Feed-in tariffs in the United Kingdom

The Feed-In Tariff applies to small-scale generation of electricity using eligible renewable technologies. To encourage development of these technologies, feed-in tariffs pay the generator a certain amount even for energy which the generator themselves consumes.[4] Electricity fed into the grid receives an additional export tariff, currently (May 2020) 5.24p per kWh.[5] Costs for the programme are borne by all British electricity consumers proportionally: all consumers will bear a slight increase in their annual bill, thus allowing electricity utilities to pay the FIT for renewable electricity generated at the rates set by the government. Payments through the mechanism are intended to replace the ROCs available through the Renewables Obligation for small-scale renewable energy generators and is based on a few key elements:

• The tariff is available only to renewable sources producing up to 5 MW power. Specific rates are set for different technologies and at different scales of installation for those technologies. Generators of renewable electricity larger than 5MW remain eligible to earn Renewables Obligation Certificates within the existing Renewables Obligation quota mechanism. To prevent companies from moving large scale (for example big wind) projects from the ROCs to the Feed-in Tariff programme, a number of anti-gaming provisions have been inserted in the policy design; this should avoid the breaking up of bigger projects into several small ones, to fit within the 5 MW energy size cap.
• There are several other qualification requirements[6] including: certification under the Microgeneration Certification Scheme and the REAL Code for systems up to 50 kW; the use of specific metering standards; and systems being installed no earlier than July 2009. Energy efficiency requirements were added in March 2012 for buildings fitting PV systems under FITs.
• The contract term is 20 years, 25 years for solar photovoltaic projects: this means that, starting from 2010, British providers of Wind Energy, Hydropower, Energy from Biomass and Anaerobic Digestion eligible for the FiT scheme will be rewarded with a tariff rate guaranteed for the next 20 years - 25 years for Solar PV generators.
• The tariff made available to generators will be subject to degression.[7] That is, the tariff level available for new generators will decrease annually. The rate of degression will vary by renewable energy technology. The price for individual renewable energy generating plants is fixed once the plant becomes operational.
• Costs for the programme will be paid by the energy suppliers. It should be expected that the suppliers will pass on the cost to their electricity customers:[8] consumers will bear an increase in their annual bill, thus allowing electricity utilities to pay the "Feed-in" Tariff to renewable energy generators at the rates set by the government.

The government estimated that feed-in tariffs to support small-scale low-carbon generation would cost £8.6 billion up to 2030 and produce monetised carbon savings worth £0.42 billion.[9]

Feed-in-Tariff payments are tax-free in the UK.[10]

A study from the University of London assessed the first year of the UK FIT scheme through interviews with both users of the scheme and government figures. The key findings were that users have had a wide variety of experiences, depending on the technology they are working with, and that the government had very limited ambitions on small-scale renewable energy generation.

Domestic solar performed well in the first year, with 28,028 of the 28,614 total solar installations (totalling nearly 78MW). Wind power was the next highest installation level with 1,348 (20.4MW). Small hydro had 206 (12.1MW), although many were not new installations, but had been transferred from the Renewable Obligation scheme. Micro-CHP had 98 installations (0.09MW), and Anaerobic Digestion (AD) had just 2 (0.66MW). AD came under scrutiny in 2011 to determine why development was so poor.

The study suggested that technologies have a variety of factors affecting their performance in terms of installation levels. The factors include cost, size, availability, standardisation of the technology, planning issues, ease of installation, perceived sensory impact (sight, sound and smell) and administrative complexity. Domestic PV scores very positively on all these factors, while small hydro and AD do far less well.

The proposed changes to the tariff levels for PV have been met with anger by many in the solar industry, but the FIT policy, along with the Green Investment Bank and now carbon reduction targets, are widely understood to be threatened by the Treasury department. This is due to the schemes being considered as liabilities on the national balance sheet.[11]

Less than a year into the scheme, in March 2011 the new coalition Government announced that support for large-scale photovoltaic installations (greater than 50 kW) would be cut.[12] From 1 August 2011 the rate for installations over 50 kW was to range from 19p/kWh to 8.5p/kWh for the largest qualifying installations (5MW), with the Government claiming that this would prevent the scheme from becoming 'overwhelmed'.[13]

Revised tariffs for farm-scale anaerobic digestion initially of either 14p/kWh or 13p/kWh,[14] depending on the installation size, were introduced from September 2011.[13]

On 31 October 2011 a second review of the Feed in Tariffs for low carbon electricity generation was announced which is likely to take effect from 12 December 2011. The rates for small photovoltaic installations have been reduced from 43.3p/kWh to 21 pence/kWh. The reason for the second review is that FITs for PV were being taken up too quickly and that the DECC funding allocation for FITs was in danger of being exceeded. A further reason is that the cost of installing PV panels has reduced by around 50% and therefore the FITs had become less of an encouragement to install PV panels and more of an incitement to profit from excessive subsidies. See revised tariff tables for FITs.[14]

