Feed in tariff (FIT)
What is the feed-in tariff?
Feed-in tariffs are payments made to homeowners and businesses for the renewable electricity they generate.
The feed-in tariff, introduced on 1st April 2010, guarantees that owners of small scale solar PV systems will receive up to 21.0p for every kWh of energy generated for the next 25 years. If you read on you will get the fine print. If you haven't got time this may be all you need to know:
- You can receive a payment (tariff) from your electricity company of up to 21.0p per kWh of energy generated, whether you use it in your house or not. You can also use the energy for free.
- The tariff is non-taxable and will increase in line with inflation (RPI).
- It applies for 25 years from the date of system installation. So for 25 years you will get paid for the electricity you generate.
- Overall you can expect around a 6-11% return on your investment. That means that if you invested £11000 in solar panels you'd be approximately £1200 better off per year. If you have money in the bank, you'll be lucky to get 1% on it at the moment.
- In order for your system to qualify for feed in tariffs, it must be installed by an MCS accredited installer. Spirit Solar Ltd is an MCS accredited installer.
Click here to see some example returns on different systems
"A return of 9% - better than any bank can provide" - Ed Miliband, speaking in his former role as Secretary of State for Energy and Climate Change.
Reasons to go solar:
- Earn up to 21.0p per kWh for the next 25 years, just for generating electricity - tax free!
- Use the energy you generate for FREE- if you are currently paying 15p per kWh for your electricity the value of the electricity you use from your system is 36p per kWh.
- Sell any energy you don't use back to the grid. The extra energy you produce can be sold back to the grid for 3.1p per kWh, making each kWh generated worth 24.1p to you.
- Do your bit for the environment. We need to reduce our carbon footprint by roughly 40% by 2020. Renewable technologies are fundamental to this reduction.
- Feel good! You're making a better world for your children and grandchildren.
Guaranteed for 25 years - by the UK Government...
Once you sign up to generate your own energy, you lock in to the feed in tariff of 21.0p (index linked) for 25 years. So for the next 25 years - that's until 2035 - you will get paid 21.0p for every kWh you generate.
...and it's Tax free and Inflation proof
You pay no tax on the money you earn. If you're a 40% rate tax payer, £1200 earned from solar panels is worth £480 more than the same amount earned from interest on cash deposits.
So if you are comparing the income from the tariffs with that from another taxable investment you should look at the 'post-tax' income from the taxable investment. Both the generation tariff and the export tariff are index-linked to the Retail Price Index (RPI) so that they rise with inflation. The value of the energy used is also likely to increase as electricity prices rise. This means that your income will increase over the life of the scheme.
What about the EPC requirement?
The feed-in-tariff for solar PV installations is linked to the EPC rating of the building or buildings on which it is installed, or through which it is wired. Customers have to prove that any building that is wired in such a way as to benefit from the electricity produced by the PV array has an EPC rating of D or above. If they do not prove this then they will not qualify for the full FiT rate and will be locked at a rate of 9p/kWh for life. However:
- Checking your EPC is easy - if you have bought or rented your property since October 2008 it will already have an EPC as this is required by law. It should be in the paperwork that came with the house. If not, speak to your estate agent.
- If your EPC is already rated D or above, all you will need to do is provide a copy of the certificate when registering for the FiT.
- If your EPC is rated E then this shouldn't be a problem as the solar installation itself can contribute towards the EPC and will usually bring an E-rated property up to D.
- If your EPC is rated F or below then all is not lost - speak to us to find out any other energy efficiency measures we can help you undertake to bring your property up to standard. This may be as simple as some new loft insulation!
If you don't have an EPC then the good news is that Spirit Solar's technical assessors are also all qualified EPC assessors, so they can conduct an EPC while they do a site visit. Just mention this when arranging your site visit.
What about outbuildings, barns, or garages?
The key wording in the government regulations is that if the solar PV system is wired "in order to provide power to a building that can have an EPC", then this building needs to have an EPC. A "building" for this purpose is defined as a construction having a roof and walls that uses energy to control its internal climate. For example, this means that if an installation is going on an outbuilding that is unheated, but this outbuilding is wired to the same electricity meter as a house which is heated, this house will need to have an EPC rated D or above.
