A feed in tariff (FiT) is 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 fixed price for a fixed number of years, renewable installations become cost effective for the installer. A feed in tariff is effectively a subsidy designed to increase the exploitation of renewable energy sources, and to help governments to meet their carbon reduction obligations.
NEW – Scroll down to the end of this article for the latest (March 2010) UK feed in tariff update and for a link to our new and unique UK feed in tariff calculator.
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.
Feed in Tariffs in Germany
The most famous feed in tariff scheme has been the Renewable Energy Law (Erneuerbare-Energien-Gesetz) of 2000 in Germany which followed their Energy Feed in Law (Stromeinspeisungsgesetz) of 1991. These laws have seen feed in tariff rates set for the full range of renewable energy sources and installed capacities with particular focus on solar photovoltaic installations.
The feed in tariff for solar systems rated at less than 30kW has been a whopping 57.4 euro cents per kWh paid for 20 years after installation! Understandably there has been massive take-up of domestic PV solar in Germany.
It has however been calculated that the cost per tonne of carbon saved by this subsidising of solar power in this way has been 900 Euro which is 30 times the cost of a carbon credit certificate. Subsidising large scale wind farms instead of domestic solar installations would have reduced Germany’s carbon emissions for a lot less mone helping them to reach their carbon reduction commitments much more quickly.
UK Feed in Tariff
It is planned that a UK-wide feed in tariff will be implemented in the UK for renewable micro-generation to work in conjunction with the existing scheme of ROC‘s (renewable obligation certificates). By 2020 the UK is obliged to produce 20% of its electricity from renewable sources, but as things stand the UK will only achieve 5% (and we’re currently at just 2%).
NEW 15th July 2009
The UK Government has now announced illustrative feed in tariffs for small wind turbines and photovoltaic solar panels:
36.5p/kWh for small solar photovoltaic systems up to 4kW, and 28p/kWh for systems up to 10kW.
23.0p/kWh for small wind turbines between 1.5kW and 15kW.
These tariffs will replace the current ROC system. Payments will begin on 1st April 2010, but all small wind and solar systems commissioned from now on will be eligible for both LCBP grants and the new feed in tariff.
NEW Februaray 2010
On 1st February 2010 The Government confirmed the feed in tariffs which will come into force on 1st April 2010. For someone fitting a typical 2.5kW photovoltaic solar system to an existing home (at a cost of around £12,500), a payment of 41.3p per KWh generated will be paid whether that electricity is exported or used by the home owner. A further payment of 3p per kWh will be made for each unit not used and therefore exported to the grid. New-build properties fitted with solar panels will receive a lower tariff of 36.1p per kWh generated.
These tariff payments are guaranteed for 25 years and they are also index linked – i.e. they will rise in line with inflation. The typical 2.5kW system will generate tax-free payments of around £1000 per year, and so the payback on the investment will be around 12 years. This also works out as a tax-free return on investement of 8% – far better than any bank account offers, and particularly attractive to those paying tax at the higher rate. Since the electricity generated can be used by the homeowners, they are also rewarded with a £150 reduction in their electricity bill with a 2.5kW system.
Therefore, if you are lucky enough to have £10-12,500 in the bank AND have a south (or nearly south) facing roof, you’ll struggle to find a better financial investment than installing a PV solar array on your home.
Other highlights included 17.8 to 19.9p per kWh for 20 years for hydro, 26.7 to 34.5p per kWh for 20 years for small wind turbine generators, and confirmation that existing microgenerators being transferred from the RO programme will receive 9p per kWh generated until 2027.Click here to view the Feed in Tariffs Press Release published on 1st February 2010 which includes tariff levels for all different renewable technologies.
NEW Click here to go to our new Feed in Tariff Calculator. This will enable you to compare the predicted returns of a new home PV solar array installation compared to leaving the cost of such an installation in the bank accruing interest.