From April 1st 2010 the Feed-in Tariff will provide householders, businesses and communities who install Solar PV systems to be paid a substantial premium for all of the solar electricity generated.
The scheme has been introduced to England and Wales to encourage the uptake of renewable electricity and help the UK to reach its legally binding 2020 committments.
There are three financial benefits to the scheme:
- The Generation Tariff – You earn a fixed income from every kilowatt hour that the system generates (see tariff table below)
- The Export Tariff – You earn an additional fixed income for every kilowatt hour that you generate and sell back to the grid (this can be negiotiated)
- Avoided costs of imported electricity – When the system cannot generate enough electrictiy to satisfy demand you buy from your supplier at normal rates but you will need less electricity than you currently consume.
Background to The Feed-in Tariff
The Renewable Energy Directive requires the UK to generate 15% of its energy from renewable sources by 2020. The Government commissioned the UK Renewable Energy Strategy to find out how best to achieve this end. Within the report similar schemes in other European countries were looked at, such as Feed-in Tariffs. After a consultation period the Government legislated the Feed-in Tariff in 2010.
Why legislate?
Currently the cost of producing renewable electricity using microgeneration is more than it can be sold for on the wholesale market. This is not always going to be the case however and once economies of scale come down the costs will reduce. In the meantime however incentives are needed to grow the market and help to reduce costs. When the cost of producing renewable electricity reaches grid parity – i.e. the same as grid electricity renewable energy incentives are not required.
The Generation Tariff
The generation is index linked and for solar photovoltaic lasts for 25 years.
| Scale | Rate | Tariff (p/kWh) |
| ≤4 kW | Higher | 21.0 |
| ≤4 kW | Medium | 16.8 |
| >4-10kW | Higher | 16.8 |
| >4-10kW | Medium | 13.4 |
| >10 – 50kW | Higher | 15.2 |
| >10 – 50kW | Medium | 12.2 |
| >50kW – 250kW | Higher | 12.9 |
| >50kW – 250kW | Medium | 10.3 |
| >250kW | Lower | 9.0 |
| >250kW-5MW | - | 8.9 |
| Standalone | - | 8.9 |
The Export Tariff
The export tariff is a bonus payment made for every kilowatt-hour (kWh) of surplus electricity your system exports to the electricity grid. A floor price has been set of 3.2 p/kWh.
In effect you are selling your own generated electricity to the energy supply company, who can then deliver it to other customers.
The payment has been established to provide an incentive for energy efficiency as you will get paid extra for every kWh you do not use.
For small installations until smart meters are widely used it will be deemed that you will export 50% of the total energy generated in a year. For larger installations export meters can be installed where it is thought the amount exported will be higher than 50%. Each year you can decide whether to opt out of this and negotiate a better deal with your energy supplier or accept the floor price.
Taxation of FITs
There is a special exemption for householders.
For individuals who “use renewable technology to generate electricity mainly for their own use” the energy produced both from the generation and export tariff are exempt from taxation.
For businesses there is no equivalent and income from FITs installation need to be declare as part of their taxable revenue.
Companies can receive capital allowances for the cost of the installation as for other items of capital expenditure.
Index-linking for inflation
The tariffs are indexed linked to inflation. So far the following indices have been used:
| Year beginning | RPI Index | Cumulative |
| 1st April 2010 | base year | 0 % |
| 1st April 2011 | 4.8 % | 4.8 % |
| 1st April 2012 | 4.8 % | 9.8 % |