If you have questions about the EPC requirement, please don't hesitate to contact us for more information.
How do I claim the feed-in tariff?
In order to claim the tariffs you need to sign a "home generation" contract with an energy supply company. You should do this as soon as the system is installed. Ring up your electricity company and ask for their "home generation" sign up form. With some electricity companies - for example British Gas, you need to call them as soon as you know you are installing PV. Whoever your company is, we recommend you ring them as soon as you have an installation date, and ask them a) whether you need to pre-register and b) what their procedure is for signing up.
All of the large suppliers offer home generation contracts and in most cases your existing electricity supplier should be able to sign you up. If your electricity provider does not offer the feed-in tariff, ring one of the big suppliers instead (e.g. E.on, nPower, SSE). There are also a number of smaller "green" suppliers that are offering FITs payments.
Please note in order for your system to qualify for feed in tariffs, it must be installed by an MCS (Microgeneration Certification Scheme) accredited installer. Spirit Solar Ltd is an MCS accredited installer. We will provide you with a certificate after the installation. You need this in order to sign up.
What income can I expect?
Installing a solar PV system gives three financial benefits:
First of all, PV system owners are entitled to a 'generation tariff' for each kWh produced whether it is used or sold back to the grid. For small systems installed on existing roofs ('retrofit') this tariff is currently 21.0p per kWh. The amount of energy generated is measured by a 'generation meter' installed with the PV system. Tariffs vary with installation size as follows:
System type System size Tariff per Kwh generated ('locked' in for 25 years) New build or retrofit <4kWp 21.0p New build or retrofit 4-10kWp 16.8p New build or retrofit 10-50kWp 15.2p New build or retrofit 50kWp-150kWp 12.9p New build or retrofit 150kWp-250kWp 12.9p New build or retrofit >250kWp 8.5p Standalone - 8.5p A new build is where the PV system is installed prior to somebody first living in the property. A standalone system is an installation that is neither attached to a building nor wired to provide electricity to an occupied building. Most domestic installations carried out by Spirit Solar are under 4 kWp for existing properties and so qualify for the full 21p per kWh.
- Secondly there is the amount saved on the household electricity bill. With electricity prices running at around 15p per unit and set to rise this is a significant amount.
- Finally any electricity which you generate and don't use gets sold back to the grid. You get paid an 'export tariff' which is a minimum of 3.1p per kWh. Note that it pays to use as much energy as you can - you are saving yourself around 13p a unit if you use it, compared to 3.1p if you export it. So put the washing on when the sun shines!
Note that in order to measure the amount of energy exported accurately you need an export meter (as well as a generation meter). Only your electricity company can fit an export meter. If you do not have an export meter then, so long as your system is smaller than 30kWp, your exported amount is estimated to be 50% of your total generation. This is sometimes referred to as 'deeming'. Deeming usually works in the householder's favour. However if you think you are going to export a lot more than 50% of your total generation, it may be worth asking your electricity company to fit an export meter.
Sample income calculation
A south facing 4 kWp (17 panel) PV system installed near Exeter will, according to PVGIS produce approximately 3816 kWh each year.
The income and savings expected can be calculated as follows:
Feed in tariff
No of units generated x tariff per unit
3816 x 21.0p = £801.36 A
Free energy
Assume 50% of the energy generated gets used and assume the cost of buying this electricity would have been 15p per unit.
The value of the free energy is:
50% x No of units generated x unit cost of electricity
50% x 3816 x 15p = £286.20 B
Exported energy
The rest of the energy gets exported to the grid earning 3.1p a kWh:
The value of the exported energy is:
50% x No of units generated x export tariff
50% x 3861 x 3.1p = £59.15 C
In total the value of the income and savings is given by A + B + C = £1146.21 every year
Bear in mind that if the household is able to manage their consumption such that they use appliances at a time when the sun is shining, the 50% assumption of free energy usage can rise, increasing the savings even more. Further to this, because the government "deems" that 50% of the electricity is exported, they pay this to you even if you use 100% of it!
