Feed In Tariff Explained

Feed In Tariff Explained: As a direct result of government legislation in carbon emission reductions, home owners and landlords now have a fantastic opportunity to improve the energy efficiency of their properties, providing themselves or their tenants with free electricity and get well paid for doing so for the next twenty-five years.

In April 2010 the government launched their latest and most generous incentive scheme to encourage us all to generate electricity on a local small scale basis, the technical term is Micro-generation. To summarise, you can now be paid for generating electricity using amongst others, wind turbines, mini hydro-electricity systems and Solar Photo Voltaic (PV) Panels. The electricity generated is free to use for the occupier of the property, any excess is fed back into the main electricity national grid system.

These incentives are commonly referred to as Feed in Tariff's (FiT), a title that has provoked the widely held misconception that the system owner is only paid for the electricity they generate when fed back to the national grid. This is most definitely not the case. The truth of the matter is that the owner of the Micro-generation system is paid for the electricity they generate whether they use it or not. It is this significant point that is exciting the interest of home owners, Housing Associations, Councils and even Hedge Funds and should be of great interest to everyone!

Unless you have a fast flowing river in your garden or a have property in a particularly windy area, Solar Photo Voltaic (PV) Panels (not to be confused with Solar Thermal Panels that generate hot water), are likely to be the most accessible form of small scale electricity generation for the majority of people. Fortunately, this type of system also attracts the most generous of the Feed in Tariff’s (FiT).

Providing the system is fitted to an existing property (not fitted as part of a new-build, which has a different FiT) and has a maximum or peak capacity to generate 4 Kilowatts (KWp) of electricity per hour, the FiT payment is 41.3 pence per unit of electricity generated. In addition, some energy providers automatically assume you will feed 50% of the electricity you generate back to the national grid (whether you do or not) and pay a further 3 pence per unit for half of the electricity generated.

As an example, a well sited system with a maximum generation performance of 2 KWp per hour, would be expected to return approximately £750 in the first year payment, plus deliver reduced carbon emissions of 0.9 tonnes. All payments are guaranteed for 25 years and increase in line with the Retail Price Index. Additionally, where the installation takes place on your own home all income from the FiT is Tax free and you benefit from free electricity.

If you have concerns about how the state will continue to fund this, the answer is that they don't. All payments are made by the energy companies who are legally obliged to do so under the 2008 Energy Act. The scheme itself is likely to be around for some time, it’s expected that by 2020, over 750,000 small scale electricity installations will be supported in this way. Even if it were withdrawn due to excess demand, once registered, your FiT is guaranteed to pay for its full 25 year period.

Although the scheme has only been in place since April 2010, people are catching on quickly as to how lucrative the FiT can be. According to the BBC, research suggested, in excess of 2,250 Solar PV Panel Systems were fitted in August 2010 up from 1,400 in June. There are companies offering to fit Solar PV Panels for free but they take the FiT and you simply get the free electricity. Housing Associations and Councils are actively looking at fitting these systems to their existing housing stock in view of the financial benefits. We understand that City Hedge Funds are looking at using the scheme as a form of investment.