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Feed in Tariffs (FITS) - Simplifying the Renewable Energy Tariffs

What will this Guide tell me?

This Guide will tell you all about the renewable energy tariffs. It will describe in a simple and easily-digestible way what they are, how they work and how you could benefit.

We have written it because an enormous amount of people are interested in the tariffs and want to be able to understand them quickly and easily. It is designed so that once you have read it, you will be able to decide whether this is something you want to pursue further.

To entice you to read on, here are 5 compelling things this Guide will tell you:

  1. The average household will be £2,000+ better off a year through the renewable energy tariffs
  2. The tariffs are for virtually everyone with a property – householders, businesses, landlords, schools, hospitals, entire communities, the list is endless.
  3. The tariffs put you in control of your energy
  4. By installing renewable energy systems and benefiting from the tariffs, you will make a significant contribution to environmental sustainability in the UK
  5. It’s a lot easier to benefit from the tariffs than you might think! Surely that’s enough to make you interested? If so, read on and we’ll tell you a bit about the tariffs themselves.

What are the two renewable energy tariffs?

The first is for electricity and is known as the Feed-In Tariffs and this went live on April 1st 2010.

The second is for heat and is known as the Renewable Heat Incentive and this went live on April 1st 2011.

Collectively, some people call the tariffs the Clean Energy Cashback scheme but it’s all the same thing.

The purpose of the two tariffs is to pay people a decent and guaranteed amount for the renewable energy they generate themselves, calculated at a minimum 8% annual return on your investment all income tax free. They are designed for normal energy users, such as households and businesses, and have three main benefits:

  1. You get paid for the energy you produce and use in your property or sell back to the grid
  2. You save money by reducing the amount of energy you buy from your energy supplier
  3. You contribute to the aim of producing 8% of the UK’s energy through the tariffs

Why were they introduced?

They were introduced by the Government with cross-party support to encourage the installation of renewable energy systems in properties. By legislating on what you get paid for the energy you generate, you are guaranteed to recoup your costs far quicker than was previously possible. In fact, because the Government waived income tax on tariff revenues, high income earners could see their rate of return be as high as 12% or more per annum.

The reason the Government was so keen to get people to install renewable energy systems is because there is a legally binding EU target of producing 15% of the UK’s energy from renewables by 2020. At the start of 2010 we were only producing about 2% of our energy from renewables and whilst offshore wind farms and other big energy generation projects will make a significant contribution, it simply will not be enough on its own.

Official estimates calculate that the tariffs should produce 8% of the UK’s energy from renewables. That will make a massive difference not just to meeting artificial targets but to the more important issue of climate change. If this country produces 8% of our energy at the point of consumption – i.e. your home or office – that means less power stations will be needed and less oil and gas burnt for heating.

Who are they for?

They are designed for anyone who wants to generate their own energy onsite – in other words at their own property. The maximum amount you are allowed to generate under the Feed-In Tariffs is 5MW although this is likely to be doubled by the new Government, which has shown that it is very supportive of the scheme. That is the sort of levels that a large factory would require by the way! There is no upper limit for the Renewable Heat Incentive.

They are also designed with any property in mind. So it does not matter whether you are a householder, business, landlord, school, hospital, care home, church, farmer, hotelier, shopkeeper or anyone else for that matter, you could benefit from the tariffs.

How do the Feed-In Tariffs work?

Let’s start with the Feed-In Tariffs which covers electricity generation.

Step One: you install renewable power systems in your property such as solar photovoltaic (PV) panels, wind turbines or maybe even hydro power if you have access to water.

Step Two: you generate electricity and three things will be happening without you having to do a thing:

  1. Most of that electricity you will use yourself
  2. Any electricity that you don’t use yourself when it is generated is automatically exported back to the National Grid (it goes back up your existing cable)
  3. Any additional electricity that you need (for example if it’s night time when your solar panels won’t work or simply because you need more power than you are generating) is automatically imported into your property in exactly the same way that you get your electricity from the National Grid today

Step Three: payment! The payments also happen in three ways:

  1. You get paid for all the electricity that you generated and used yourself
  2. You get paid for all the surplus electricity that you exported back to the National Grid
  3. You pay your energy supplier for the additional electricity you needed to import BUT as this will be considerably less than what you imported before you installed your renewable energy system, you will make a decent saving on your old bills

What are the tariffs?

Usually at this stage everyone wants to know who makes the payment so let’s cover that quickly. Even though you are generating your own electricity, you will still have a contract with an electricity supplier (e.g. nPower, e.On and the like) mainly because they will supply any additional power that you need. It is your energy supplier who will pay you, typically once a quarter, for point one (the electricity you generated and used yourself) and point two (the electricity you exported to the grid). You will pay them for the electricity you needed to import as explained in point three.

The Renewable Heat Incentive

There are still three steps though:

Step One: you install renewable heat systems in your property such as solar thermal panels, heat pumps or a biomass (wood burning) boiler.

Step Two: an estimate is made about how much heat your renewable energy systems will produce

Step Three: you get paid a fixed amount based on that estimate which will be made by OFGEM. Read on and we will tell you what this all means financially.

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