Feed-in tariffs
Feed-in Tariffs - an explanation
In April 2010, the Government introduced a scheme called the Feed in Tariff (FiT): the scheme already works well in many European countries including Germany and Spain. The FiT will allow the Government to set above-market rates for electricity generated from renewable sources. Utility companies will be forced to buy renewable electricity at a fixed price for a 20-year period, so renewable installations become very cost effective for their owners.
FiT is a subsidy designed to increase the growth of renewable energy, to help the Government meet its carbon reduction obligations. It is a fixed payment made to the owners of Micro-generating turbines for the electricity they export to the grid.
The long awaited arrival of the new Green Energy Cash Back Scheme, or Feed in Tariff (FiT), announced on 1 February 2010 has come as welcome news for owners of wind turbines installed on or after 15th July 2009, as they will qualify for the financial benefits offered. Turbine owners prior to that date will not benefit anywhere near as much from the new FiT proposals. Christine Griffiths has been leading the campaign to change this inequality. In an attempt to sway the Government and gain FiT benefits for existing turbine owners, Aeolus Power (Wind-Energy) sponsored a high level national conference in Bristol on 29 September 2009. This “Generating Business from the Feed in Tariff” conference was run in partnership with Regen SW and the Department of Energy and Climate Change (DECC). Christine felt that it was vital for Aeolus Power (Wind-Energy) to take on this pivotal role, and in front of an invited audience she spoke directly to Stephen Souza of DECC to convey the grievances felt by the early adopters of wind turbines.
Update on 1st April 2010
The following is a summary of what was announced by the Department of Energy and Climate Change :
- The feed-in tariff, introduced in April 2010, offers a guaranteed financial return for renewable energy generated in the UK.
- Customers also benefit by being able to use the electricity they generate at no cost - although in most cases customers will still have to import surplus electricity from their suppliers.
- The tariff is paid for all generated energy, including energy used at the systems location and energy exported to the national grid.
- The tariff is paid by energy suppliers and will be free from income tax.
- The tariff rate in the year that the system is installed will be guaranteed (and index linked) for a period of 20 years for a wind turbine installation.
- The higher rates of the tariff will apply to systems installed from October 2009 until 2035 with the amount offered to new installations reducing by a fixed percentage each year. Reduction of tariff values will not begin until 2012. Systems installed before that date will be offered a rate of 9p per kWh generated.
- As well as the feed-in tariff, energy exported to the grid will be given a guaranteed value of at least 3p per kWh generated.
- The scheme will be administered by Ofgem with a customer-facing role played by energy suppliers
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. We have put together the following examples, based on our range of turbines, to give some idea of the benefits of FiTs. Click on the menu at the top left of the grid to choose the turbine - the values should update when you change the menu. Please note that we haven't given complete costs of installation, only an indication. Prices vary and also installation costs will vary site to site. We would need to provide you a proper quotation, after assessing your needs. However, the figures given are good enough to give you some idea of costs.
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Choose the turbine : |
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| Total Cost ranges from £200,000 to £250,000 | |||||
| 100% export | |||||
| Wind speed | kWh pa | Payback period | Income @29.1p | ||
| 5m/s | 120000 | 6.7 years | £34,920 | ||
| 6m/s | 160000 | 5 years | £46,560 | ||
| 7m/s | 210000 | 3.8 years | £61,110 | ||
| 100% onsite | |||||
| Wind speed | kWh pa | Payback period | Income @24.1p | 12p saving | Equivalent income |
| 5m/s | 120000 | 5.4 years | £28,920 | £14,400 | £43,320 |
| 6m/s | 160000 | 4 years | £38,560 | £19,200 | £57,760 |
| 7m/s | 210000 | 3 years | £50,610 | £25,200 | £75,810 |
These figures are based on the Feed in Tariffs introduced in April 2010. For a 50kW turbine you will be paid 24.1p per kWh produced and 5p per kWh exported. Savings are based on average cost of imported electricity at 12p/kWh. The kWh production is based on smooth laminar airflow. |
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In order to calculate a more detailed assumption we will need to know your average wind speed, total kWh usage and your current electricity charges p/kWh. For example if your average annual electricity bill is £5,000 and you pay 14p/kWh and your annual average wind is 7m/s, you would be exporting 174,286 kWh pa @29.1p earning you £50,717.22. You would also earn an additional £8607.07 for producing 35,714 kWh /24.1p. This would give you a income of £59324.29 plus as you have not brought any electricity you have saved £5000 giving you a grand total income of £64324.29 which in turn would give you a 3.6 year return on your investment. |
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| Please note that these are ball park figures which do not account for tax or inflation and may be subject to exchange rate fluctuations. | |||||
Are the 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
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 |
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| 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 (£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 |
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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.
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