Feed-in Tariffs (FITs)

Update

Ofgem has recently released updated guidance for FITs generators – which will help explain how the changes to the scheme introduced in April 2012 will be put in place. This guidance is available on the Ofgem website

The Feed-in Tariffs (FITs) scheme was introduced on 1 April 2010, under powers in the Energy Act 2008.

Through the use of FITs, DECC hopes to encourage deployment of additional small-scale (less than 5MW) low-carbon electricity generation, particularly by organisations, businesses, communities and individuals that have not traditionally engaged in the electricity market.

This will allow many people to invest in small-scale low-carbon electricity, in return for a guaranteed payment from an electricity supplier of their choice for the electricity they generate and use as well as a guaranteed payment for unused surplus electricity they export back to the grid.

FITs work alongside the Renewables Obligation (RO) – which is currently the primary mechanism to support deployment of large-scale renewable electricity generation – and the Renewable Heat Incentive (RHI) which, when implemented, will support generation of heat from renewable sources at all scales.

Solar PV costs update

In advance of the publication of the next stage of the FITs comprehensive review, the following report has been completed to update the information used as the basis of the FITs Phase I consultation document in Oct 2011.

This update report was completed by the same consultants as the original report – Parsons Brinckerhoff – and their company profile is also included below.

The original research carried out for DECC by Parsons Brinckerhoff / CEPA in summer 2011 and published alongside the consultation on 31 October 2011 suggested that PV installation costs had fallen by at least 30% since the launch of the scheme, and that current tariffs were leading to typical rates of return for investors well in excess of the 5% the tariffs were intended to deliver.

Evidence received by DECC during the consultation period, and this updated research by Parsons Brinckerhoff for DECC in January 2012 suggests that PV installation costs have in fact fallen by an even greater extent, with a typical domestic installation costing 45% less to install in 2011 compared with originally estimated in 2009. 

WHO PAYS FOR FITS?

The Feed-in Tariffs (Specified Maximum Capacity and Functions) Order 2010, as amended (“The FITs Order”) provides for the annual determination by the Secretary of State of a number of matters necessary for the functioning of the FITs scheme. These are included in article 14 and article 28 of the FITs Order and comprise:

• various parameters in determining how the value of exports to the grid from FITs generators are shared among licensees; and
• the administrative costs of licensees which constitute qualifying FIT costs (QFCs).

As part of the comprehensive review, currently out for consultation, we are seeking to establish whether the level of export tariffs continues to reflect the real value of FITs exports. We are therefore proposing to extend the existing arrangements at least until the outcome of this consultation is decided. Any necessary changes decided on as a result of the consultation would be implemented by an amendment to the FITs Order if necessary.

Qualifying FITs costs have been determined on the basis of information provided by FITs licensees in January 2012. For large licensees the determination also takes into account the effect on costs of the greater than expected uptake of FITs during FITs Year 2.

As in earlier FITs years, there are different values for larger and smaller licensees because the former have considerable economies of scale. However, the threshold for determining whether a licensee is considered “large” is to be changed. Under the terms of the Secretary of State’s determination, “large FIT licensee” means a FIT licensee that either supplies electricity to at least 125,000 domestic customers; or together with its Affiliates (as defined in Schedule A to Standard Licence Condition 33) jointly supplies electricity to at least 125,000 domestic customers, as at 31 December 2011.

The determinations required for administration of Feed-in tariffs (FITs) in accordance with articles 14 and 28 of the FITs Order for FITs year 3 (1 April 2012 - 31 March 2013) were made and signed on 1 March 2012. They can be found below:

• FITs Determinations

Which technologies are eligible for FITs?

Small-scale low-carbon electricity technologies eligible for FITs are:

• wind
• solar photovoltaics (PV)
• hydro
• anaerobic digestion
• domestic scale microCHP (with a capacity of 2kW or less) – a domestic scale microCHP pilot will support up to 30,000 installations, with a review to start when the 12,000th installation is completed

What are the benefits of FiTs?

There are three financial benefits from FITs:

• Generation tariff – the electricity supplier of your choice will pay you for each unit (kilowatt) of electricity you generate.
• Export tariff – if you generate electricity that you don’t use yourself, you can export it back to the grid. You will be paid for exporting electricity as an additional payment (on top of the generation tariff)
• Energy bill savings – you won’t have to import as much electricity from your supplier because a proportion of what you use you will have generated yourself
   

How do I apply for FiTs?

Wind and solar PV installations with a declared net capacity of 50kW or less, and microCHP projects supported through the pilot, will have to use the Microgeneration Certification Scheme (MCS) to be confirmed (subject to other eligibility checks) of their eligibility for FITs.

Any other technology and scale of project must be accredited through a process based on the existing Renewable Obligation process, known as the ROO-FIT process. Further information on the ROO-FIT process is available from Ofgem.
 

Where do I find out more?

For further information:

The DECC website also offers information on: 

• implementation of the scheme
• the comprehensive review announced in February 2011

If you have a view on the policy proposals for small-scale solar PV under Phase 1 of the comprehensive review, please provide your thoughts through the consultation launched on 31 October 2011.