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Feed-in tariff: your questions answered - updated

Posted by Cathy Debenham on 16 February 2012 at 11:12 am

The introduction of the feed-in tariff ushered in a new and exciting era for microgeneration, but it can be confusing. Here we answer some of the most common questions about the scheme. If you've got any more, please ask them in the comment section below and we'll do our best to answer. The information in this refers to installations of less than 50kW. This blog post supplements our main information page on feed-in tariffs which gives all the rates for each technology.
 

What return on my investment should I expect?

The scheme has been devised to give a 5 to 8% return on investment for "well-sited installations". Small solar installations are designed to give 4.5%. Of course, you will only get this good a return if your system performs well, so it is important to measure the wind speed, or solar potential, before going ahead with an installation.

How do I calculate return on investment?

Good question. There seem to be a lot of different methodologies out there. The most common is to take the upfront capital cost, then add up the annual income (generation tariff + export tariff + savings on bills). Divide the latter by the former, and multiply by 100 to get the rate of return.

Many people would say that is much too simplistic. Firstly you have to take into consideration ongoing costs. For example you are likely to have to replace the inverter at least once during the life of the tariff. The system may need servicing. There will be a cost of removing solar panels from the roof at the end of their useful life. The government's methodology for solar PV (which is explained here) is rather more complicated.

Is it better to export the electricity I produce, or to use it on site?

The aim of the feed-in tariff is to incentivise people to use the electricity they produce on site where possible. The amount you save by not buying electricity from your energy company is significantly greater than the sum you get for exporting it. The higher your daytime electricity usage, the more beneficial an installation will be.

How do I maximise the return from the feed-in tariff?

It makes sense to do things that use electricity while your system is generating. So, with a domestic system you might do the vacuuming or run the washing machine during the day if you've got solar panels, or when the wind is blowing if you've got a turbine. Ideally, only run one energy hungry appliance at a time.

The government hopes that by generating your own electricity you will develop a better understanding of energy and become a more efficient electricity user. An energy monitor which helps you understand how much electricity each appliance uses can be helpful too.

Do I have to make my house more energy efficient to qualify for the scheme?

From 1 April 2012 the government is introducing an energy efficiency criteria for all solar PV FIT installations. The building to which the solar panels are attached or wired must be at Energy Performance Certificate level D or above. The EPC certificate must be submitted as part of the feed-in tariff application. This means that the solar PV installation can count towards the level D certification.

The government is consulting on whether or not wind, hydro and micro-CHP should also have an energy efficiency requirement.

What happens if I move house or office?

With the average family moving house every 7 years or so, and the life of the feed-in tariff at 20 years (10 for CHP, 25 for solarPV), this will happen to a lot of people. The government expects standard property ownership rights to apply to the generating equipment. This means that when a house or lease is sold, the generating equipment and the FIT payment are sold too, and the FITs system administrator must be told of the sale. They expect that the market will decide how much a microgeneration installation will increase the price of a property.

Can I take my solar panels or wind turbine with me, and still claim the feed-in tariff?

No. The scheme is only available on installation of new systems, by an an MCS accredited installer. If you took your equipment with you, reinstalling it would count as a second hand installation, and not be eligible for the FIT.

Will there be loans available to help with the upfront costs of installing microgeneration equipment?

No. The government says: "We hope the market will provide the necessary loans or other finance packages to drive the uptake of small-scale technologies". However, it is possible for owners of generating systems to assign their rights to feed-in tariff payments to others. This is expected to pave the way for a range of ways of financing microgeneration in social housing and new build, and may form the basis of a new type of loans for homeowners.

Am I eligible for the feed-in tariff if I install my own system?

No. To claim FiTs you must use an MCS accredited installer and install MCS accredited products.

Can I claim the feed-in tariff if I install a refurbished or second-hand system?

No. The reasoning behind this is that the scheme is intended to encourage new entrants into the market, and has been designed on the basis of cost assumptions for new equipment. However, the government aims to keep this under review, and will "consider whether or not there are merits to allowing renovated or refurbished technologies to receive FiTs support in the future, bearing in mind the different cost and the fact that equipment may have received other financial support through its life".

Will I have to pay tax on the income I get from the feed-in tariff?

Income for domestic properties generating electricity mainly for their own use will not be taxable income for the purposes of income tax. However, businesses will be taxed on the income.

Are the payments inflation proof?

Both the generation and the export tariffs will rise annually in line with the retail price index (although the government is consulting on whether to change that to the consumer price index).
 

How long will I receive the tariff payments for?

25 years if you have solar PV panels; 20 years for hydro, wind and anaerobic digestion; and 10 years for micro-CHP. If you installed your system before 15 July 2009 you will receive payments until 2027.

I've heard that the rates "degress" over time. What does this mean?

The theory is that as the market for microgeneration grows the prices of the equipment and installation are expected to go down. This has already happened dramatically in the first two years of the FIT.

The tariff for new projects will reduce annually (degress) to reflect (and to some extent encourage) expected decreases in technology costs. The terms of this degression are currently under consultation.

The government is proposing an annual degression of 5% for all technologies except solar PV, for which it proposes six monthly degression of 10%. The proposals also allow for emergency reviews if deployment of a technology exceeds expectation. In cases like this three months notice of a change would be given (two months for solar PV).

What is the MCS?

The Microgeneration Certification Scheme is an independent, industry-led, certification scheme for both installers and products. It is accredited by the United Kingdom Accreditation Service (UKAS) and is adminstered by Gemserv. To be eligible for the feed-in tariff you must use an MCS certified installer. Check on the MCS website to make sure their membership is up to date before going ahead.

Is there any consumer protection body?

All MCS accredited installers must join the REAL Assurance Scheme and sign up to its Consumer Code. This protects you against mis-selling and dodgy sales techniques. Check that the company you are dealing with is a member here.

 

Can I opt out of the export tariff and sell my electricity on the market?

If you feel up to dealing with the risks of the electricity market you can choose to out of the export tariff. If it doesn't work for you, you can opt back in - but can only make the change once a year.

Why is the case different for micro-CHP?

This is a new technology, which has the potential in the long run to take over from condensing gas boilers. It is being included in the feed-in tariff scheme as a pilot to provide initial support for the new industry. It is limited to the first 30,000 units (with an electrical capacity of 2kW or less), and will be reviewed after the first 12,000 installations. Recipients of the FIT for micro-CHP will receive it for 10 years.

Will off-grid generators qualify for feed-in tariffs?

Yes, you will receive the generation tariff. To do so, you will have to declare that the electricity generated has been used, and must comply with the scheme requirements in relation to metering. You can approach any of the mandatory FIT suppliers (ie the big electricity companies) and they will be obliged to provide your feed-in tariff payments. Voluntary FIT suppliers (ie the smaller energy companies) may also agree to provide FiT payments to off-grid generators.

Eligibility for off-grid remote communities will be considered at future reviews of the scheme.

Which suppliers can I export my electricity to?

All suppliers with a minimum of 50,000 customers will be obliged to accept microgeneration customers. They are described as mandatory suppliers. Smaller specialist suppliers can choose to be FIT suppliers. The full list is available on the Ofgem website.

This article was originally published on 8 February 2010

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If you have a question about anything in the above blog, please ask it in the comments section below.

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