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Financial Incentives

Introduction to the range of financial incentives for renewable energy and energy efficiency

The government aims to provides a range of financial incentives to encourage the take up of renewable energy and energy efficiency. Of the three main schemes only one is up and running for domestic installations so far.

This is the feed-in tariff, which came into force on 1 April 2010. It focuses on the microgeneration of electricity. For domestic users this means solar PV panels, micro-CHP, wind, or if you're lucky enough to have the right stream nearby, micro-hydro. Also covered is anaerobic digestion.

Heat, rather than electricity, is the largest source of domestic carbon emissions. However, an incentive for renewable heat has proved more difficult to develop. The non-domestic renewable heat incentive was introduced in 2011. However,  government has delayed its introduction for domestic heat until October 2012. An interim capital grant scheme started in July 2011. 

In most cases, it makes sense to improve the energy efficiency of a house before investing in renewable energy. The Green Deal scheme aims to make this more affordable through a pay as you save scheme. This means the cost of energy efficiency measures will be paid back over time through savings in energy bills. This will introduced in October 2012.

What is a feed-in tariff?

The feed-in tariff is paid to encourage the installation of wind turbines, solar photovoltaic panels and micro hydro schemes of up to 5MW capacity. Its aim is to encourage the production of low carbon electricity.

The structure of the feed-in tariff is:

  •  A fixed payment from your electricity supplier for every kilowatt hour (kWh) your system generates. This is called the generation tariff. See below for rates.
  • 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. This is currently 3.2p. 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.

The rates of generation tariff will be regularly reviewed in future. The current rates are listed below. They will go up with cost of living from 1 April 2012, and will then remain the same until 30 September 2012 for all technologies except Solar PV.

Hydro: 20.9p for installations of 15kW or less; 18.7p for >15-100kW; 11.5p for >100kW-2MW; 4.7p for 2-5MW, paid for 20 years.

Solar photovoltaic panels: For anyone who installs with an eligibility date between 3 March and 30 June 2012 the Feed-in tariff generation tariff is: 4kW or less: 21p / kWh (retrofit & new build); >4-10kW: 16.8p; >10-50kW: 15.2p; >50-150kW: 12.9p; >150-250kW: 12.9p; >250kW-5MW: 8.9p; Stand alone: 8.9. Paid for 25 years.
To claim the FIT for solar PV the building to which the system is attached or wired must have an EPC of level D or above for all installations from 1 April 2012.
NB: Rates are likely to fall on 1 July 2012, and again on 1 October 2012, and every six months thereafter.

Wind: 36.2p for installations with a capacity up to 1.5kW; 28p for >1.5-15kW; 25.3p for >15-100kW; 19.7p for >100-500kW; 9.9p for >500kW-1.5MW; 4.7p for >1.5-5MW, paid for 20 years.

MicroCHP pilot: 10.5p per kW for micro combined heat and power installations of up to 2kW in size. This will support up to 30,000 installations and will be reviewed when the 12,000th system has been installed. It is paid for 10 years.

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).

For frequently asked questions on the feed-in tariff, and to ask your own questions, see the blog Feed-in tariff: your questions answered.

More information

Political changes

DECC appeal to Supreme Court extends uncertainty (24/2/12)

Feed-in tariff consultation offers hope for community energy projects (10/2/12)

New proposals for solar PV feed-in tariff and what they mean for microgenerators (9/2/12)

Buyer beware as rogue solar installers claim 43.3p FIT (3/2/11) 

10 things you need to know before installing solar PV (23/1/12)

Solar PV: where consumers stand in the chaos (19/1/12)

Solar PV still in limbo as DECC appeals High Court decision (5/1/12)

Solar PV judgement leaves consumers in limbo (23/12/12)

What the proposed cuts in solar PV feed-in tariff mean for you (1/11/11)

Practical information

Feed-in tariffs: how to claim them

Feed-in tariffs: how to complain

Solar PV does count towards FIT energy efficiency criteria

What happens to the feed-in tariff when you sell your house

Beware: receiving grants from public funds may make you ineligible for feed-in tariff 

How the Feed-in Tariff rules work for an additional installation

Dealing with your energy company and the FIT

Energy companies confuse customers over export meters for feed-in tariff

How to choose your feed-in tariff supplier

Which energy company is most helpful about the feed-in tariff?

Feed-in tariff accreditation for micro-hydro to be reviewed

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Renewable heat incentive

Heat is the biggest use of energy in the UK. Just under half of the UK's CO2 emissions and 60% of domestic energy bills are used for heating space and water. Heat in the UK is currently supplied predominantly by fossil fuels - with less than 1% from renewable sources.

The renewable heat incentive (RHI) aims to change that. Its aim is that 12% of heat is generated renewably by 2020. A total budget of £860m is available for the renewable heat incentive, over the period 2011 - 2014.

Renewable Heat Premium Payments (RHPP)

Renewable Heat Premium Payments are an interim grant scheme for domestic installations of renewable heat, before the introduction of the full Renewable Heat Incentive, which is expected to start in summer 2013. A consultation on the scheme will be issued in September 2012.

Rates are:

Solar Thermal - £300/unit
Air Source Heat Pumps - £850/unit
Biomass boilers - £950/unit
Ground Source Heat Pumps - £1,250/unit

The vouchers for all technologies except for solar thermal are only available to installations off the mains gas network.

Phase 1 of the scheme closed on 31 March 2012 with a replacement scheme open to applications on 1 May. The Energy Saving Trust is handling applications.

