The Feed in Tariff Explained

From the 1 April 2010, the UK government made it compulsory for the nation's top energy suppliers to make regular payments to homeowners and communities in the UK who generate their own electricity via renewable and low carbon sources, like solar panels and wind turbines.

This doesn't yet include Northern Ireland but it is under review. FITs guarantees two types of payments. The first is a minimum 'generation' payment made for all electricity generated by the system. The second is for ‘exported' electricity which is any excess electricity generated that can be exported to the national grid. On top of this great savings can be made by using the electricity generated on site.

The scheme covers several different electricity generating systems but for the purpose of this book we are going to look closely at what is needed to make money from solar energy.

Please note that the Generation Tariff was 43.3p/kWh and the Export Tariff, 3p/kWh when the FIT scheme started. They are both subject to retail price index increases and are 21p and 3.2p respectively until August 1st, 2012, when they will fall to 16p and rise to 4.5p respectively.

Benefits In Brief

It's possible for you to receive a ‘generation' payment (tariff) from your electricity supplier of 43.3p or more for every kWh of energy generated, tax-free for 25 years from the date the system is installed. You may also use the electricity you generate and which the electricity provider is paying you for free. So if you're currently being charged 10p per kWh for your electricity, based on the figure above, the electricity generated by your system would be valued at 53.3p per kWh.

Any solar energy your system generates but isn't used can be sold back to the grid for 3.1p per kWh. This means that every kWh generated is worth 46.4p to you.

The tariff is not only tax-free but it will increase with inflation over the 25 year period.

If you had invested £15,000 in a solar panel system for your home, you might earn £1,000 to £1,500 per year, so you would be looking at around 9% return on your investment which is much better than you'd get from a bank.

Feel good as you earn money. We need to reduce our carbon footprint and solar systems are major players among the renewable technologies that are fundamental to achieving this goal.

Qualifying For the Feed In Tariff Scheme

Naturally certain criteria have to be met in order to qualify for the full payments offered by the tariff. There is a time consideration. If your solar panel system was installed between 15 July 2009 and 31 March 2010 you will have needed to transfer Renewables Obligation Certificate (ROC) to the FIT scheme before 1 April 2010.

If your installation is post 1 April 2010 your solar system and installer must both be Microgeneration Certification Scheme (MCS) accredited to qualify. If you are thinking about doing the installation yourself to save on costs, you will disqualify yourself from the FITs no matter what solar panel product you use.

You can find the list of registered FIT licensed suppliers on the Ofgem website

The Three Ways in Which You Can Benefit Financially From The Scheme

Note: The unit with which the energy produced is measured is kWh which is an abbreviation for kilowatt hour. 1 kWh represents the continuous generation of 1000 watts over a period of one hour. This is also the unit used by utility providers on your bill and the same unit that they will use to calculate payment for electricity delivered to the grid, making it easier to do calculations and comparisons.

1. Generation Tariff – Solar panel users will enter the scheme on a certain set rate paid by their energy supplier for each unit (kWh) produced, whether it's used by the household or not. Tariff levels vary depending on the scale of the installation. For installations before 15 July 2009, previously part of the Renewables Obligation Certificate (ROC) and which have been transferred to the FIT scheme before the 1 April deadline, 9p/kWh will be received for every unit generated plus 3p/kWh for every unit exported.

Installations occurring between 15 July 2009 and 31 March 2010 and transferred to FITs before 1 April 2010 will qualify for the full FIT payment. Similarly, installations after 1 April 2010, if an MCS accredited product and installer are used. Entrants after 31 March 2012 will see a yearly decrease in the rate.

There are several components to a grid-tiedsolar system, designed to get the most from the FIT scheme, but the three main parts are:

1. The Solar Panels which generate the clean electricity from sunlight and must be installed by an MCS accredited company.

2. The Inverter that converts the electricity from direct to alternating current suitable for use in the home.

3. The Import/Export Meter. This meter monitors the excess energy being exported to the grid during the day and the power imported from the grid at night.

2. Export Tariff – Every unit of electricity that isn't used on site can be exported back to the electricity grid for a further 3p per kWh. Until smart meters are made available to domestic FITs participants, they are likely to have their export estimated at around 50%. Like the Generation Tariff, Export Tariffs will be linked to the Retail price Index (RPI) to ensure they keep up with the rate of inflation.

3. Savings On Your Energy Bill - Once you're generating electricity and using it to power your household appliances you won't need to buy as much electricity from your energy provider, resulting in some great savings on your electricity bills.

