Understanding Feed-in Tariffs – how to make money from solar panels

You can earn up to £1,060 a year under the government Feed-in Tariff scheme by installing solar PV panels – here’s how you can take part.

What is the Feed-in Tariff (FIT) scheme?

You can make up to £1,060 a year for 25 years
by installing solar PV panels

Also known as ‘clean energy cash back,’ the FIT scheme was launched by the government in April 2010 and to date it has resulted in over 40,000 renewable technology installations, says Ofgem. The scheme rewards those who install renewable electricity generating technology such as solar photovoltaic (PV) panels with cash payments for the energy they produce. The FIT scheme forms part of the government’s environmental pan to reduce the UK’s overall carbon emissions.

Which technologies are eligible?

Most homeowners taking part in the FIT scheme will install solar PV panels, but other eligible technologies include: wind turbines, hydroelectricity, anaerobic digestion and to a limited extent, micro-CHP.

How does the scheme work?

To take part in the FIT scheme, you should hire a member of the Microgeneration Certification Scheme (MCS) to install your PV panels. They will register you on the Central FIT database, which is administered by Ofgem, and provide you with a certificate to prove FIT compliance. Once your panels (or other technology) are installed you can notify your energy supplier who will then organise payment. The scheme works across two tariffs:

1. A generation tariff – this provides a fixed payment for every kilowatt hour (kWh) of electricity your panels generate for 25 years (or 20 years if you join the scheme after 1st August 2012). The rate is set each year for new entrants but will remain fixed once you’re on the scheme.
2. Export tariff – in addition to the generation tariff you can also earn money for each kWh of electricity you don’t use and instead export to the national grid. If you require extra electricity this can still be drawn from the grid.

Proposed changes to the FIT scheme rates

The FIT rate for those who joined the scheme before 3rd March 2012 remains at 43.3p per Kilowatt hour (kWh). In March 2012 the government cut tariff rates to 21p per kWh and announced that from April 1^st 2012, new applicants will also need to submit an Energy Performance Certificate (EPC) to prove their home is rated D or above in terms of energy efficiency to be eligible for FIT payments. From August 1st 2012, these further changes to the FIT rates will apply:

• Generation tariff rates will decrease to 16p per kWh for solar installations up to 4kW in size, installed in properties which have an EPC rating D or above
  
• Generation tariff rates will decrease to 7.1p per kWh for solar installations up to 4kW in size, installed in properties which have an EPC rating E or below
• The length of time tariffs will be paid for will reduce from 25 to 20 years
• The export tariff rate will increase from 3.2p per kWh to 4.5p per kWh

Tariff levels will be reviewed every three months after August 2012 and reassessed depending on how many solar installations have been completed in the last quarter.

Why are the government changing FIT rates?

There are three main reasons the government have proposed changes to the FIT scheme:

1) Since the FIT scheme was introduced in April 2010, it has resulted in nearly three times as many PV installations as expected. For example, in September alone, over 16,000 systems were installed; almost double the amount for June. While this is great for the environment and those working in the renewables industry, this also means that the cost of the FIT scheme has increased beyond expectation.

2) FITs are mostly funded by rises in electricity bills and at the current tariff rate; consumers will be paying £980 million a year to fund the scheme by 2020. Decreasing the tariff rate will reduce the burden on consumers, costing them between £250 and £280 million by 2014-15.

3) The price of solar PV panels has fallen substantially from an average of around £13,000 in April 2010 to £9,000 today. This means the return on investment for those who install PV is much higher than expected; around 10% rather than the initially projected 5-8%.

How much can you make under the FIT scheme?

• Those who installed solar PV before December 2011: will make up to £1,060 per year, for 25 years, through FIT earnings and savings on their electricity bills (estimates the EST)
  
• Those who installed solar PV after March 2012: will make up to £670 a year, for 25 years, through FIT earnings and electricity bill savings (estimates the EST)
  
• Those who install solar PV after 1st August 2012: could make around £555 a year, for 20 years, through FIT earnings (estimates Kevin Power from Kraft Renewable Energy)

What else do I need to know?

You will need to have a well insulated home to make the most of your PV panels. An electric meter will need to be installed to measure the amount of electricity that the system is generating and how much is being exported back to the grid. Meter readings will need to be supplied regularly, usually every quarter, to your energy supplier.

From April 1st 2012 you will need to produce an Energy Performance Certificate with a rating of D or above to be eligible for the FIT scheme.

How much do solar PV panels cost?

The EST says that a typical 3kWp solar PV system will cost around £10,000 (including VAT) to buy and install.