How long will it take for the system to pay for itself?
The feed-in tariff is designed to make investment in renewable energy such as solar PV not only environmentally friendly but also financially viable. Spirit Solar PV installations should have paid for themselves by the end of the first 8 to 12 of their 25 year estimated life.
Example
Take the example given above. Suppose a 17 panel solar PV system costs approximately £11,000. The income/savings in the first year are calculated to be £1,146.21. Dividing the initial cost by the savings gives just over 9 and a halfyears. This means that the system will have paid for itself in less than 10 years. The remaining £17,200 or so generated over the subsequent 15 years will be pure profit! Who could argue with that isn't a great investment? Even better, in reality the payback period will be a bit shorter than this due to the fact that the income is inflation adjusted.
Click here to see some more sample prices and returns
Click here to use our returns calculator so you can see the numbers yourself.
Why invest now?
One of the aims of the feed-in tariff scheme is to encourage immediate investment in technology such as solar PV. Due to this the generation tariff offered is dependent on when the system is installed.
You lock in to the feed in tariff that prevails on the date you install your system. If you install a small domestic system on your house after December 2011, you will lock in to the rate of 21.0p. Every year until 2035 or 2036 you will get paid a tariff of 21.0p per kWh generated.
Further cuts could be coming
The government have committed to a more flexible system to be able to lower subsidies more quickly and without such lengthy consultation processes. The first cut of at least 20% will be introduced for installations after 30th June 2012, with more cuts from 1st October. The government may also reduce the tariff lifetime from 25 years to 20 years, and remove the inflation-link of the tariff. In short, delaying could be costly!
FAQs about FITs:
What technologies are eligible to receive FITs?
- Solar electricity (PV) (roof mounted or stand alone)
- Wind turbine (building mounted or free standing)
- Micro combined heat and power (small-scale up to 2 kW)
- Hydro-electricity
- Anaerobic digestion to produce biogas for electricity generation
What is the Microgeneration Certification Scheme (MCS)?
The MCS is a scheme which provides accreditation for installers and certification of products. It also helps to provide assurance for customers. More information can be found at www.microgenerationcertification.org
Spirit Solar Ltd is MCS accredited.
MCS is also linked to the Renewable Energy Assurance Scheme, which provides protection in aspects of system supply. More information can be found at www.realassurance.org.uk. Spirit Solar Ltd is part of the REAL Assurance Scheme
What is the EPC requirement for FiTs?
The FiT for solar PV is linked to the energy performance of the building it is installed on, or wired to. Full details on the EPC requirement can be found here.
Can I pass my rights to receive FITs payments to somebody else?
Entitlement to payments under the FIT scheme belongs to the legal owner of the generation equipment, however it is possible to 'assign' your rights to FITs payments to somebody else. To arrange this you would need to contact the energy company that makes the FITs payments and they will update the central database at OFGEM. It is worth noting that only the legal owner can request such an assignment and also that the legal owner can cancel this off the central database at any time without the consent of the other party.
What if I sell my house?
Entitlement to payments under the FIT scheme belongs to the legal owner of the generation equipment (i.e. whoever paid for the solar PV installation). The expectation is that during the sale of a house the generation station would also be sold at the same time, with the market compensating the seller with a higher sale price. Following this transfer, which would need to be supported by evidence such as a contract, the new owner's details would need to be entered onto the central FITs database. Entitlement to FITs payments would then transfer to the new owner.
In theory it may be possible for the original owner to keep legal ownership of the PV system following the sale of the main property and retain the rights to the FITs payments. The practicalities of this may however be problematic. Somebody would still need to provide meter readings and the access requirements for this would need to be discussed. There may also be other legal considerations and easements to be drawn into the contract of sale and this would likely be more costly and troublesome than it is worth.
Whilst it is expected that a solar PV system would add to the sale price of a property due to the fact that the scheme is so new there is little evidence on how much this increase might be. Specialist advice from an estate agent may be beneficial.
What if I rent my house out to tenants?
