A Feed-in Tariff (FIT) provides a long-term financial incentive for people to invest in renewable energy. Under a FIT system electricity companies are obligated by governments to buy renewable electricity at above market rates.

See what the government have proposed.

OK, but how does it work in practice?
Lets look at an example.
Mr Blogs is interested in installing solar power. At the moment he pays 14p/kWh for his electricity and is worried about this going up without warning. At the moment, the most he could get for ‘exporting’ electricity (eg. when he is out at work and his solar is still producing energy) would be 20p/kWh from Scottish and Southern Energy, but this could change at any time.

With the FIT in place Mr Blogs knows he would be able to get a fixed rate (say 40p/kWh for this example) for a fixed time (say 20 years), so he can easily calculate how much his investment in solar will make:

If he installed a 3kWp system he knows he will generate a certain amount of electricity every year (despite what people think, solar is a very reliable energy source, regardless of the weather. The Government currently claim 1kWp of solar will produce 850kWhs/year although in practice it could be over 1000kWhs/year).
So 3 x 850 = 2550kWhs/year
So that’s 2550 x 40p = £1020/year income
For 20 years: £1020 x 20 = £20,400 income
Which is far more than it will cost him to install the solar. And at the same time he knows he is not exposed to big increases in his energy bills and he’s helping reduce his, and the UK’s, CO2 emissions.

OK, sounds good, is there more to it?
Feed in Tariffs usually reduce year on year over the 15-20 year lifetime of the scheme, typically by 5%. This is to reflect the impact of rapidly increasing installation rates on end prices charged to consumers, with the goal of enabling industries to ’stand alone’ at the end of the tariff period. PV prices in Germany have halved since 2000 and we would envisage similar falls in the UK over a six year period.

OK, but who pays ‘the extra money’ renewable generators receive?
In Germany the difference in the tariffs paid is funded from a levy charged on all electricity consumers. Here in the UK, a FIT could be funded through other means but if we were to adopt a levy approach this would add literally a few pence per month to household bills.

Which other countries have FITs already?
Long-term feed-in tariffs are the primary support mechanism for renewable energy generation throughout continental Europe.
European countries with long-term feed-in tariffs include Germany, France, Poland, the Czech Republic, Spain, Italy, Netherlands, Greece, Portugal, Switzerland, Bulgaria, Hungary, Latvia, Lithuania, Belgium, Slovenia and the Slovak Republic.

Has it worked in those countries?
Germany is often used to compare UK renewables performance. Under its 2004 feed in tariff legislation (the Renewable Energy Sources Act), Germany set itself a 2010 target of 12.5% renewable electricity generation. But Germany has already surpassed this target. In 2007, Germany generated 14.2% of its electricity from renewable sources, much of this rapid growth driven by feed-in tariff legislation.
For example, Germany now has ten times more wind power than the UK. The UK’s current wind power is 2.4 GW. But Germany passed this level in 1998 and has been installing 2 GW of wind power per year every year since 2000.
Germany has 200 times the solar capacity of the UK. In 2006 alone, Germany installed 950 MWp, or the equivalent of 380,000 domestic solar installations in a single year. In total, Germany has installed over 4 GWp of solar capacity, or the equivalent of 1.6 million domestic solar installations. By contrast, the UK’s total installed solar capacity is less than 20 MWp or the equivalent of 8,000 domestic solar installations.
Feed-in Tariffs are driving forward the growth of renewable energy industries across Europe, if the UK is not careful it will be left behind completely!

Why do we really need a FIT?
Apart from the obvious reasons of not really wanting nuclear reactors in our back gardens and needing to rapidly reduce the UKs CO2 emissions, without a FIT the economic potential of the UK’s renewable energy industry will not be realised.
Germany for example already employs over 250,000 people in its renewable energy sector, with this projected to rise to 400,000 by 2020. By contrast, UK renewable energy employment currently stands at approximately 15,000.
A study by the Energy Saving Trust for the Government department DTI (now DBERR) suggested that 30-40% of the UK’s total electricity could be provided by small scale renewable and microgeneration sources by 2050. But this study assumed that the UK would not adopt a Feed in Tariff and therefore deliberately ruled out the impact of a proven mechanism for delivering the very rapid uptake of renewable energy technologies. Given the Government’s commitment to delivering the UKs fair share of the EU’s 20% renewable energy target by 2020, we need new incentives and new long-term policies to encourage individuals, communities and businesses to act quickly.

What might a UK FIT look like?
The key to the success of any UK Feed-in Tariff will be its simplicity and transparency. It could contain elements of the following:

• A tariff could be paid for each kilowatt-hour generated by a renewable energy generator, the owner being paid for the gross amount generated, not just the net amount exported to the local network (since even the electricity generated and consumed is still helping reduce UK CO2 emissions).
• The household, business or community group that installs the renewable energy system would continue to pay the normal price for the electricity they consume; the two amounts – the tariffs received for generating and the tariffs paid for electricity consumed – will be shown on an electricity ‘statement’ that replaces the conventional electricity bill, and will be netted off against one another: To avoid replicating the burdensome bureaucracy associated with the current grant applications, it is of the utmost importance that access to the new feed-in tariffs should be simple, transparent and universal.
• Any individual or organisation using an accredited professional to install a certified renewable energy system could automatically be eligible to receive feed-in tariffs for electricity generated, without having to do anything more than sign a standardised contract with their electricity supplier.

See what the government have proposed.

Organisations supporting the introduction of a Feed-in Tariff now include:
The TUC, Energy Saving Trust, UK Green Building Council, SERA, Town and Country Planning Association, RSPB, Greenpeace, Friends of the Earth, WWF, Green Alliance, Country Land and Business Association, Home Builders Federation, Federation of Master Builders, Chartered Institute of Housing, Energywatch, Renewable Energy Association, Solar Trade Association, Ground Source Heat Pump Association and The Co-operative, as well as all the organisations and individuals signed up on this site!