Feed In Tariffs

Information on payments for renewable electricity in the UK. Infrequently updated

FAQs

What happens if I extend my system

In principle the extension is treated as a new system and registered separately.

BUT the tariff will be based on the combined capacity of the original system plus the extension.

The existing FITs registration on the original system will be unaffected.

There used to be concessions for extensions within 12 months of the original installation, but these have effectively been rescinded.

See more here.

Why are the tariffs being reduced if deployment is below the threshold?

Even though contingent degression is related to the level of deployment as described here, the government has decided that there can only be two successive quarters with zero degression.

Therefore if the last two degression levels were zero, the next quarter will see degression at the default level even if deployment is below the default corridor.

The government said:

Degression can only be skipped for two successive degressions, so there will be a minimum of 3.5% degression every 9 months to incentivise ongoing reductions in installation costs.

How would emergency 6-monthly degression operate?

This is all too complex (so let's hope it doesn't happen).

The best we can do is refer you to Box 1 on page 20 of the government's decision paper from the Phase 2B Review.

When would emergency 6-monthly degression apply?

If deployment in the first half of the year exceeds 2/3 of the top level of the default corridor. The Phase 2B Review decision said:

We expect that the system of annual degression will provide the basis of tariffs in the longer term. However, in order to provide additional assurance that the scheme will be able to remain within budgets in instances of extremely high deployment, we will introduce, an additional mechanism which allows a mid-year degression (the first of which could occur in October 2014) based on uptake in the first six months of the year.

Six-month deployment thresholds will be two-thirds of those for annual deployment.

Accordingly, we foresee that the six-monthly degression mechanism will only be needed in exceptional circumstances. Under ordinary deployment conditions, where a contingent degression is not required, degression will occur as normal in April only.

How are RO-linked tariffs degressed?

In principle these bands aren't subject to degression as such, but will stay linked to the equivalent RO price. The Phase 2B Review decision said:

Tariffs in the bands set at levels equivalent to the RO will not be subject to annual degression changes unless deployment in the relevant band in the previous year is greater than 150% of the expected level. However, deployment in these bands contributes to the deployment thresholds and may therefore affect degression rates in other bands. If degression is applied to these tariffs, later years’ tariffs will be determined according to the normal degression rules (i.e. were the RO equivalence in a band broken by the need for a 10% degression, normal degression rules would apply from that point on).

How are tariffs linked to pricing under the RO?

You want the simple answer? Tough!

All we can do is refer you to the wording in the Phase 2B Review decision

we will adjust generation tariffs for these bands to levels we consider to be equivalent to the support currently available under the RO. These are calculated using a value of £44.78 per ROC, which is 1.1 times the 2012/13 buyout price. Generation tariffs from 1 April 2013 until 31 March 2017 will be set at a level equivalent to the levels of support provided under the RO to a 5MW plant as a result of the RO Banding Review. Tariffs for 2017/8 and beyond are set at the level of 2016/17. However we expect that tariffs will be reviewed before this time, particularly given the wider context of Electricity Market Reform, so this should be taken as an indicative position in the interim.

Which tariff bands will be linked to pricing under the RO?

Those tariffs for sizes up to 5MW for most RO-eligible technologies.

This approach applies to the hydro band 2-5MW and the wind band 1.5-5MW.

However, the same does not seem to apply for PV, where the government said on their decision document following the Phase 2A review:

Although the majority of respondents to the consultation indicated a preference for the approach to degression to change once tariffs reach the financial equivalent of two Renewable Obligation Certificates [the support for solar PV under the RO], our updated analysis of PV installation costs suggests that a rate of return of nearly 8% can be achieved for large scale PV installations for a tariff considerably lower than 2 ROCs.
We have therefore decided that the degression mechanism should continue to operate when tariffs reach the equivalent of 2 ROCs, to minimise the risk of investor overcompensation and to limit the total cost of FITs support.

Are the tariff levels published following the Review now set in stone?

Not necessarily! From April 2013 some tariffs (for larger systems up to 5MW) may be adjusted further depending on the equivalent RO banding. The Phase 2B Review decision said:

Generation tariffs for the largest capacity band for each technology will continue to be consistent with support under the Renewables Obligation, and will be adjusted in line with current support levels and the outcome of the RO Banding Review.

When are the next FITs tariff cuts due?

