What Is a Feed in Tariff?

The UK is currently experiencing a renewable energy revolution due to legislation that funds new installations helping homes and businesses become more eco efficient and less reliant on fossil fuels and nuclear energy. Jonathon Parkes discusses how these Feed-in Tariffs work and how you can benefit from them.

What is a Feed-in Tariff?

In a nutshell, a Feed-in Tariff (FIT) is a fixed rate payment system which sets a level and time period of payment for those who have installed certain renewable energy systems. Using this tariff, homeowners and businesses can easily calculate the rate of return on their investment giving them the security of a quick payback time and a simple method of calculating a realistic return for using renewable energy.

How does a Feed-in Tariff Work?

For every unit of energy generated, users on a FIT will be paid a set amount per unit TAX FREE. It does not matter if this energy is used or lost, as may be the case if energy generated occurs when you're not occupying the office or dwelling.

Using this energy will reduce the cost of energy bills and as an added bonus electrical energy that is not being used can be sold back to the national grid, which ensures that the energy is not wasted and that you can benefit additional income.

What do the government gain by subsidising FIT's?

By introducing a FIT for renewable energy, the government aims to hit its agreed targets of producing 15% of its energy using renewable technology before 2020. Encouraging UK residents to make the initial outlay on these projects spreads the initial burden of investment across the population, allowing the government to invest in larger projects elsewhere.

Several years ago, Germany issued a similar scheme to the UK's FIT. The take-up rate was astounding, with approximately 10 per cent of all Germany's energy coming from renewable sources as early as 2005. This number has steadily increased ever since.

Following the introduction of FIT's, the German economy was buoyed in the construction sector and knowledge and expertise in renewables increased creating more jobs and making Germany a pioneer in these technologies. It is hoped that the UK will achieve similar gains within the next few years.

What can I gain from a Feed-in Tariff?

FIT's are a particularly attractive proposition as they dramatically reduce the payback time of these renewable technologies. For instance, up until recently a typical investment in an average-sized Solar PV installation would have had a payback time of an estimated 20 years. Thanks to the increased efficiency of Solar PV and the tax-free FIT scheme, this time period is reduced to an average of six years.

As the government have pledged to back FIT's for 25 years, this means your Solar PV installation could be generating income through the scheme for 19 years, not to mention the extras you can gain through selling excess energy to the national grid and reduced energy bills - which are bound to dramatically escalate in the next few years in order to rejuvenate the crumbling energy infrastructure.

Another advantage of renewable technology is that it adds value to your house. If you can illustrate that your property is cheap to run and will generate a return then future buyers will pay more.

Why should I invest now?

There has been no better time to invest in renewable technologies. Take-up of these technologies has been dramatically quick. Because of this, early adopters of this technology stand to get the most from these systems.

Unfortunately, there will come a point when the door will be closed to new applicants who wish to benefit from the government's FIT scheme so it is best to act today than risk losing out on the fantastic money-making potential of FIT's.

In addition to that, we could all do with lowering our CO2 emissions in as many ways possible. Committing to lowering your dependency on fossil fuels and providing for yourself is one step closer to achieving this goal.

I've heard some companies are offering free energy...

We all know the saying - there's no such thing as a free meal - well, there isn't. The average 9-5 worker would barely benefit from these so-called 'free' systems other than on weekends.

Companies who offer these services may very well promote a series of accurate statistics regarding returns and payback, but they're the only ones who will realistically benefit from these installations. After all, they are a business - and businesses are there to make money.

Usually, these companies make their money by giving homeowners all of the electricity the system generates, but retain the FIT money and additional income from the electricity supplied to the national grid.

Effectively, this is an extremely cheap way of renting your roof space and/or garden.

The number of renewable companies that have sprung-up overnight who offer free energy is astounding. But, you can take one positive from this - it's a clear indication that this technology works!

Unfortunately, it has yet to be determined whether these free installations will affect the value of your property but it's likely that these deals will not increase your house valuation.

If this kind of deal appeals to you, be very wary. Some unscrupulous companies are reported to lock homeowners in contracts where they have to pay out for several things - such as if the installation becomes damaged. The complications associated with things such as hidden contractual obligations makes outright ownership a much more attractive proposal.

What's this I hear about the RHI?

You may have heard in recent news that a renewable heat incentive (RHI) has been put in place. This works just like the FIT scheme, in that the government will pay people who invest in renewable heating systems, providing them with a fixed amount of income per unit of heat energy generated.

The RHI will benefit those who wish to install systems such as Ground Source Heat Pumps and Air Source Heat Pumps.

Can I Install Renewable Technology Myself?

Unfortunately not. To take advantage of FIT's you must hire the services of an MCS accredited company to install your equipment. This is to ensure that your installation is fitted to the highest standards.

Jonathon Parkes - A trained journalist with a history of freelancing for national broadsheets and tabloid newspapers, Simon Johnson has become an expert in the field of energy reporting. For an up-to-date overview of the latest developments regarding the governments feed in tariffs, www.retherm-northern.com.