Feed-in Tariffs

A Feed-in Tariff (FIT) is a fixed rate (tariff) that is paid to renewable energy producers for each unit of electricity sent to the grid. In North America, such tariffs are also known as Advanced Renewable Tariffs (ARTs) or Renewable Energy Payments (REPs).

 

Most developed countries have a FIT scheme, and many developing countries have either implemented a system or plan to do so in the near future. The REN21's 2009 Global Status Report stated that at the beginning of 2009, 63 countries/states/provinces had a FIT policy in action. The UK Government plans to adopt the scheme in the UK from the 1st April 2010.

 

How they work

A Feed-in Law states that electricity suppliers are obliged to pay a fixed price for electricity generated from renewable sources, set above the market price for fossil fuels, with the idea being that this will stimulate a much wider take-up of microgeneration. The FIT is made up of:

 

  • Generation Tariff - Utilities are obliged to purchase all renewable electricity produced by households or businesses, with the price per kWh depending on the technology and the size of the capacity;
  • Export Tariff - Any generated electricity that is not used by the premises can be exported to the grid, with the tariff set at 3p/kWh;
  • Avoided Costs - Not only will households be paid for all renewable energy generated, they will also save the costs that they previously would have paid in electricity bills.

As is clear from the above, one of the great things about the FiT is the financial reward. You would be paid for all Renewable Energy produced, even if 100% of the electricity is used on your premises. Say you have a wind turbine that generates enough electricity to power your home: under the Feed-in Tariff, you will be paid for all the electricity produced, and then what's more, you wouldn't have to pay anything on energy bills. The third benefit is that any surplus electricity can be exported to the grid, and you will be paid for this too. To top it all off, income gained through the Feed-in Tariff scheme will not be taxable, providing the generated Renewable Energy is mostly used on site.

 

In choosing to implement a FIT scheme, the UK Government is taking a positive step towards promoting RE, albeit more than 30 years later than the US (who installed the world's first FIT in 1978). In Germany, their FIT has given rise to a RE sector that employs 214,000 people and which in 2006 generated a turnover of €21.6bn.

 


How much will you receive per kWh?

The UK government announced on the 25th February 2011 the adjusted FITs, to be implemented on the 1st April 2011:

 

Technology
p/kWh
Wind <=1.5kW
36.2
Wind >1.5-15kW
28
Wind >15-100kW
25.3
Wind >100-500kW
19.7
Wind >500-1.5MW
9.9
Wind >1.5MW-5MW
4.7
Solar PV <=4kW (new build)
37.8
Solar PV <=4kW (retrofit)
43
Solar PV >4-10kW
37.8
Solar PV >10-100kW
32.9
Solar PV >100kW-5MW
30.7
Solar PV standalone
30.7
Hydro <=15kW20.9
Hydro >15-100kW 18.7
Hydro >100kW-2MW
11.5
Hydro >2-5MW4.7
Existing RO microgenerators
9.4
Micro CHP <2kW10.5
Anaerobic Digestion (AD) <=500kW12.1
AD >500kW
9.4

     


    • The Feed-in Tariff replaced the previous Renewables Obligation Certificate (ROC) system that paid 9p/kWh.
    • Sub-50kW RO microgenerators having installed their capacity before 15th July 2009 will be automatically transfered to the 9p/kWh tariff, whereas pre 15th July 2009 RO generators between 50kW and 5MW will have the one-off choice of either ROCs or FITs.
    • The rates indicated in the table are the "generation tariffs", paid for each kWh of electricity generated, regardless of whether this electricity is used for domestic consumption or not.
    • The "export tariff" and "avoided cost" (see above) provide further sources of revenue.
    • Standalone Photovoltaic (PV) refers to installations that are primarily used to feed electricity into the grid, with little being used on-site.
    • Tariffs are linked to the Retail Price Index (RPI), so if general prices go up (inflate) then tariffs will increase, and similarly if on the rare occasion prices decrease, tariffs will also decrease.

     


    We will incorporate these changes into the Power Predictor software, enabling you to perform an accurate assessment of your sites economic potential for micro renewables.

     

    Common questions

    "Wouldn't it be fairer to have the same tariff for each technology?"

     

    Differentiated tariffs are used to stimulate investment in more costly technologies. This is why wind receives a lower tariff than solar - due to the fact that each kWh generated from a PV panel is on average more expensive than a kWh generated from a wind turbine. As you can see above, a solar installation up to 5MW receives 30.7p/kWh, compared with 4.7p/kWh for a similar capacity of wind energy!

     

    There are even different tariffs for the same technology, known as "stepped tariffs". This is as a result of the economies of scale gains that come about through having a larger turbine - the relative cost for each kWh produced decreases with increases in turbine size. 