Tariffs are now adjusted yearly (or quarterly for PV) in accordance with the degression schedule.

Earlier response to this question:

The cuts proposed in Phase 2A of the comprehensive review, were originally intended to take effect from 1st July 2012.

It now looks possible that they will be delayed until 1st August - see here.

Government policy is now disseminated on Twitter it seems!

Why did the Appeal Court rule that the government’s proposed FITs changes were illegal?

The Court said the proposed change was effectively retrospective because (as summarised by the supreme court ruling):

The Court of Appeal upheld the Administrative Court's judgment that it is not within the power conferred on the Secretary of State by the Energy Act 2008 to reduce the tariff paid for electricity generated by small-scale solar photovoltaic generators, in respect of installations becoming eligible for payment prior to the coming into force of the modification.

This gives comfort that the government cannot change tariff levels applicable to systems installed before the new tariff levels have been approved by parliament.

What if I own more than one installation - will I be paid less?

Not unless you are in receipt of tariffs for more than 25 solar PV installations.  If that is the case, you will receive a lower tariff.  These lower tariffs are in the third column of the table linked here, and described in the footnotes to this table.

I heard the tariffs are going down on 12 December.  Am I affected?

The cut in tariffs only applies to installations registered on or after 12 December 2011.  It does not apply to installations that are already receiving tariffs.  If you are already receiving tariffs, you will continue to receive your current rate (going up with inflation).

If you register a system on or after 12 December 2011, you will receive the pre-December tariff until 31 March 2012, and then the reduced rate thereafter.

Note that the 12 December 2011 cut-off may be brought forward to 3 March 2012 (if the government loses its appeal against legal action being taken against it).  However, it is safer to assume that the lower tariffs will be applicable from 12 December 2011.

When do the reduced PV tariffs apply?

The tariffs apply immediately to all installations registered after 31st March 2012.

However any installations after 3rd March 2012 will receive the existing tariffs only until 31st March 2012, whereafter they get the new reduced rate.

The government consultation (adjusted to reflect the new reference date after the legal challenges) would read:

44. The new tariffs will come into force from 1 April 2012 but will apply from that date to all new PV installations with an eligibility date of on or after 3rd March 2012 (the ‘reference date’). Existing generators with an eligibility date before the reference date will not be affected by the proposed change in tariffs.

45. The effect of this is that, depending on the result of the consultation, installations with an eligibility date that falls between the reference date and 31 March 2012 will receive the current tariff for that period only, and will then move to the new tariff from 1 April 2012. Those installations with an eligibility date on or after 1 April 2012 will start immediately on the new tariff.

What is meant by ‘aggregated projects’ to which the ‘multi-installation’ tariffs would apply?

It's basically where the same tariff beneficiary has more than one tariff-registered installation.

Paragraph 51 of the government consultation said it:

would apply to any solar PV installation where the FIT generator or nominated recipient already owns or receives FITs payments from one or more other PV installations, located on different sites. Specifically, we propose that the multi-installation rate would apply:-

(i) if the FIT generator (whether or not the person in receipt of FIT payments) is either the FIT generator or the nominated recipient for FIT payments for any other solar PV installation; and

(ii) if the nominated recipient for FIT payments (where there is one) is either the FIT generator or the nominated recipient for FIT payments for any other installation.

Are renewable energy installations eligible for Enhanced Capital Allowances (ECAs)?

At present some are, but the Treasury intends to remove this privilege from all equipment eligible under the Renewable Heat Incentive and the Feed-In Tariffs. There is a consultation on this issue which closes on 31st August 2011.

The government justifies this move, saying:

the tariff levels for FITs and RHI are carefully set to provide a sufficient investment incentive, and any extra incentives to invest in these technologies is not appropriate

Are Feed-In Tariffs eligible for EIS and VCT tax breaks?

Yes at present, but for many this is to be stopped from 2012, further to an announcement in paragraph 2.38 of the 2011 Budget.

This says:

The Government will consult on options to provide further support for seed investment, simplification of the EIS rules by removing some restrictions on qualifying shares and types of investor and refocusing both EIS and VCTs to ensure they are targeted at genuine risk capital investments. Feed in tariffs businesses will be added to the excluded activities list.

