In order to encourage the production of renewable energy and to engage those who wouldn’t otherwise participate in the energy market, the feed-in-tariff is a payment for energy that has been produced from a renewable energy source. Different tariff rates are typically set for different renewable energy technologies.
If you install technology that generates electricity from a renewable or low-carbon source such as solar PV or wind turbine, the UK Government's Feed-in Tariffs scheme (FITs) should mean that you get a fixed payment from your energy supplier for every kilowatt hour (kWh) your system generates. This is called the generation tariff.
Under a FiT, you would also receive a guaranteed price for any surplus electricity you generate from eligible renewable energy sources and which you export to the grid. This is called the export tariff and will also be paid by your electricity supplier. Then there is the added bonus that you'll save money on your electricity bill, because you'll be using your own electricity. Currently, the rate is indexed to the retail price index for the life of the tariff and it is tax-free for domestic installations which generate electricity mainly for their own use.
Feed-in-tariffs have meant that investors have been able to obtain a reasonable and relatively certain return on renewable energy investments. “Preliminary accreditation” for FiTs was introduced so that developers could fix their tariff in advance of installation, provided they had obtained planning permission and grid connection. This afforded developer protection against tariff degression for a certain period
However, since the new Government in May 2015, the Department of Energy and Climate Change (DECC) has released a Consultation on review of the Feed-in-tariff scheme – including the removal of Preliminary Accreditation and the introduction of tariff degression mechanisms, so that projects will only be entitled to receive the rate of subsidy available at the time they are completed. This delay in guaranteeing the FiT until after the project is connected to the grid and generating electricity, could create significant uncertainty in project development and hamper efforts to secure financing.
In its wide reaching consultation, the Government is carrying out a full-scale review of FiTs. The proposals under consideration include very significant reductions in some of the FiTs payable for generation of electricity from small-scale solar PV, wind and hydro schemes. These reductions would apply to new installations from January 2016 onwards and would range from between 10% and 31% for hydro, between 62% and 87% for solar PV, and between 23% and 67% for most small scale wind projects.
With so much uncertainty on the FiT scheme, only time will tell how prospective investors and developers of small scale renewable energy projects will be affected. Advice should be taken on the timescales for implementation of their schemes to ensure maximum returns.
For more information, please contact Jane.
Call: 0131 226 8222