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 tax free fixed price for a guaranteed fixed number of years, renewable installations become cost effective. A feed in tariff is effectively a subsidy designed to increase the exploitation of renewable energy sources, and to help goverments 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.
Department of Energy and Climate Change.
1 February 2010 - Press Release - Cash Rewards for Low Carbon Electricity
- Feed-in tariff for small scale low carbon electricity finalised for 1 April introduction
- Power from solar panel could earn £900, on top of £140 reduction on household energy bill
- Tariff levels index linked
Households and communities who install generating technologies such as small wind turbines and solar panels will from April be entitled to claim payments for the low carbon electricity they produce.
Energy and Climate Change Secretary Ed Miliband today announced the feed-in tariff (FITs) levels
The schemes are designed to bring about a significant increase in the amount of locally produced green energy, as a contribution to the wider shift of the energy mix to low carbon.
Ed Miliband said:
“The guarantee of getting an income on top of saving on energy bills will be an incentive to householders and communities wanting to make the move to low carbon living.
“The feed-in tariff will change the way householders and communities think about their future energy needs, making the payback for investment far shorter than in the past.
“It will also change the outlook for a range of industries, in particular those in the business of producing and installing small scale low carbon technology.”
From 1 April householders and communities who install low carbon electricity technology such as solar photovoltaic (pv) panels and wind turbines up to 5 megawatts will be paid for the electricity they generate, even if they use it themselves. The level of payment depends on the technology and is linked to inflation.
They will get a further payment for any electricity they feed into the grid. These payments will be in addition to benefiting from reduced bills as they reduce the need to buy electricity. The scheme will also apply to installations commissioned since July 2009 when the policy was announced.
A typical 2.5kW well sited solar pv installation could offer a homeowner a reward of up to £900 and save them £140 a year on their electricity bill.
The heat incentive could help thousands of consumers who are off the gas network lower their fuel bills and gain a cash reward for greening their heating supply.
Details of funding for the scheme will be published in the Budget 2010.
Ofgem will administer the feed-in tariff scheme and suppliers will be responsible to paying the reward to their customers.
Householders and communities can apply for the feed-in tariff from their electricity supplier from April 2010.
Current figures for renewables:
The UK currently gets around 5.5% of electricity from renewable sources and that will need to increase to around 30% to meet the 15% 2020 target for all energy.
Modelling show that small scale renewable installations could meet 2% of electricity demand in 2020.
Document links:
Tariff levels for different technologies:
The tariff levels for the electricity financial incentives (pence), calculated to offer between 5-8% return on initial investment in the technology are:
Tariff levels for electricity financial incentives
Technology |
Scale |
Tariff level for new installations in period (p/kWh) [NB tariffs will be inflated annually] |
Tariff lifetime (years) |
||
|
|
Year 1: 1.04.10- 31.03.11 |
Year 2: 1.04.11- 31.02.12 |
Year 3: 1.04.12- 31.03.12 |
|
Anaerobic digestion |
≤500kW |
11.5 |
11.5 |
11.5 |
20 |
Anaerobic digestion |
>500kW |
9.0 |
9.0 |
9.0 |
20 |
Hydro |
≤15 kW |
19.9 |
19.9 |
19.9 |
20 |
Hydro |
>15 - 100kW |
17.8 |
17.8 |
17.8 |
20 |
Hydro |
>100kW - 2MW |
11.0 |
11.0 |
11.0 |
20 |
Hydro |
>2kW - 5MW |
4.5 |
4.5 |
4.5 |
20 |
MicroCHP pilot* |
≤2 kW* |
10* |
10* |
10* |
10* |
PV |
≤4 kW (new build) |
36.1 |
36.1 |
33.0 |
25 |
PV |
≤4 kW (retrofit) |
41.3 |
41.3 |
37.8 |
25 |
PV |
>4-10kW |
36.1 |
36.1 |
33.0 |
25 |
PV |
>10 - 100kW |
31.4 |
31.4 |
28.7 |
25 |
PV |
>100kW - 5MW |
29.3 |
29.3 |
26.8 |
25 |
PV |
Standalone system |
29.3 |
29.3 |
26.8 |
25 |
Wind |
≤1.5kW |
34.5 |
34.5 |
32.6 |
20 |
Wind |
>1.5 - 15kW |
26.7 |
26.7 |
25.5 |
20 |
Wind |
>15 - 100kW |
24.1 |
24.1 |
23.0 |
20 |
Wind |
>100 - 500kW |
18.8 |
18.8 |
18.8 |
20 |
Wind |
>500kW - 1.5MW |
9.4 |
9.4 |
9.4 |
20 |
Wind |
>1.5MW - 5MW |
4.5 |
4.5 |
4.5 |
20 |
Existing microgenerators transferred from the RO |
9.0 |
9.0 |
9.0 |
to 2027 |
|
*NB This tariff is available only for 30,000 microCHP installations. A review will take place when 12,000 units have been installed.
