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Home » Feed In Tariff

Feed In Tariff

Introduction to FITs

The Feed-in Tariff (FIT) is a payment made to people who produce renewable electricity on a small-scale (up to 5MW). The rates paid vary according to a number of criteria. The Feed-in Tariff was introduced on 1st April 2010 and replaced previous Government grants as the main financial incentive to encourage the uptake of certain types of electricity-generating technologies.

How FITs work

The feed-in tariff is made up of three elements:

A fixed payment from your electricity supplier for every kilowatt hour (kWh) your system generates. This is called the generation tariff.
A guaranteed price for any surplus electricity that you do not use on site, and export to the grid. This is called the export tariff and will also be paid by your electricity supplier. For small installations this will be deemed to be half of what you generate.
In addition, as you use electricity generated on site you will need less from the national grid – so your energy bill will be lower.

The rate is indexed to the retail price index for the life of the tariff. It is tax-free for domestic installations which generate electricity mainly for their own use.

Feed-in tariff rates

Rates are dependent on the

- Relevant technology.

- Eligibility (commissioning) date.

- Energy Performance Certificate (internal link) (EPC) rating (for solar energy).

For up-to-date Feed-in Tariff rates, please refer to the Ofgem tariff tables.

Feed-in tariff for Solar PV

To claim the top rate of feed-in tariff all buildings to which solar PV panels are mounted or wired must have an Energy Performance Certificate (EPC) of at least band D. As the average house in England and Wales doesn't quite make it into band D, this means that many people will have to improve the energy efficiency of their house or office to qualify for the tariff.

If your building is already at EPC level D, then you will just have to submit the certificate with your application for the feed-in tariff.

However, if it is lower than D you will need to bring it up to level D to claim the feed-in tariff. You must provide an EPC certificate of D or above, with your MCS certificate, to register the system in the FiTs scheme.

Depending on what score your building gets now, the installation of solar panels may be enough on their own to bring it up to D. The only way to find out is to put the data into the EPC software. It is based on complex algorithms, and is unwise to guesstimate what effect any measure will have on the score.

This rate difference will have a significant impact on rate of return, so it is important to be really clear about what measures you need to achieve D before you sign any contracts for the installation of solar PV.

EPCs are issued by domestic energy assessors (DEAs). Solar installers can qualify as a DEA, or they can partner with one, to make sure your property will meet the requirements. However, there have been some rogue practitioners at the cheaper end of the EPC market doing drive-by assessments, so make sure that your DEA does a thorough inspection, as it's you who stands to lose most if your property does not reach the required standard.

Regular tariff rate changes

The feed-in tariff is intended to support the shift to low carbon energy by helping the industry get started, and to encourage prices to fall. The aim is ultimately for all these new technologies to be viable without any government incentive. To encourage this the tariffs for new projects will reduce annually (“degress”) to reflect (and to some extent encourage) expected decreases in technology costs.

The tariff for solar PV will degress every three months, commencing on 1 November 2012. The new rate will be announced 2 months before it is due to start, and will be determined by the amount of solar installations in the preceding 3-month period. Average tariff reductions will be of 3.5%. They can be skipped (for up to two quarters) if uptake is low, and increase by up to 28% if deployment is higher.

Degression rates will be applied in three separate bands:
1. Domestic: covering 0 - 10kW
2. Small commercial: 10 - 50kW
3. Large commercial: 50 - 5MW
The rate of degression in each band will depend on the amount of solar installations in that band.

In the 0-10kW band:
There will be no degression if less than 100MW is installed in the relevant 3-month period; tariffs will reduce by 3.5% if total deployment is between 100 and 200MW; the degression rates will double for each additional 50MW of deployment, up to a maximum of 28% degression if deployment in one 3-month period is over 300MW

Degression for other technologies will take place annually from April 2014. The baseline degression will be 5% per year in real terms. This will be adjusted according to deployment in the previous year. Minimum degression will be 2.5% in the case of very low deployment (except for bands that are linked to RO (renewables obligation) tariffs, and the wind bands between 100kW and 1.5MW, for which the minumum will be 5%). Maximum degression will be 20% for very high deployment. In exceptional circumstances of extra high deployment there is a safety net mechanism for six-monthly 'contingent degression'.

Micro-CHP is not included in these arrangements as it has a separate system of reviews at deployment of 12,000 and 30,000 units.