4-Step Calculation Example - Example of how much money could be earned from a typical domestic solar electricity system with an installation size of 2.7 Kilowatt peak (kWp). This would be a 12 panel PV system that will produce approximately 2287 kWh each year.

1. Generation Tariff

No of units generated x tariff per unit.
2287 x 43.3p = £990.27 (A)

2. Free Energy

Figures will vary depending on how much generated electricity is used and how much is exported. In this case we're assuming 50% is used and that the cost of buying it would have been 13p per unit. The value of the free energy is 50% of the number of units generated multiplied by the unit cost of electricity:

50% x 2287 x 13p = £148.66 (B)

3. Export Tariff

The unused energy generated by the system will get exported to the grid at an earning of 3p a kWh. The value of the exported energy is based on 50% of the number of units generated, multiplied by the export tariff amount:

50% x 2287 x 3.1p = £35.44 (C)

4. Total

The total value of income and savings is calculated by adding

(A) + (B) + (C) = £1,174.37 every year.

Frequently Asked Questions About The Feed In Tariff Scheme

Q: What happens if I move house?

A: Solar Panel technology is intrinsically linked to the site to which it's attached. If you move home the ownership of the system transfers to the new owner of the property. Chapter 10 is entitled Selling Your Solar Powered Home and takes
a close look at what needs to be considered concerning moving home with suggestions about what to do so you don't lose out.

Q: I have an MCS accredited installation but it's not connected to the electricity grid. Does it still qualify for the Feed In

A: Perhaps surprisingly, the answer is yes. You can still apply for the generation tariff at the rate that applies to its capacity. As excess electricity generated cannot be transferred to the grid, you will have to sign a declaration stating that all the electricity generated by the system will be used and not wasted. You will save on your electricity bill.

Q: How can I measure what is being generated and used?

A: To measure the amount of energy generated there must be an Ofgem approved total generation meter connected to the installation which should be installed as part of the system. For the purposes of measuring exported electricity on installations over 30 kWp an export meter has to be installed at the request of the energy supplier concerned and maintained by them in order to meet the criteria laid down by Ofgem and be approved for FIT payments.

It will have an MPAN number similar to what appears on a standard electricity meter. For smaller installations, the cost of installing and maintaining the export meter is likely to be greater than the income from the export tariff. In this case the amount of electricity exported is estimated or ‘deemed' to be half the amount of that generated and payment is made accordingly.

Many energy companies are steering away from using export meters, preferring to wait for the introduction of smart meters
which are due from early 2013. They are expected to measure electricity exported and imported from the grid and should be installed by the energy companies free of charge to their customers.

Q: Can I benefit from the FIT scheme if I have free solar panels installed?

A: It is possible to benefit from the FIT scheme with free panel installation, although not to the same degree as the installer of the free panels. There are pros and cons to accepting free panels and you can see for yourself on page 71.

Q: How long will it take for the system to pay for itself?

A: The FIT scheme has been designed to be both environmentally friendly and financially viable. How long it will take for a system to pay for itself will vary with individual installations and requirements. An example would be that if you bought and installed a solar panel system for £12,000 you might earn approximately £1,000 to £1,500 per year, dividing the initial cost by the savings gives you approximately 10 years, after which the remaining thousands generated will be pure profit.

Due to the fact that this income is Retail Price Indexed linked the period of time needed for the system to pay for itself should be less than this.

Q: When is the best time to invest?

A: The short answer is ‘as soon as you can' because you lock into the FIT that prevails on the date you install your system. If that's before the 31 March 2012, you will lock into the rate of 43.3p per kWh generated until 2035 to 2036. After April 2012 you will still earn 39.4p per kWh generated but this figure is nearly 9% lower. So timing is important in order to maximise your return.

5-Step Checklist For Taking Part In The FIT Scheme And Earning From Your Solar Energy

1. For installations completed between 15 July 2009 and 31 March 2010, check you transferred your Renewables Obligation Certificate (ROC) to the FIT scheme before 1 April 2010.

2. For post April 2010 installations MCS accreditation of solar panel system and installer will be required.

3. Complete a Home Energy Check to ensure you've taken all the basic energy efficiency measures.

4. If your solar panels aren't installed yet start considering which MCS accredited products and installers you'd like to use. More details about choosing installers and products can be found in chapters five and six.

5. Gather together the information needed to find out how much you could earn from your home solar panel system. Details of what you need are included on page 21 along with the website address of an online FITs calculator