Will feed in tariffs change the market?
Posted by Matthew Rhodes on 7 August 2009 at 9:03 am
The announcement by the Government last month of proposed feed-in tariffs (FiTs) for renewables from next April marks a fundamental change in the way small scale renewables are incentivised in the UK, and is long overdue.
There is no question that feed-in tariffs are the right mechanism to use. They have been applied successfully in other countries – most notably Germany – for many years and are well-proven, with predictable effects.
The principle is simple: owners of microgeneration will be entitled to a fixed tariff per kWh of electricity generated by their system for the 25 year lifetime of the project. The tariffs will vary by technology (36.5p for small PV systems through to 12p for medium-sized hydropower schemes) and will be reduced over time (ie for projects that are installed later). But the critical point is that project owners will know with certainty at the time they commission their project what the guaranteed income stream is.
This is fair. After all, we know with equal certainty the damage that fossil fuel generation and use is doing to our environment. Feed-in tariffs are society’s way of paying the people who are prepared to act to mitigate this damage.
Feed-in tariffs will be funded by all electricity users. In simple terms the total money paid by utilities to people with renewables will be added up and then divided across all consumers. The same approach is used in other countries and tends to add around 1-3% to everybody’s energy bill. This kind of bill increase is easily eliminated by most people just by turning off lights and appliances when not needed, and should cause no pain at all.
So feed-in tariffs should change the market and should be welcomed. I can't wait for next April, when they will finally arrive.
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