Chances are that you’re reading this page because you’ve heard of ‘Feed-in Tariffs’ and want to learn more about it. Many people are now interested in Feed-in Tariffs and want to know how they, and the environment, can benefit.  Read through all of the information, ask other people who may have joined the scheme, and then decide if it’s something that you want to take further. Feed-in Tarrifs (FITs) have already had a rocky road due to government flip-flopping. But before you start, here are some things that you should know:

  • The average household could be around £2,000 better off per year through the renewable energy Feed-in Tariffs;
  • Almost anybody with a property can benefit from Feed-in Tariffs;
  • By installing renewable energy systems you not only benefit from the tariffs, you will also make a significant contribution to environmental sustainability in the UK;
  • Getting involved with Feed-in Tariffs is not as difficult as you might think.

What are feed-in tariffs (FIT)?

Feed-in Tariffs (or FITs) are part of a government-backed scheme to encourage renewable energy production. Under the feed-in tariff scheme, normal energy consumers are paid for any renewable energy that they generate. This is part of a larger scheme that is often referred to as the Clean Energy Cashback scheme. The other part of the scheme is the Renewable Heat Incentive which works in a similar way as FIT but with heat.

Feed-in tariffs

Why was the scheme introduced?

The UK has a legally binding target of producing 15% of its energy from renewables by 2020 under the Kyoto Agreement. As of 2009 the UK produced less than 2% of energy from renewables and, despite the development of massive off-shore wind farms, the government will not be able to hit this target alone. FITs were introduced in April 2010 with solid cross-party support as a way of incentivising individuals and small businesses to create renewable energy systems on a local and community level. Previous to the FIT scheme such installations did already exist, but with the expense of installing renewable electricity generation systems and low rates of return it could take a lifetime to recoup your investment. With the new FIT scheme the government introduced legislation guaranteeing the income that you could make. On top of this the government added the further incentive of waiving income tax on tariff revenues, making micro generation on domestic properties a viable financial investment.

Who pays?

Under the FITs legislation the top six electricity suppliers are required by law to pay a fixed tariff for all electricity generated by individuals or businesses that qualify under the scheme. The top 6 are: British Gas, EDF Energy, E-ON, Scottish Power, npower and Scottish and Southern Energy.

Some of the smaller electricity suppliers, who are not currently obligated under the scheme, have joined voluntarily. These include, but are not limited to, EnDCo, Ecotricity, First:utility, Good Energy, Green Energy, Trade Link, Opus Energy, Smartest Energy, Reuben Power and Utilita.

If your electricity supplier is not on this list, contact them and find out if they operate a FIT scheme.

How does it work?

If you generate your own electricity at home, whether from a wind turbine, a water mill, or most commonly from solar panels, you are unlikely to be able to generate the exact amount to equal your usage. Under the Feed-in Tariff scheme, when you require more electricity than you generate you can draw it from the grid as normal, when you generate surplus electricity you are able to put it back into the grid.

What’s in it for me?

There are three separate ways in which you can benefit financially from the Feed-in Tariff scheme:

  • You will receive a payment from your energy supplier for each unit, kilowatt hour (kWh) of electricity that you produce, even if you use it yourself. Once your system has been registered under the scheme the price is guaranteed for a fixed period (up to 25 years) and is index linked. The tariff varies depending on which technology you are using. For the current list of tariffs go to ofgem.gov.uk
  • You will receive a bonus payment for any surplus electricity that you export to the grid. This is known as the export tariff and is the same rate regardless of the technology you use. Eventually smart meters will need to be installed to measure this accurately but until then it is estimated as 50% of the electricity you generate. At the time of writing the FIT was fixed at 43.3p per kWh. One kilowatt hour (kWh) is equal to 1,000 watts of energy for one hour. Example, a light bulb might be 60 watts and an electric radiator at least 1,000 watts;
  • Your electricity bills from your supplier will be lower due to the electricity that you have generated yourself. With the financial incentive you are also likely to use your energy more efficiently, thus lowering your bills even more.

For example, with average consumption and a typical domestic solar electricity system (an installation size of 2.9kWp) you could earn:

  • £1,060 a year from the Generation Tariff;
  • £40 a year from the Export Tariff;
  • £90 a year reduction of current electricity bills.

This makes a total saving of around £1,190 per year. See the Energy Saving Trust’s Cashback Calculator to find out how much you could earn.

You will need an extra electricity meter called a Total Generation Meter. This measures the electricity your system is generating. Your MCS certificated installer should provide this as part of the installation package and should include it in the original quote.

What technologies are eligible for feed-in tariffs

Most domestic electricity generating technologies qualify for the scheme, and some larger systems up to 5MW. These include:

  • Photovoltaic cells (solar panels), whether roof mounted or stand alone;
  • Wind turbines (building mounted or free standing);
  • Hydroelectricity;
  • Anaerobic digesters (bio-waste processing);
  • Micro combined heat and power systems.

Can I install my own system?

No. Electricity generating systems need to be installed by approved companies to qualify for the scheme. To qualify under the FIT scheme your installation will have to be approved under the Microgeneration Certification Scheme (MCS). This scheme covers wind, solar and hydro projects of 50kW or less and microCHP projects. Other technologies or projects of over 50kW need to be accredited through the existing Renewable Obligation process (ROO-FIT).

Case studies

The following case study was taken from the Energy Saving Trust.

When John Digby-Anderson of Yorkshire needed a new roof for his 3 bedroom bungalow he decided to fit photovoltaic panels. Having been inspired by a visit to the Energy Show at Olympia, John thought it would make both economic and environmental sense to generate his own electricity.

John applied for a grant under the Low Carbon Buildings Programme (now defunct) and received almost instant approval. John then employed a contractor to fit the PV tiles onto a south facing roof – and that was it. Once the system was installed it required no further action.

During the first year over 70% of the electricity that John used was self-generated. As electricity prices rise John finds the system to be more and more cost effective, saving more and more money. This is what John had to say – "We notice and care more how much the sun is out," says John. "We notice and care more how much electricity we are using. This valuing of natural processes is in the long run perhaps the most important result of installing solar systems."

Feed-in tariff scheme uptake

The Feed-in Tariff scheme has grown in line with forecasts since its inception in April 2010. During the first six months of existence alone there were over 43,000 installations registered, with the vast majority being for roof mounted solar PV panels. Since then the scheme has attracted much publicity and uptake is expected to increase in line with initial forecasts.

The UK government – November 2011 announcement to slash tariffs

The UK government did announce a reduction in the FIT revenues of over 50%; from 43.3 pence per kWh to 21.0 pence per kWh. It was hoped the reduction would only affect those installing the solar panels by 1 April 2012 but the Government brought this forward to 12 December 2011. This also slashed their viability with the returns crashing from around 12% down to around 6%, however 6% is still a good solid return on an investment for the long term. Update in January 2012 – none of the above changes in tariff actually occurred. The effective date for changes and new tariff proposals are still unknown.

How do I apply for the feed-in tariff (FIT) scheme?

There is a huge choice of companies clamouring for your business. Take a good look around online and ask anybody you know who is already registered under the scheme. Seek expert advice from a renewable energy company. They should be able to explain the best system for your property and how to maximise your financial returns. Remember, any installations must be carried out by MCS approved tradesmen. Real Assurance publishes a useful register of MCS approved installers that is searchable by area or technology. Any MCS installer will be able to advise you on the registration process.

There are many forms of green investments and the feed-in tariff is just one that gives you control of your money while helping the next generations to come. We also discuss the benefits of ethical investments which include teak, bamboo, forestry and timber.