar PV prices and savings

⁵ Energy Saving Trust – Solar Panels