In its second year, the government announced further cuts to the FIT scheme. On 3 March the tariff was cut to 21p/kWh. This cut was originally scheduled for 12 December 2011 but was delayed, following a successful joint appeal to the High Court by Friends of the Earth and two solar companies, Solar Century and HomeSun.[15] The 1 August review of the FIT brought an additional cut to 16p/kWh. The cut was partnered with a rise in export rate (the price at which the homeowner can sell excess electricity back to the supplier) from 3.1p to 4.5p for every kWh of electricity exported to the grid.[16] The latest cut came into effect on 1 November, the tariff dropping to 15.44p/kWh, and this rate is set to remain until 1 February 2013. In addition to this, generators with more than 25 Solar PV installations were granted a 10% increase in the amount they receive of the FIT, from 80% to 90%, this however will not be likely to affect domestic users.[17] The cut in FITs was due to the falling installation costs, and the fact that people were applying for the feed-in tariff scheme in numbers exceeding DECC forecasts and funding allocations. The aforementioned rates would only affect new installations - existing schemes would not be affected . The new tariffs would also now be paid over 20 years instead of 25 years (It will remain linked to the Retail Price Index) with a review every three months based on solar PV uptake levels in the three different bands: domestic (size 0-10 kW), small commercial (10-50 kW) and large commercial (above 50 kW and standalone installations).[18] Despite suggestions that the European solar market is in decline, a report[19] by the International Energy Agency has shown that for a second year in a row solar PV was the dominant form of new electricity installation during 2012, ahead of both wind and gas power.

The Department of Business Energy and Industrial Strategy (BEIS) published a consultation on 19 July 2018. In this, they state their intention to close the FIT scheme to new applicants from 1 April 2019[20] and will not be replaced by a new subsidy.[21]

On 10 June 2019, Ofgem announced[22] BEIS have introduced the Smart Export Guarantee (SEG). The SEG will be in force from 1 January 2020. This is not a direct replacement of the feed-in tariff scheme, but rather a new initiative that will reward solar generators for electricity exported to the grid. Energy suppliers with more than 150,000 domestic customers will be obligated to provide at least one export tariff.[23] The export tariff rate must be greater than zero. Export will be measured by smart meters which the energy supplier will install free of charge.

In addition to the feed-in tariff, a similar incentive - the Renewable Heat Incentive for renewable heat was introduced in November 2011.

The scheme has created a number of start-up companies providing free electricity [24] in return for installing solar panels on the homeowner's roof. If the homeowner can not afford the capital outlay, the free solar companies offer a capital-free way of getting the benefits of solar and free electricity. However, if the homeowner can afford the capital outlay it is more cost effective to purchase the solar equipment.

After the December 2015 Feed-in Tariff reductions were announced, many free solar panel installers have started to cease trading, or have plans to stop installing, as the returns are no longer financially viable. The change in the feed-in tariff will equate to a 64% decrease in the generation tariff for solar arrays less than 4 kW, which is the largest decrease since the scheme was started in 2010.[25] Unusually, the feed-in tariff changes will mean that larger systems (over 10 kW) will receive higher feed in tariff rate than smaller domestic sized systems, which could result in a strong switch of the remaining free solar panel companies to exclusively providing commercial installations.

There has been criticism of the tariffs as being inconsistent. Those people who installed equipment before the FIT started, were given a fixed tariff of 9p per unit (9.9p from April 2012[14] ). Both the Conservatives and the Liberal Democrats pledged to reverse this in their UK General Election 2010 manifestos, but did not implement this. The pioneers are now on a lower rate than that before FITs started, despite generating the same electricity.

There has also been criticism of the high rates for FITs compared to those for the Renewable Heat Incentive: the renewable heat technologies are more economic than renewable electricity generation so the government could save carbon much less expensively by increasing the RHI on ground source heat pumps (originally at 4.5 pence/kWh, but raised to 8.7 pence/kWh in 2014) compared to the tariffs for photovoltaic (originally up to 41.3 pence/kWh, but reduced to 14 by 2014) or the tariffs for wind turbines (originally up to 34.5 pence/kWh, but reduced to 18 by 2014).

• Microgeneration
• Energy policy of the United Kingdom
• Energy use and conservation in the United Kingdom
• Climate Change and Sustainable Energy Act 2006
• Renewable energy in the European Union
• Feed-in tariffs in Germany
• Feed-in tariffs in Australia
• Renewable Heat Incentive