To qualify for the payments you will need basic energy efficiency measures in place, and must use an MCS accredited product and installer. In addition, you will have to agree to give feedback on how the equipment performs, and may be chosen at random to have performance metered (meters will be fitted free of charge). The feedback and performance of installations will be used to inform the shape of the full Renewable Heat Incentive for domestic properties.

For heat pump installations, all householders will receive 80% of their voucher value when a valid claim is submitted, together with a signed checklist from the installer confirming the installation can be fitted with a meter. Householders will receive the final 20% following a visit from the metering team to check that the installation is really “meter ready” and install a set of equipment, or if their installer has been trained to install monitoring equipment and installs it on EST’s behalf.  If a householder has indicated that they are not meter ready, they will receive the final 20% of the grant at the end of the scheme. Installations of biomass boilers and solar thermal panels are not affected.

There is £7m available for the household voucher scheme described above. In addition there will be a social housing competition (£10m) and a communities competition (£8m). Details are yet to be announced.

RHI Phase 1: Non-domestic heat

Phase one of the RHI is open to all non-domestic installations of renewable heat. All systems must be metered. The incentive will be paid for 20 years to eligible technologies that have installed since 15 July 2009, with payments made for each kWh of renewable heat produced. The payments will be index linked.

The following technologies are eligible:

  • solid biomass
  • ground and water source heat pumps (air source heat pumps are expected to be included in due course)
  • geothermal
  • solar thermal (up to 200kWth)
Participants must also demonstrate that the heat is used for an eligible purpose and that grants have not been received for certain purposes. Click here for rates and frequently asked questions about the RHI.

Full details are available in Ofgem's RHI Guidance Documents.

RHI Phase 2: Domestic heat

The domestic renewable heat scheme is expected to start in summer 2013. Everyone who has installed an eligible heat system since 15 July 2009 will be entitled to claim. However, it still has not been decided which systems will be eligible, what conditions apply, at what rates the tariff will be be paid, or for how long they will be paid. The consultation on the domestic RHI is expected in September 2012.

More information

Renewable heat premium payments extended; RHI delayed

Renewable heat incentive: buyer beware

How the non-domestic RHI (Renewable Heat Incentive) works: your questions answered

Renewable Heat premium payment rates confirmed - but are they enough to kickstart renewable heat?

Interest in renewable heat is high - but price expectations are not realistic

Renewable Heat Incentive: deeming explained

Renewable heat incentive - thoughts on deeming, SAP, equity and accuracy

World's first Renewable Heat Incentive launched to reduce emissions - 10 March 2011

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Green Deal

The Green Deal is a mechanism to enable people to make improvements to the energy efficiency of their house without having to bear the up-front cost. The 'golden rule' is that as long as the expected financial savings in lower energy bills are equal to or greater than the costs of the energy efficiency measures, you're OK.

The Green Deal will be introduced in October 2012. The government will consult on its plans in Autumn 2011, with secondary legislation laid before Parliament in early 2012. The detail below is based on the document The Green Deal: A Summary of the Government's Proposals, published in late 2010.

How will the Green Deal work?
1. An accredited adviser will assess the energy efficiency of the building, using a system that is likely to be based on an improved energy performance certificate (EPC). They will draw up a list of measures that can be taken to improve it (and have been approved for the Green Deal - in performance terms and in meeting the 'golden rule').

2.  You can then take those measures to a variety of installers to get quotes.

3. Your choosen supplier installs the kit.

4. They arrange with the finance provider for the repayments to be taken through a charge on your energy bill.

What if my property doesn't meet the golden rule?

If, for example, you have solid walls, and the cost of insulating them is too high to be paid back out of savings in your energy bill, then there are alternatives. The Government is bringing in a new Energy Company Obligation (ECO) in 2012 which will combine with the Green Deal to help with the more expensive measures. It will also focus on the most vulnerable low-income households, where people can't currently afford to heat their house properly, and for whom energy efficiency measures will mean a warmer house rather than energy bill savings.

Is it only for homeowners?

No it's available in the rented sector too, both for domestic and commercial properties. Either tenants or landlords can start the process, but they must get the permission of any other parties with an interest in the property before going ahead.

Is it compulsory for landlords to improve the energy efficiency of their properties?

No. Initially the Government hopes the Green Deal will be enough incentive. But if it doesn't prove to be, then they have are proposing powers to regulate if necessary. Local authorities will be able to insist landlords of properties with F or G ratings in the EPC make energy efficiency measures that qualify for the Green Deal of ECO.

In the commercial sector they are proposing powers which require landlords to bring properties up to a defined standard (using the Green Deal or equivalent finance) before they can be re-let.

Who will provide the Green Deal?

There will be three customer-facing roles - in some cases they may all be provided by one company. In others they will all be separate.

The adviser, who assesses the energy efficiency of the property, and makes recommendations of measures that meet the golden rule.
The installer: who installs the measures.
The provider: who manages the finance.

The detail of this is yet to be pinned down, and there are likely to be a range of different models. Organisations expressing an interest in getting involved include: energy companies, high street retailers, small energy efficiency companies, builders merchants, housing associations, local authorities and others.

Where does the money come from?

A range of financial institutions and high street retailers,.

Will renewable energy measures be included?

Not initially. It may extend to some microgeneration measures in due course, as long as they meet the golden rule.

More information

How can we stop the Green Deal from being the preserve of a few big companies?

Small companies in danger of being excluded from Green Deal delivery

Renewable energy may be included in the Green Deal

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