Financial Considerations and Returns

What is the FIT?

The Feed In Tariff is a subsidy funded by a "levy” on all electricity consumers (you and me) which was introduced by the UK Government on the 1st April 2010 and designed to encourage the small scale generation of electricity from renewable or low carbon sources such as solar panels (PV), wind turbines, hydro power or anaerobic digestion. Having installed an eligible system with a total capacity of up to 50kWp the scheme provides you with three different financial returns:-

  1. A guaranteed minimum payment for all of the electricity you generate, whether you use it yourself or not for a period between 20 and 25 years.
  2. A additional guaranteed payment for 50% of the electricity you generate which it is assumed you will not use and therefore export to the national grid. (Systems below 30kWp and called deeming) OR A monthly payment from a Renewable Energy Company who will directly purchase the electricity you export. (Systems over 30kWp - Power Purchase Agreement)
  3. A saving of the equivalent purchase cost on the electricity that you generate and are able to use yourself in your home or business.

Notes:

  • The Feed In Tariff payable for Solar PV is guaranteed from the date of system registration. Depending on the date of installation the Feed In Tariff may be paid for the following 25 or 20 years.
  • The value of the Feed In Tariff is adjusted annually in line with inflation.
  • Systems with an installed capacity over 50 kWp are registered with OFGEM under a different process. (ROOFIT)
  • Electricity supply costs are forecast to continue to rise substantially over the coming years.
  • With the cost of installing Solar PV coming down and the cost of electricity going up, Solar Grid Parity (the point where the cost of generating electricity from Solar PV without a Feed In Tariff subsidy is the same as the cost of buying electricity which has been generated from gas, coal or other sources) is likely to be reached before 2020, and well before the end of the Feed In Tariff lifetime if you install now.

Installation Costs, Then and Now

With hindsight, the Feed In Tariff payments schedule introduced in April 2010 was set much too high. A 4 kWp system on a domestic house attracted a payment of £0.41 per unit of electricity generated guaranteed for 25 years and linked to the Retail Price Index. It is clear that this encouraged consumers to look only at the return from the Feed In Tariff and solar panel manufacturers and installers to charge much higher prices than they needed to and make very good profits without question.

By April 2012 the Feed In Tariffs had been substantially reduced and as you might expect the cost of solar panels and other equipment has been almost halved. With a weaker Euro making our imports cheaper (not good for our beef and lamb exports or Single Farm Payments) the costs have come down even more. The result is that the ROI (return on investment) on a solar PV installation today is almost exactly the same as it was in 2010- 2011.

Maximising Financial Returns

Whilst the cost of installing PV continues to fall, the cost of purchased electricity continues to increase. Farmers and others who have high electricity usage will especially benefit from installing solar PV where they can use most of the electricity they generate thus not only benefiting form the Feed In Tariff but also making substantial cost savings on their electricity bills. Poultry sheds, Dairy units, Grain and Potato stores all offer excellent financial returns from solar PV.

Static Caravan Parks where the site owner owns the electricity supply and then recharges each tenant with their metered electricity consumption can offer extremely good financial returns from a solar PV installation. In addition to the Feed In Tariff and any export payments the site owner is able to sell the solar PV generated electricity on to the tenants at a very good margin over cost.

Power Purchase Agreement

For Solar PV installations over 30kWp a Power Purchase Agreement with a "Green Energy” company is likely to provide the best return. Under this arrangement, in addition to your Generation meter, a half hourly Export meter is fitted to the installation to record exactly how much electricity you do not use and export to the National Grid. You are then paid for this amount at a value which is usually over 40% of the current price of wholesale electricity. This is in addition to the relevant Feed In Tariff, and the savings you make on electricity you generate and use yourself.

Selecting the right company and setting up a Power Purchase Agreement together with a Meter Operator and OFGEM registration is quite a complex process requiring some specialist knowledge. Westflight are experienced in this area and will undertake this as your Agent if required, and additionally service the contract on an annual basis if required.

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