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FIT – Feed in Tariff

This Feed in Tariff legislation, or FIT Grant, guarantees a transferable, index-linked, above market rate for energy generation and for electricity fed into the national grid and obliges power companies to pay for the energy you generate. The Feed in Tariff rates have been calculated with an 8% return on capital expectation (12% for higher rate tax payers) which means any investment you make in certain renewable energy systems could provide a decent return as well as providing your home with a supply of low-cost renewable energy.

The UK Feed in Tariff FIT scheme covers a number of electricity generating technologies and applies a specific price per kW per hour to the renewable energy generated.  The figures quoted below are currently subject to a Government Review with the intention of lowering them significantly.

• Solar electricity (Photo Voltaic) – up to 21p per kWh 
• Wind turbines – up to 34.5p per kWh
• Hydroelectricity –19.9p per kWh Micro
• Combined Heat and Power (mCHP, pilot scheme only) – 10p per kWh

In addition to these payments, there are revenue opportunities from excess electricity fed back to grid (calculated through meter readings or smart meters) and savings on existing energy costs as the renewable energy is used on-site.

A typical solar photovoltaic, or PV, installation (2 kWh), with 50% of electricity fed back to the national grid, could generate £350 from the FIT, £25 from electricity fed back and £110 of energy cost savings on the electricity bill.

There are also tax advantages associated with the FIT and  Renewable Heat Incentive (RHI) schemes. Domestic revenue from the schemes and from energy sold back to the National Grid are exempt from income tax. Commercial investments benefit from enhanced capital allowances and reduced VAT rates, and new homes can obtain stamp duty relief.

RHI – Renewable Heat Incentive Scheme

The UK Renewable Heat Incentive scheme (RHI) (to be launched Summer 2013) is an EU first for the UK, as there are no equivalent systems in other European countries. RHI payments will be calculated on an agreed price per kWh, and the number of kWh will be derived from the capacity of any installedRenewable Energy system and the property requirements, rather than measured on a flat rate like the FIT for electricity. You’ll get different rates depending on which system you pick. Here is a provisional list:

• Solar for Hot Water - 18p per kWh
• Solid biomass- 9p per kWh
• Ground Source Heat Pumps- 7p per kWh
• Air Source Heat Pumps- 7.5p per kWh

A typical air source heat pump (1.5 kWh) would generate more than £600 from the RHI, and over £100 of energy cost savings on the energy bill.

There are also tax advantages associated with the Feed in Tariff (FIT) and Renewable Heat Incentive (RHI) schemes. Domestic revenue from the FIT and RHI schemes and from energy sold back to the National Grid are exempt from income tax. Commercial investments benefit from enhanced capital allowances and reduced VAT rates, and new homes can obtain stamp duty relief.

The Green Deal

This is a new Government initiative due to be introduced in October 2012. Final details are yet to be published but in summary this plan is based on:

• An assessment of a home’s current insulation
• A calculation of the potential energy savings to be gained from installing increased levels of insulation
• “Free” installation of roof, cavity wall and external or internal (to outside facing walls) solid wall insulation
• Homeowners paying back the cost of the insulation and fitting through the savings made on their energy bills