DECC rebalances renewable energy incentives

DECC has recognised the need to rebalance the renewable energy incentives by reducing the subsidy on expensive technologies like PV in favour of the more economic technologies used to generate renewable heat. The Renewable Heat Incentives have been set at a much lower level than those for Feed in Tariffs (FITs) – and are being introduced two years later.

First review of Feed-In Tariffs in 2011

On 7 February 2011 it was announced that the first review of the Feed in Tariffs for small scale low carbon electricity generation would take place in 2011, and have effect from April 2012.

Although only introduced from April 2010, government was concerned that by February 2011 21,000 installations had already been registered and that the take up of photovoltaic panels – for which the Feed-In Tariffs are generous – might exceed the budget allowed, especially in the case of super-sized solar installations.

On 18 March 2011 it was announced that FITs for larger scale PVs would be reduced (as shown in the table below) from 1 August 2011 (subject to a brief consultation period, which was concluded on 9 June and confirmed the proposed rates, and parliamentary approval in July 2011).

Second review of Feed-In Tariffs in 2011

On 29 October 2011 Greg Barker confirmed that a second review of the Feed in Tariffs for low carbon electricity generation is already well advanced and likely to take effect from 12 December 2011.

The reason for the second review is that FITs are being taken up too quickly and that the DECC funding allocation for FITs is in danger of being exceeded. A further reason is that the cost of installing PV panels has reduced by around 50% and therefore the FITs has become less of an encouragement to install PV panels and more of an incitement to profit from excessive subsidies.

Feed-In Tariffs for microgeneration of electricity

On 1 February DECC published the tariffs which apply from April 2010. Renewable electricity installations commissioned since July 2009 are due to receive a cashback subsidy for the lifetime of the equipment used.

The table below shows the eligible technologies, the current level of subsidy and the deemed lifetime of each technology. This provides a major incentive for owners to invest in renewable electricity generation. The feed-in tariffs are based on pence/kWh of renewable electricity delivered. The rates and lifetimes will vary with the technology and scale used as follows:

Feed-In Tariffs - FiTs
Table of rates		 Scale Feed-In Tariff pence/kWh Feed-In Tariff pence/kWh from
1 August 2011		 Feed-In Tariff pence/kWh from
12 Dec 2011		 Tariff lifetime
in years
Anaerobic digestion <250kW 11.5 14 14 20
Anaerobic digestion <500 kW 9.0 13 13 20
Anaerobic digestion >500 kW 9.0 9.4 9.4 20
Hydro electric <15 kW 19.9 19.9 19.9 20
Hydro electric <100 kW 17.8 17.8 17.8 20
Hydro electric <2 MW 11.0 11.0 11.0 20
Hydro electric >2 MW 4.5 4.5 4.5 20
Photovoltaic <10 kW 37.8 37.8 21 25
Photovoltaic 10-100 kW 31.4 25
Photovoltaic >100 kW 29.3 25
Photovoltaic <4 kW 43.3 21 25
Photovoltaic 4-10 kW 37.8 16.8 25
Photovoltaic 10-50 kW 32.9 15.2 25
Photovoltaic 50-150 kW 19 12.9 25
Photovoltaic 150-250 kW 15 12.9 25
Photovoltaic 250-5000 kW 8.5 8.5 25
Wind <1.5 kW 36.2 36.2 36.2 20
Wind <15 kW 28 28 28 20
Wind <100 kW 25.3 25.3 25.3 20
Wind <500 kW 19.7 19.7 19.7 20
Wind <1.5 MW 9.9 9.9 9.9 20
Wind >5 MW 4.7 4.7 4.7 20

  .

These "Feed-In Tariffs" are a form of Clean Energy Cashback which are paid based on metered electricity generated - whether or not the electricity is fed back to the Grid. If the electricity is paid back to the Grid the consumer receives a further 3.1 pence /KWatt hour.

Feed-In Tariffs – FiTs – Clean Energy Cashback Financial Incentives

The UK government introduced Feed-In Tariffs for microgeneration of electricity from April 2010. The tariff levels for the electricity financial incentives are calculated to offer between 5-8% return on initial investment. The tariff levels for photovoltaic (up to 36 pence per kWhour) and wind (up to 34 pence per kWh) are set at a higher level per kWh than for the Renewable Heat Incentives to compensate for the high capital costs and lower efficiencies of these technologies. The tariffs for the Renewable Heat Incentive have been calculated to offer a rate of return of 12% across the tariff bands.

FiTs provide a positive step change in the business case for delivering on-site renewable electricity generation, not only to reduce electric bills and carbon emissions, but also to deliver an electricity related cash flow into your building. The FiTs cashback incentives are calculated to offer between 5-8% return on initial investment.

The RHI provides a positive step change in the business case for delivering on-site renewable heat generation, not only to reduce energy bills and carbon emissions, but also to deliver a heat related cash flow into your building. The RHI cashback incentives are calculated to offer 12% return on initial investment.

Comment on the Feed-In Tariffs and RHI

While there are a number of renewable energy options to be considered, ICAX believes the most practical, affordable and reliable answer to generating renewable energy is to use Interseasonal Heat Transfer to heat buildings in winter and provide domestic hot water all year round.

Interseasonal Heat Transfer is a more economic technology than those which generate renewable electricity, and Renewable Heat attracts the RHI clean energy cashback which is calculated to provide a higher return on the initial investment than Feed-In Tariffs.

However, the FiTs and RHI are not alternatives: you can benefit from both forms of Clean Energy Cashback if you install photovoltaic cells to provide electricity to control your ground source heat pumps.

Tax free income from Feed-In Tariffs

Tariffs are exempt from income tax. This means that domestic users and other income tax payers will not be taxed on any income received from the Feed-In Tariffs or the Renewable Heat Incentive.

 

See also: Banking on IHT   The Merton Rule  Ground Source Energy