However some concessions were made in the Treasury consultation in July 2011. This sets out the proposals for the exclusion in sections 4.16 to 4.21, including:

4.19:  Based on the discussions with stakeholders, the legislation ensures that community interest companies, co-operative societies, community benefit societies and Northern Ireland industrial and provident societies will continue to qualify, as will trades generating electricity by hydro power or anaerobic digestion.

Why is the government limiting spending on the FITs - it’s not their money?

True - the FITs are paid for by electricity users.

However it has been decreed that any spending caused by government legislation may be treated as public expenditure.

The official government explanation was:

The Office of National Statistics (ONS) is the ultimate arbiter of whether a UK Government policy should be classified as tax and spend in the National Accounts. Such judgments are made independently of Government. ONS are guided internationally in their decisions, but in broad terms define mechanisms as taxes where they result in compulsory payments by an individual or organisation who does not receive a direct benefit in return. This is referred to as a “compulsory unrequited payment”. This may result in a policy being classified as a tax even where money does not flow through a Government account (because the outcome is similar to Government taking in then redistributing the money).

A well-established example is the Renewables Obligation, which requires energy suppliers to purchase Renewables Obligation Certificates (ROCs) from renewables generators, or to make payments to the buy-out fund.  Because energy suppliers do not receive a benefit in return, the payment they make is defined as a tax. The redistribution of these revenues (ie the revenue received by renewables generators for their ROCs) is defined as public expenditure.

The ONS decision to treat the Renewables Obligation as a tax is published at http://www.statistics.gov.uk/articles/economic_trends/ET635Gazely.pdf

Why would the Spending Review look at tariffs?

The tariffs come from energy users not the Treasury, so are not 'public spending' as such.

However, it has been decreed (by the Audit Commission, we believe) that government must be mindful of the impact of any regulatory measure that has a financial impact on the public. Clearly the Tariffs legislation has added to the cost of energy bills, so this is something the Treasury can consider.

What is tariff degression and how would it apply to my system?

The level of the tariff applicable to systems installed in the future will decrease with time, according to annual degression rates. The degression rate is used only to determine the tariff applicable to the system based on its registration date - once you've been allocated a tariff that rate would apply for the full 20 years.

[For example: If you install a 4kW PV system in June 2010 you would receive 41.3p/kWhr for 25 years until June 2035. If you installed it in June 2012 you would receive 21.0p/kWhr until June 2037. From August 2012 you would get 16.0p/kWh until August 2032]

Do I have to accept the 3p/unit of power exported or can I trade the electricity on the market?

You don't have to accept the fixed price; you can opt to negotiate your export price on the market. However, you will have to decide at the start of each year if you want to do this, and will then have to stick to it - you can only swap between fixed and market pricing once a year.

Do I have to pay tax on my Tariff income?

It was announced in the Pre-Budget Report 2009 that the income from the Feed-In Tariffs will be free of income tax for householders who install systems primarily for their own use. See the details here. Similarly, it was announced in the March Budget that the Renewable Heat Incentive will also be Income Tax exempt.

Is the Tariff subject to inflation?

The Feed-In Tariffs are index-linked to the Retail Price Index (RPI). It is currently proposed that the Renewable Heat Incentive will not be index-linked. See more information on the page for durations and variations for the RHI.

Which is better financially for larger systems, FITs or ROCs?

The government has tried to set the tariffs for larger systems at about the same level as the RO.

The decision on which to go for will depend on your view of the administration associated with each option, and the certainty of the price you will get under each (ROC and electricity prices are both variable and can be volatile at times).

Who pays for the Feed-in Tariffs?

The system is administered by the official regulator Ofgem, and uses money from a levy on all electricity sales, collected and distributed by the licensed electricity suppliers. Find full information on our page about funding.

Therefore if you install a renewable energy system you get a treble benefit:

  • Your income from the Feed-in Tariff
  • An extra income for every kWh you export
  • Because you are producing some of your own power, you will buy less electricity and therefore pay less for it

How long would I get this tariff for?

The Feed-In Tariffs will be paid for a period of 20 years from the date the system is first registered, except for solar photovoltaic systems installed before 1st August 2012, where the period is 25 years. If the system doesn't last that long, of course it will stop producing kilowatt hours and no tariff will be paid.

Read detailed information on our page about durations and variations.

How much is paid for each kilowatt hour?

This varies by type and size of system - see the tariffs table to find out more.

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