Feed-in tariff eligibility date

Feed-in tariff (FIT) payments start on the eligibility date of the installation. To be eligible your system must have been commissioned (your installer will do this and will give you an MCS certificate) and your feed-in tariff supplier must have received your application.

The eligibility date may be later than the date that your system starts generating. For example, if it takes time to get your EPC certificate, you will have to delay your application (otherwise you will get a much lower rate of feed-in tariff). Regardless of when your feed-in tariff payments start, you will receive a fixed period of support from your eligibility date based on the technology type. This is 20 years for all technologies, except micro-CHP, for which it is 10 years.

We suggest that you send the application to your FIT supplier as soon as possible after installation. If you want to be extra safe, particularly if you applying close to the date of a rate change, apply by email and send a copy by registered post, just in case your energy supplier loses it.

Extension of existing system

If you add solar panels to an existing system, the rules are a bit different. The eligibility date is the date the extended system was commissioned, not the date that you send your revised claim in. For solar PV installations this is significant, as you must ensure that your EPC is dated before the commissioning date if you want to receive the best FIT rate.

Preliminary accreditation

Preliminary accreditation will be available for solar PV and wind installations greater than 50kW declared net capacity, and all anaerobic digestion and hydro installations. The following conditions must be met before making an application:

- planning approval is in place
- evidence of acceptance of a firm grid connection offer (if needed)
- for hydro - an environmental permit from the Environment agency in England and Wales, including an abstraction licence, impoundment licence, flood defence consent and fish pass approval as necessary; and in Scotland , a Controlled Activities Regular authorisation from SEPA for abstractions, impounding works and any other engineering works associated with the scheme.

Once accredited, installations will receive the tariff in place at the time they applied. This tariff guarantee will apply for a fixed period of:
- six months for solar PV
- one year for wind and anaerobic digestion
- two years for hydro.
Tariff lifetimes will still apply from the scheme's commissioning date.

Changes to the capacity, site or technology stated in a successful application will render it void. The only exception is a reduction in capacity which will still be permitted if it is still in the same tariff band.

Community energy projects will also be able to apply for preliminary accreditation for solar PV projects of less than 50kW on non-domestic buildings. The tariff guarantee will be available for one year once developers have provided a current EPC and a letter of intent.

Community groups and schools

For community groups and schools, the rules on FITs are slightly different.

Organisations with solar PV projects up to 50kW in size are eligible to apply for feed-in tariffs.

In addition, those considering solar energy installations can apply to fix their rate through preliminary accreditation (see section above) for one year, as opposed to six months. This means that if you decide to register your project, you have a year to get it off the ground, and still be eligible for the feed-in tariff rates that were current at the time of accreditation. This provision recognises that groups need longer to plan and get their funding together than individuals do.

Community groups are also exempt from the energy efficiency requirements for solar PV on non-domestic buildings. They still need to get an energy performance certificate (EPC) for their building but the rating the building achieves will not affect the level of payments. In other words, whatever the EPC rating of the building, community groups will still be eligible for the higher rate generation tariff.

DECC’s definition of a community energy project for the purposes of feed-in tariffs is: a community interest company (CIC); a co-operative society; or a community benefit society with no more than 50 employees. Charities are not excluded, as DECC believes that "they should in most cases be able to set up specific purpose vehicles for the purposes of delivering community energy projects that could be classified under the new definition".

Groups that have received public money in the form of grants to pay for their installations are generally not eligible for feed-in tariffs. This is because the scheme is intended to replace the public grant scheme as the principal means of incentivising small scale, low-carbon electricity generation. It is also to comply with EU law on state aid. There are certain rare exemptions to this rule, more details of which can be found on the Ofgem website. Scroll down to page 15 of the document for further information,

In this case, it is always worth doing your sums to work out whether it would be more beneficial to accept a grant and forgo feed-in tariffs, or to raise funds via another means so that your project may qualify for FITs.

You can find out more information about community projects and feed-in tariffs in this Ofgem document, or by calling the Ofgem FIT community team on 020 7901 7310 or emailing FITCommunity@ofgem.gov.uk.

Feed-in tariff FAQs

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.

Battery storage has rapidly developed in the past couple of years, becoming an increasingly popular choice for those wishing to store electricity generated during the day for use later during the day. For more information, see our blog on battery storage.

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 microCHP), 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?

20 years for solar PV, micro-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.

Rates for the solar PV will degress quarterly, and for all other technologies degression is annual. For more detail click here.

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.