Ofgem’s Sustainable Development Focus has released figures showing that in the first 6 months of feed-in tariffs in the UK, over 11,000 generator have registered for the tariff, marking a considerable surge in solar photovoltaic installations in particular. Indeed, with 11,352 renewable systems installed, it indicates that the scheme has been more successful than predicted, with enough output to power around 35,000 homes.

Feed-in tariffs work by offering fixed, premium rates for both the energy generated from renewable systems (which is then fed-back into the grid), and the energy used. When first introduced by the Department of Energy and Climate Change (DECC), it was with the intention of incentivising investment in green energy by off-setting the costs of installing renewable energy systems by creating long term, guaranteed yields from the projects. Emulating schemes applied successfully abroad, it seems that in the first 6 months of operation, the tariffs have certainly been effective as a means of boosting renewable installations across the UK.

In order to get the UK grid network fully up to speed with the complex requirements of a low-carbon economy, the Sustainable Development Focus Report also published its proposals for updating the country’s network. Working on a framework of Revenue= Incentives+ Innovation+ Outputs (RIIO), Ofgem is planning on generating £32 billion of investment much needed to upgrade a UK national grid not yet ready for green energy and the mechanisms set up around it.

Alistair Buchanan of Ofgem wrote in a foreword to the report,

“This is the biggest change to the regulatory framework for 20 years and sets the network companies on a path to playing their full role in the transition to a low-carbon economy while delivering value for money for all consumers.”

Scottish and Southern Energy (SSE) has joined the growing list of companies offering solar photovoltaic (PV) schemes to its customers. The SSE solar PV scheme will harness the feed-in tariff to enable its customers to benefit from free electricity generated by the solar panels installed on their roofs. The plan which will see SSE install panels for free on roofs found to be suitable for solar energy follows in the footsteps of a number of other businesses currently running free energy schemes.

The feed-in tariff enables small scale solar pv generators to benefit from guaranteed, premium rates set out by the legislation. In the case of the SSE scheme, households will benefit from free electricity by having solar panels installed on their roofs. Speaking as National Development Manager for SSE, Alan Evans said,

“The introduction of feed-in tariffs (FiT) has changed the economics of micro-renewable generation in a very positive way. However, for many customers the initial outlay required to benefit from these tariffs is still too great. SSE has set up this deal to ensure that there is no outlay by the customer and that they will benefit from free electricity as soon as the system is connected.”

Of course, the greater benefit is for SSE micro-renewables who are able to benefit both from the solar panels and feed-in tariff over the project’s 25 year lifespan. Indeed, the 25 year tariff will enable SSE to benefit from 41.3p per kilowatt hour for electricity generated by the panels and 3p per kilowatt for energy fed back into the grid. With this scheme in place it is expected that a typical household adopting the solar scheme could save around £130 a year on their electricity bill.

Emphasising the benefit to his customers, Evans went on to add,

“Customers also have the reassurance that their contract is with one of the UK’s largest energy companies, with a track record of installing solar PV that extends over more than five years and is backed up by an excellent reputation for customer service.”

Heating contractor EAGA are piloting a solar scheme across council homes in Welwyn Hatfield Council in a project designed to add hundreds of solar photovoltaic panels to households. In a scheme similar to carbon reduction programs happening all across the UK, the Hertfordshire scheme will utilise the feed-in tariff in order to save money and of course, reduce carbon emissions.

The feed-in tariff works by offering fixed, premium rates for units of energy generated by small scale renewable energy projects exactly like the one piloted in Hertfordshire. The EAGA scheme will seek to save each household money on fuel bills because of the obvious savings on electricity. As well as the financial rewards to the scheme, the solar photovoltaic installations will save around 1200kg of CO2 a year per household.

Across the 25 year life time of the scheme this equates to 30 tonnes, a sizeable amount which if replicated elsewhere would certainly contribute significantly to UK carbon reductions. Suitability for the solar scheme will obviously depend on such factors as aspect and roof size, however a large number of council schemes across the UK will inevitably cotton onto the EAGA project and seek to make carbon reductions and indeed generate revenue through the feed-in tariff.

Councillor Roger Trigg said with regards to the Welwyn project,

“We are proud to start the New Year with such a positive and innovative scheme, which will mean real savings in our tenants’ energy bills and their overall carbon footprint. We recognise how important it is for our tenants to manage the cost of keeping their homes warm and comfortable. Our homes have already been recognized as some of the most thermally efficient in the UK, and this strengthens our commitment to energy efficiency even further.”

While there is currently a focus on government spending cutbacks, such council schemes indicate how renewable energy, twinned with the feed-in tariff can be a real, viable means of both reducing carbon emissions, saving money and ultimately, helping to boost industry and create much needed jobs.

The comprehensive spending review of October 20^th could have spelt a disaster for the UK solar industry if they had instantaneously cut the feed-in tariff.  Thankfully no such cut was made and the industry can continue on as before, at least for now.  All feed-in tariffs are designed be decreased on a regular basis.  This is so that the return on investment from a given renewable energy technology stays the same over time.  The great thing about feed-in tariffs is that they decrease and decrease until they reach the same value as retail electricity prices, at which point you’re at grid parity and you don’t need the feed-in tariff anymore.  Its hard to predict exactly when this will happen but in the case of UK solar PV, costs decrease very rapidly and I think that in 5 years time grid parity will be very close.

Currently the UK feed-in tariff is not set to be reviewed until April 2012, with changes possibly not coming in until 2013.  In most feed-in tariff markets, the tariff decreases annually, so not changing our feed-in tariff for two whole years is too long in my opinion.  The feed-in tariff at today’s PV prices provides a fantastic return on investment. 9-12% annual return for 25 years beats nearly everything you could get in an ISA or other savings product.  In two years time, with another two years of cost reduction, the investment return could be significantly higher than it is now.  Frankly, as someone who works in the solar industry, I say that this would be a bad thing.  What the industry needs to see is steady year on year growth, not a boom and bust.  The tariff is fine where it is for now, but soon it needs to be decreased to ensure the returns don’t get too high.  The returns are high enough to trigger major growth in the industry, if they are too high then we will see more and more people pile into the market in a way that is unsustainable.  The tariff would then have to be cut very significantly to control the market, which would lead to a massive drop-off.

It is very important that the industry has visibility on what will happen to feed-in tariffs so businesses can plan ahead.  To solve this Germany have announced what will happen to the feed-in tariff based on the results of the previous year. That means that if the market reaches a certain size, the egression the following year will be larger and vice-versa. The details of this are published so that everyone can see what the degression rates could be – we need this level of visibility in the UK.

Another big problem with feed-in tariffs is that they cause a surge of installations in the run-up to a feed-in tariff degression – which is not particularly healthy.  What would be best is to decrease the feed-in tariff little and often, so there are no sudden jolts to the industry.  Italy has just introduced quarterly feed-in tariff degression i.e. decreasing the feed-in tariff every 3 months instead of once a year.  I think this is a great idea.  As long as the degression each quarter is small and planned ahead, the industry will be able to continue to grow steadily without the need for big every year or every two years.  France on the other hand are considering an annual cap to the PV market.  This is absolutely terrible for the industry as it limits everybody’s growth and will cause redundancies across the industry in France if it goes ahead.

So now we are back on our feet in the UK, lets think about how to create a stable solar industry going forward by decreasing the FiT in a sensible way.  It could be that we follow the Italians lead on this one.