Feed-in-Tariff-Scheme

Combining finance with a genuinely environmental project is still not as common as we might hope - this article explains about exporting energy back to the grid.

On 1st February 2010 the Department of Energy & Climate Change (DECC) launched the Feed-in-Tariff-Scheme (FITS) which financially supported small scale renewable electricity generation. It does this by obligating the Power Utilities to make payments to small scale generators, (house owners and small businesses) for every kWh of electricity they produce. This payment is far in excess of the current wholesale price of electricity. The Power Utilities are required to make these payments for 25 years from the date of installation. OFGEM has been empowered to monitor and police the scheme on behalf of the Government and has set up a register of generators.

Prices paid

The price paid for the electricity under FITS varies according to which technology is used and also changes with time. From 1st April 2012 the price paid reduces each year for installations made after that date to accommodate advances in technology and the reductions expected in the price of equipment due to increased volume. Installations completed before 1st April 2012 are unaffected by the price reductions throughout the full 25 year life span. Interestingly, FITS payments are also linked to the Retail Price Index – as the RPI increases each year so do the payments made for the electricity.

Financing structures

Another interesting feature of FITS is that the owner of an electricity generating system can be different from the owner of the property in, or on, which it is installed. This gives scope for innovative financing structures. In addition, the income stream from FITS can be assigned to a third party and this assignment recorded on the OFGEM register. This allows a finance house to take the income stream as collateral for a loan to purchase the equipment in the first place. Within the document announcing the scheme DECC makes a point that the Government is looking to the finance sector to come up with innovative structures to cover the initial installation costs for generators.

Solar

Solar power has always been one of the cleanest and most robust of the renewable energy technologies. After its initial manufacture solar creates no emissions and, because it has no moving parts, it is often the most reliable. The downside is that solar tends to be the most expensive technology in which to invest. DECC recognised this fact and has provided solar with the most generous payments over the longest time scale, making solar a viable renewable energy source. Another problem for solar is public perception – many people tend to think the systems only generate electricity when it is sunny. In fact, electricity is generated in any light – if you can see the panels they are generating electricity. Our climate is well suited to solar power as the average light per year varies by only a few percent and the temperature changes are not so extreme they damage the solar panels, which can be a problem in some hotter countries. From an investment point of view the yields from solar power are highly predictable and consistent from year to year. 

This article was accurate at the time of writing. The Feed-in tariff (FIT) was closed to new applicants in 2019 but was replaced by the Smart Export Guarantee (SEG) shortly after. This guide helps explain the changes and the new scheme: https://selectra.co.uk/energy/guides/schemes/smart-export-guarantee

Barchester Green became part of Castlefield in 2014, you can access more up to date and relevant articles about our business here: https://www.castlefield.com/news-media/