Entitlement to payments under the FIT scheme belongs to the legal owner of the generation equipment (i.e. who paid for the solar PV installation). Unless the landlord assigns the rights to the tenant (see "Can I assign my rights to receive FITs payments to somebody else?" above) the landlord is still entitled to the generation and export tariffs. The tenant would however get the benefit of the generated electricity they use and so get cheaper bills. In such circumstances the energy company can organise this payment to be processed separately to the actual import bill and can setup a correspondence address for FITs matters so that the landlord gets these letters directly.
One thing to consider is that as the beneficiary of the FIT scheme you would need to supply your FITs provider with generation and export meter readings. If the tenant wanted to switch supplier it is still possible to stay with your FITs licensee although this may need to be discussed with them.
Can I install a system on my family/friends house and collect the FITs payments?
Essentially yes. It is possible to have a situation where the legal owner of the generating equipment is not the legal owner of the property itself. As a prevention against fraud evidence of such an agreement (e.g. a contract) would be needed setting out the exact terms of the agreement. In this situation the legal owner of the generating system is entitled to all FITs payments.
What if I already have a renewable energy system installed?
The tariff you will receive depends on both the mix of technologies used as well as when each system is installed.
If you have a different technology installed (e.g. you have a 3kWp solar PV system installed and you already have a wind turbine) your new system will receive the full tariff so long as it has a separate meter. If the technologies are both connected to the same generation meter then it is possible to get a pro-rated tariff code based on the capacities of each separate generator. If this is the situation then it may be necessary to speak to OFGEM directly.
If you are installing more of the same (e.g. you already have a 2kWp solar PV and you have a 3kWp solar PV installed) then the gap between the two installs changes how the system is viewed.
If the original system is not eligible for the feed-in tariff (or is on the 9p per kWh tariff) then the new system will be treated as a separate system and get the tariff based on the capacity of both systems combined. Taking the above example as the total capacity is 5kWp the tariff will be 16.8p per kWh.
If the original system is eligible for the feed-in tariff and the new system is installed over a year later the new system is considered as separate to the original. In this instance the tariff level for the new capacity is based on the total capacity of both systems and so, taking the above example, will be set at the level of a 5kWp system (16.8p per kWh).
Example 1:
The original system is a 2kWp solar PV that was installed in 2005 and is not eligible for the feed-in tariff. A new 3kWp solar PV system is installed in August 2010.
Outcome - The original system will get no generation tariff. The new system will be considered a separate system and get the tariff based on the total capacity - in this case 5kWp, i.e. 16.8p per kWh.
Example 2:
The original system is a 2kWp solar PV that was installed in late July 2009 and is currently claiming payments under the feed-in tariff at the 43.3p per kWh tariff. A new 3kWp solar PV system is installed in August 2010.
Outcome - As the new system was installed over a year later it will be considered as a separate system. Assuming each system is separately metered the electricity generated by the original system will be paid at the rate of its existing tariff (in this case 43.3p per kWh) and the electricity generated by the new system will be paid at a tariff based on the total installed capacity - i.e. as per a 5kWp solar PV at 16.8p per kWh. If the systems are not separately metered then the whole installation will need a custom pro- rated tariff code and some consultation with OFGEM will be required.
Can I claim the feed-in tariff if my system is not connected to the electricity grid?
Yes, FITs are payable for off-grid systems, however you cannot get the 3.1p per kWh export tariff.
How sure can we be that the feed-in tariff will not be cut in the future?
The government confirmed in the laws that bought the feed-in tariff into operation that the tariffs will be paid for 25 years for solar PV installations. Also the UK has challenging and binding carbon targets for 2020 and 2050 under various European agreements and so support for green energy is very unlikely to decrease.
If I have 3 phase electricity, does that mean I can have three 4 kWp systems and claim the high rate (21p) tariff for the electricity generated from them?
Unfortunately the answer to this is no. The Feed in Tariff is based on total system size at a generation site - so phases play no part. So 4kWp per phase is viewed, under FITs, as a 12kWp system and paid on the 10-100kWp tariff.