     

    "Why degress the tariffs each year?"

     

    Tariffs are "degressed", or reduced each year, with an aim to stimulate technological advancements.

     

    If tariffs are kept at the same level each year, there is little incentive for installers and manufacturers to lower the costs for their goods or services. If tariffs are reduced year-on-year, potential Renewable Energy generators want to pay less for the installed costs of sustainable technologies, as they know that Return on Investment (ROI) has reduced with respect to installations in previous years.

     

    N.B. To clarify, degressed tariffs only refer to new installations in the future. If for example I install an 11kW turbine today (16/02/10), I would receive 26.7p/kWh (on electricity generated) for 20 years, and the tariff wouldn't change over the lifetime of the FiT. If however I installed a 11kW turbine in exactly four years time (16/02/14), this tariff would have degressed to 24.3p/kWh, although I would still receive this rate for the remaining lifetime. 

     

    It is not clear within the consultation document whether installations on future dates (for example 2014) will have a duration of 20 years (if wind turbine), or if rather there will be an absolute finish date for the scheme.

     

    "If utilities are having to pay for renewable energy how do they avoid losing out?"

     

    According to a Feed-in Law, electricity suppliers (e.g. British Gas) are obliged to purchase Renewable Energy from generators (such as you or me). As the price paid for this Renewable Electricity is greater than the price that utilities sell electricity to the market (on average 12p/kWh), electricity suppliers stand to lose out. Thus, the obvious solution in the short term is to pass these costs onto the consumers through slightly higher energy bills (in Germany, the increased energy bill as a result of the Feed in Tariff amounted to $1.68 per month in 2008).

     

    As Renewable Energy becomes more and more competitive, eventually there will be grid parity (i.e. Renewable Energy will be equal or cheaper than grid power), and the move away from fossil fuels will become a no-brainer.

     

    "So what’s the situation surrounding tax on Feed-in Tariff income?"

     

    Alistair Darling announced in the Pre-Budget Report of 9th December 2009 that incomes generated through the Feed-in Tariff would not be taxed.

    His exact words were “The Pre-Budget Report confirms that households who use renewable technology to generate electricity mainly for their own use will not be subject to income tax on feed-in tariffs. This will save households paying the basic rate of tax £180 in 2010 (based on an average income of £900 in 2010)”. The full text can be found here under chapter 7.37.

     

    "How exactly do I go about getting paid for my generated Renewable Energy?"

     

    Let's say you've installed a wind turbine and you want to know about how to earn money off the generated electricity. Things are up in the air as to whether MCS products are required for receiving the Feed-in Tariff, but for the moment we'll assume they are needed. 

     

    You would approach your electricity supplier ("FiT Licensee") who carries out the necessary checks (i.e. verifies that you aren't already receiving Feed-in Tariff payments) and then if all is well you will be placed on the "Central FiT Register", confirmation will be received, and regular payments (to be decided by the electricity supplier) will be sent based on electricity generated and / or exported. 

     

    "Will all electricity suppliers be involved in the Feed-in Tariff scheme?" 

     

    Suppliers with over 50,000 domestic customers (known as "mandatory suppliers") will be obliged to participate in the FiT scheme, whereas whilst those with less than 50,000 domestic customers ("voluntary suppliers") will be obliged to offer tariffs to micro-generators (sub 50kW), they will have a choice whether to offer payments for post 50kW generators.

     

    See our blog which looks at how Ecotricity and Good Energy will adapt to the Feed-in Tariff. 

     

    "Who are the key players in the FiT scheme?"

     

    DECC (Department of Energy and Climate Change) will generally oversee the policy, and will provide a periodical review of the system;

    Ofgem (Office of Gas and Electricity Markets) will be the accrediting body for post 50kW products (ROO-FIT) and will provide the main administrative support with the managing of the "Central FiT Register";

    Gemserv will provide accreditation of microgeneration products (<50kW) in the guise of the MCS (Microgeneration Certification Scheme);

    The Energy Saving Trust (EST) will be the point of contact for those looking for microgeneration advice;

    Electricity suppliers will be obliged to purchase generated Renewable Energy at the tariffs outlined above. 

     

    Further information

    • Visit DECC's (Department of Energy and Climate Change) site;
    • See our FiTs vs. ROCs page for a comparison of the two;
    • Own Energy's Feed-in Tariffs Limited website;
    • For some fairly ground-breaking books on Feed in Tariffs, visit the World Future Council website;
    • For an interactive map detailing Feed in Tariff policies for each country in the world, see REN21's Renewables Interactive Map.