Feed-in tariffs are an government-backed, tax free incentive offered to people who invest in small-scale renewable energy. This page shows how the payments are calculated to help you decide if it’s worth making the investment
The example below uses solar photovoltaics (PV), but the principle applies equally to other renewable energy technologies that produce electricity, like wind or hydro.
The tariffs are reviewed quarterly by the government and may be reduced. Furthermore, the amount you get will vary depending on the type of technology you install, the size of the installation in kilowatts and what year you enter the scheme (though once you’re in, you stay on the same tariff rate for 20 years).
Let’s say a householder installs solar PV panels on the roof of their home. They’ll be able to benefit from the electricity they produce in three ways:
- A generation tariff. This is a set rate paid to the household for each unit of electricity that the solar panels generate, measured in kilowatt-hours, or kWh. From April 2014, in the case of solar PV this is 14.38p per kWh. The householder receives the generation tariff, whether they use the electricity themselves or not.
- Lower electricity bills. Some, but not all, of the household’s electricity demand will be met by the solar panels. How much they save on bills will depend on how much they can reduce their need for electricity from the grid by using their appliances when the solar panels are producing electricity during the day.
- An export tariff. Any electricity the household generates but doesn’t use is sold to the grid for a fixed rate, currently 4.77p per kWh. The export rate is the same for all renewable energy technologies.
Note that both generation and export tariff rates are linked to the Retail Price Index (RPI) which means that they will increase or decrease with inflation. The most up-to-date figures can be found at www.ofgem.gov.uk/fits
Now for the figures ...
Let’s assume the solar panels generate 1275 kWh of electricity a year. Our householder is getting a generation tariff of 14.38p for each kWh so they will be paid about £183 (i.e. 1275 x 0.1438) a year.
Say they use 600 kWh of this themselves (just under half). This will reduce their annual bill by £90 (based on an standard electricity tariff of 15p per kWh). Of course, if the household used more of what they generated – for example by using their washing machine during the day when the solar panels were working – their bill would go down even further.
Under the export tariff, the other 675 kWh (the electricity that they don’t use in the home) is sold to the grid at 4.77p per kWh earning a further £32 (i.e. 675 x 0.0477). To keep things simple and to remove the need for an export meter to be installed what often happens is that the FIT supplier 'deems' that 50% of the electricity produced by the PV panels is used in the home and pays the export tariff for the remaining 50%. Where the export tariff is deemed in this way it is even more beneficial to make the most of the electricity the panels produce. For example, if you actually used 60% of the electricity produced by the panels in your home and only exported 40% you would still get paid for a deemed export of 50%.
The total benefit to the householder in this example is £305, but of course they have to buy the solar panels first. An array that would generate 1275 kWh a year starts at around £5,000.Given these figures the system would pay for itself in just under 16.5 years. The householder would continue to receive their FIT payments, index linked and tax free for a further three and a half years and reap the benefits of free electricity produced by the panels for the remaining lifetime of the solar PV system.
What the household in this example earns per year. (NB: These are guideline figures only. For more details, follow the link above)
|Saving on electricity bill||£90|
The figures in this simple illustration should be treated as a guideline only. If investing in renewable energy is something you wish to explore further, you should seek more information, starting at www.decc.gov.uk/fits
Before you go any further, two more points to consider ...
1) For you to be eligible for the feed-in tariff, your installers, and the product they fit (e.g. the solar panels, wind turbine etc), must be accredited with the Microgeneration Certification Scheme.
2) For solar power, the generation tariff will only be paid at the upper rate (currently 14.38p/kWh) where the relevant property has an Energy Performance Certificate of band D or above. If not, the rate is just 6.61p/kWh. This is designed to encourage energy efficiency before energy generation.
Photo: Rob Hill | istock.com
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