Feed-in Tariffs - an explanation
The intention is that, in April 2010, the Government will introduce a new scheme, based on similar schemes run successfully around the world, called feed-in tariff. A feed-in tariff (FiT) allows the Government 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 the Government meet their carbon reduction obligations.
It is important to note when reading anything about FiT in the UK that the situation is fluid and likely to change. Nothing has been finalised and a number of consultations are still underway. We expect this to improve as April 2010 approaches.
Update on 1st February 2010
On 1st February 2010, the Government made a further announcement on the nature of Feed-in Tariffs. The Department for Energy and Climate Change issued a Press Release with some clarification.
Press Release - Cash Rewards for Low Carbon Electricity and Heating.
To provide further clarification, we have provided our own notes of the new rules.
How to work out if FiT will benefit you
FiTs are fixed payments made to the owners of small generating stations for the electricity that they export to the grid. Micro-generators need high payments to justify their expensive investment in buying and installing green generation. The following illustrative figures are based on August 2009 figures for buying power from nPower (14p/kWh) and the proposed selling cost at 23p/kWh.
| Size of turbine | 6kW |
| Average wind speed at hub height | 6 m/s |
| Production per annum | 10,000 kWh |
| Payment from FiT, assuming home usage = 9,500 kWh | |
| 10,000 kWh X 23p/kWh | £2,300 |
| export back 500 kWh X 5p/kWh | £25 |
| Cheque received | £2,325 |
| Plus savings on energy costs: | |
| The 9,500 kWh generated for home use is free. | |
| Cost of energy from nPower would be 9,500 X 14p/kWh | |
| Saving from turbine | £1330 |
Are the proposed UK feed-in tariffs high enough to stimulate investment in small-scale generation?
The following article was written by Chris Goodall and is available online at the following address :
http://www.carboncommentary.com
6 kW Proven Energy wind turbine.
After months of deliberation, the UK government has announced a range of illustrative figures for feed-in tariffs (FiTs). FiTs are fixed payments made to the owners of small generating stations for the electricity that they export to the grid. Micro-generators need high payments to justify their expensive investment in buying and installing green generation.
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The proposed levels of FiT vary by the type of technology. The principal ones covered are biomass combustion (burning wood to generate electric power), hydro, solar photovoltaics, and wind turbines. Of these, the most appealing are likely to be wind and PV. If my estimates in the following paragraphs are correct, the government’s proposal for payments for rooftop PV will yield returns of about 8% annually. The payments for rural wind are slightly higher. If the figures survive unchanged through (yet another) consultation process, they are probably high enough finally to get the microgeneration industry started.
Solar
The proposal is for a FiT of 36.5 pence per kilowatt hour for a domestic rooftop system for installations carried out in financial year 2010/2011. A typical UK home installation is about ‘2 kilowatts peak’, a figure for the maximum output in the middle of the day in mid-summer. Such an installation will generate about 1,800 kilowatt hours (kWh) a year in a sunny location in Devon or Cornwall on a south-facing roof. Typically a third of this electricity would be fed into the grid, the rest would be used in the home. The government’s documents suggest that the homeowner would receive financial benefit in three different ways:
- A payment for all generation (confusingly, this is not a conventional ‘feed-in’ tariff which generally refers only to electricity exported from the installation into the grid).
- A much lower payment for exports from the house to the grid.
- The money saved from generating and using electricity that would otherwise have been bought from an electricity supplier.
In the case of our 2 kilowatt peak PV system, the revenues from the proposed tariffs are approximately as follows:
2 kilowatt peak installation in the English south-west
| Annual output | 1,800 kWh |
| FiT | 36.5p per kWh |
| Total value of FiT | £657 |
| Used in the home | 1,200 kWh |
| Savings from not buying supplier electricity | 12p per kWh |
| Money saved | £144 |
| Electricity exported | 600 kWh |
| Export payment | 5p per kWh |
| Value of export payment | £30 |
| Total value from all three sources | £831 |
|---|---|
| Annual service (estimate) | £100 |
| Total return | £731 |
The cost of such an installation today would be about £10,000, meaning a running return of about 7% for the 20 years of the guaranteed life of the FiT scheme. A PV installation is likely to last 25 years or more, albeit with gradually declining output, so the installation pays back its cost with something to spare. In the north of England, the figures would be less good. PV is nice, but it isn’t a money-spinner, even with these new tariffs.
Currently, the income from a PV installation or other micro-renewable installation is not subject to tax, but the Treasury could change this.
Wind is better
A 15 kW turbine at the end of a large rural garden or on a village green would cost about £50,000 (source: Proven Turbines: £41,000 for the turbine and my estimate of £9,000 for installation and grid connection). This machine would generate perhaps 25,000 kilowatt hours on a windy and exposed site with minimal turbulence created by trees. In the analysis below, this would get pumped into the grid. If some of it is used in a home, replacing grid electricity, the numbers would be slightly better.
15 kilowatt wind turbine in a good location
| Annual output | 25,000 kWh |
| FiT | 23p per kWh |
| Total value of FiT | £5,750 |
| Export payment | 5p per kWh |
| Value of export payment | £1,250 |
| Less: yearly maintenance cost (estimate) | £750 |
| Total value of installation | £6,250 |
|---|
If these estimates are correct, the return on a 15 kilowatt turbine would be over 12% p.a. A machine should last twenty years or more. It isn’t a return that would excite Goldman Sachs, but it isn’t bad. If you have a choice, go for a wind turbine, not for the more glamorous solar panels.
It is conventional wisdom in Germany and elsewhere that a near-guaranteed return of 6% is sufficient to spark interest in renewables from ordinary families. At the proposed levels for FiTs, this figure will be clearly achieved in the UK in good locations.
(This article will be part of the second edition of Chris Goodall's How to Live a Low-Carbon Life to be published in February 2010.)
Chris Goodall is the author of Ten Technologies to Save the Planet, listed as one of the Financial Times Science Books of the Year 2008. His previous book, How to Live a Low-Carbon Life, won the 2007 Clarion Award for non-fiction and was described by the New Scientist as ‘the definitive guide to reducing your carbon footprint’. His latest book is The Green Guide for Business.
He is a columnist for the Independent on Sunday and the Guardian, regularly delivers talks and presentations on climate change issues, and provides consulting advice to businesses and other institutions.
For further advice, take a look at the following links :
Renewable Energy Tariffs Limited
Department of Energy and Climate Change
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