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Feed in Tariff – The Effect on Green Energy Production

The feed in tariff, the scheme under which people who have certain renewable energy systems installed on their homes or businesses are rewarded by being paid for the energy which the systems produce, has recently had its first anniversary. The aim of the scheme was to help Britain meet its carbon emissions reduction target which currently stands at 25% by 2020. So how successful has it been and where will it go in future?

The feed in tariff is targeted primarily at home owners and promises returns of £1,000 a year, possibly more, from an initial investment of anywhere between £7,000 – £15,000 pounds as well as giving ordinary people the chance to do their bit for the environment.

The Feed in Tariff Story So Far

The major success story for the feed in tariff has been the increase in the amount of energy generated from solar power. Before the scheme started on the 1st of April 2010 the total amount of installed solar power in the UK was 26 megawatts. One year on, that figure has almost trebled to 77.8 megawatts. There are now 28,505 solar photovoltaic systems registered with the feed in tariff scheme.

Perhaps more strikingly, there have been 11,314 new installations registered in the first 3 months of 2011. Other technologies have been less successful. There have been over 1,000 micro wind installations and just over 200 micro hydro sites. Unlike solar power, these technologies are very site specific and are therefore inaccessible to the majority of the population.

So What Effect Has The FIT Had On Carbon Emissions?

Although the increase in photovoltaic electricity generation brought about by the feed in tariff is welcome, the 77.8 megawatts it produces represents only a tiny percentage, 0.104% to be precise, of the UK’s total electricity generation of 75 gigawatts.

The problem is of course that as attractive a prospect as the feed in tariff is – when comparing the level of return with the level of risk and initial capital investment it would be hard to find a better investment – most people do not have the capital to invest and those that do are reluctant to part with it. If it were possible to have even 10% of homes install solar power the outcome could be incredibly significant. The figures for the first quarter of 2011 are very encouraging however, it is clear that the word is getting out. People are naturally sceptical about solar power and other renewable energy systems. However, those within the industry put the increase down to word of mouth and those brave enough to take the plunge are giving glowing reports to their friends, neighbours and colleagues which has the effect of increasing public confidence.

The next twelve months have the potential to be very revealing indeed, not just because the scheme will be better publicised but as a result of two government reviews, one which was always planned to take place prior to April 2012 and another surprise review introduced by the coalition which is targeted at commercial scale installations of 50 kilowatts or larger.

The Feed In Tariff Emergency Review

From the outset, it was always planned that the feed in tariff would be reviewed every two years, with the first review planned for April 2012. The idea was that as the technologies, and so the cost of the initial investment, got cheaper so the tariff levels could be reduced whilst retaining the same percentage return on investment.

In January 2011 however the government announced there would be an emergency review, later this year, to look at tariff levels paid to large installations of 50 kilowatts or more (the average home would have a 2 – 3 kilowatt system). These large scale systems are commercial projects and potentially could be a large drain on the funds available to the scheme.

The review has been widely criticised as it has had the obvious effect of damaging the confidence of would be investors in these projects and stalling many planned schemes. The government argues that allowing large scale schemes to proliferate risks putting the whole feed in tariff scheme in jeopardy. At least one expert disagrees however, saying that reducing the tariff levels for small scale installations would be both effective and plausible.

Ray Noble, a solar PV specialist at the Renewable Energy Association, makes the point that the cost of installing solar panels has fallen sufficiently, thanks to increased competition and the introduction of major players into what is traditionally a cottage industry to allow the government to reduce the small scale solar tariff from its current level of 43.3p by as much as 30% whilst still making solar panels financially beneficial to home owners.

Where Should the Government Go With the FIT in Future?

In my opinion, the government will make a mistake if it significantly reduces FIT payments for large scale installations. It is these major players who will drive the development of cheaper and better technologies and will help to create a “solar economy”. This will have an obvious knock on benefit for home owners looking to add small scale installations.

More should be made of the potential for “rent a roof” schemes, where a company pays for the installation of solar panels on a home owner’s roof in return for the tariff payments while the home owner benefits from cheaper bills and the world benefits from reduced emissions. This may mean tax incentives for companies to enter the sector or perhaps local councils installing panels on their housing stock. The early signs are encouraging but too many wrong moves could see a golden chance wasted.

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