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Feed-in tariffs – companies must stop profiting at our expense

Solar panels

It’s rare that a campaigner agrees wholeheartedly with government, but that’s how I feel about today’s announcement on feed-in tariffs. Why? Because companies can no longer profit from large-scale solar schemes.

Feed-in tariffs – or FIT – were first launched last year to support people to generate their own renewable electricity.

These people can earn money for every unit of electricity the feed back into the grid. But it’s not free money, all of us pay for the scheme through our energy bills, so we believe the scheme must give value for money.

Today’s announcement confirmed that the government will reduce the rates they pay for large-scale solar, but only for new installations. This will only affect large-scale operations, such as big solar farms, not household schemes or many community schemes.

We support fairer FITs

The new tariffs won’t be popular with the solar industry but we’re glad the government stuck to its guns. It means that more of the FIT payments – which come from people’s pockets – will be protected for households, communities and small businesses.

These are the people the scheme was designed for; not for big businesses to make profits from investment-scale schemes. The changes announced today mean that large-scale installations aren’t going to be so attractive to companies looking to earn a big payback from schemes subsidised by UK electricity users.

The trouble is that when the scheme was launched last year, the previous government didn’t predict that companies would cotton on to the fact that there’s money to be made here.

The Department of Energy and Climate Change’s (DECC) figures showed an alarming number of large schemes were in the planning pipelines – they estimate that just one very large scheme would swallow up the cash that could be spent in one year on renewable technology for 1,250 homes.

What’s the true cost of FIT?

We all pay for the FIT through our electricity bills – DECC estimated in 2010 that it would add about £8.50 a year to each household’s bill in 2015. While that doesn’t seem like a lot, some businesses are cashing in by installing big solar PV systems that can earn them tens of thousands of pounds a year.

So while we support today’s announcement, we want government to go further by working out how much we’re paying for FIT and other environmental schemes through our bills. DECC admitted to us that all that it has are estimates on whether the £8.50 prediction is true; nor can it tell how much the amount added to domestic consumer bills compares to business bills.

FIT should be as value for money and cost-effective as possible in delivering its objectives of reducing carbon emissions, and helping people cut their energy bills. We’re not against FIT, we just don’t want consumers writing a blank cheque for a scheme that not everyone can benefit from.

It’s estimated that 4.5 million people already have difficulty paying their energy bills, so the payment for FIT coupled with the other schemes we automatically pay for through our bills like CERT, could soon push the costs up, forcing more people into fuel poverty.

Do you think that the FIT system is fair? Is it worth paying £8.50 per year for the environmental benefits? Do you agree that DECC needs to be more transparent about how much you are paying in your bill for it?

Comments
GaiusScotius says:
10 June 2011

Feed in tariffs are, economically speaking, taxes, however as the government never sees the cash it can pretend that they are not. Were all forms of renewable energy generation subject to the same FIT levels, then although consumer prices would still remain higher than otherwise, the market would not be distorted. As it is, FIT levels are not and the result is that potential suppliers, quite naturally, game the system.

Beyond the scandal relating to PV FITs, a further result of this gaming is the proliferation of what, bar the FITs, are otherwise sub-economic renewable generation facilities. In the area in which I live, “small scale” (meaning 150ft tall) wind turbines are popping up all over the place, to the benefit of a few farmers and at the cost of industrialisation of a precious rural environment. The behaviour of the farmers and developers is quite rational, but the market distortion is again having unforeseen consequences.

I have noticed how many airlines now breakdown the various taxes and levies, both public – like air passenger duty – and private – like “security” charges, that are added to airfares. I would urge the major energy retailers to follow the same path and identify clearly how their bills are formulated, even to the extent of isolating transmission and primary fuel costs per KWh. Only when consumers actually see what “tax take” (in addition to VAT) they are paying will this country engage in a reasoned discussion of how best to renew its energy infrastructure to meet future demands.

Quote: “The trouble is that when the scheme was launched last year, the previous government didn’t predict that companies would cotton on to the fact that there’s money to be made here.”

Really?
I mean – Really????

nig says:
10 June 2011

There is hope for those who can’t fit PV , wind turbine or ground source but still want to produce their own electricity- you can get a gas boiler with ‘microgeneration’ that uses a stirling engine to produce around 1kw per hour while you are heating water or warming the central heating.
This attracts a lower level of FIT and still costs plenty more than an ordinary boiler, so only becomes cost neutral if you don’t move for 11 years or so [depending on how much hot water and central heating you use over this period].
I am unsure as to how real the planetary benefit in terms of lower carbon emissions really is- you are burning gas, but if it only uses otherwise waste energy from flue gasses, that is a good thing.
If the ‘waste’ heat could be used to improve the overall efficiency of the boiler by pre warming water, then the benefit is less clear.
If it is a ‘both/and’ scenario where the ‘waste heat’ both runs the stirling engine and warms incoming cold water, then it’s a win win and is well worth considering

Claimed lifetime of the boiler is fifteen years which takes it into profit, especially if energy costs keep rising- every self-generated unit that you use will be worth more in reduced expenditure on energy imported to your property (as long as the government of the day doesn’t renege on the promise to keep the FIT linked to rising costs)

Damn Young says:
19 July 2011

You don’t get KiloWatts per hour.
Watts are already a rate in time.
🙂

mike says:
11 June 2011

I had a 3.7kw panel system installed at beginning of April with a 40% grant and repayment of balance of cost of installation interest free over 25 years, with debt linked to my property by local council. The idea being that either I or the buyer of my property if i sell it will pay off or assume responsibility for the balance outstanding. No up front payment by me at all. Repayment of interest free loan per month will be about £30 or £360 per annum. Income from FIT estimated at about £1500 per annum. Actual energy generated from 1 April to end May was just over 1000kwh; which translates to over £430; with the additional benefit of 25% less energy consumed according to my electricity bill. So its a thumbs up from me!

Adrian Phillips says:
11 June 2011

Thanks for correcting the information above to include the correct estimate of the subsidy – see comment 2.

I am an enthusiast for solar PV, and have benefitted from installing panels. Costs of installation was £8,700; annual tax free income in year 1 was £521; reduction in electricity bill was c.£75, so total benefit = £596, or 6.8% return on capital cost. That’s about twice the income I would get from investing this money in savings at current rates – and that income would be taxed. The capital value is in the house, so it is not lost. The income from the FIT is guaranteed for 25 years and is index liked. If my roof looked south (and not ESE) the income would be greater, perhaps up to 8% return.

There is one other point that no-one has referred to. You will normally get a remote reader with your panels that shows how much you are generating (and earning) at any time. This is fun. People talk about it, ask you questions, become interested in doing the same themselves.

And finally let us remember why this is bring done – to enable millions of people to make their own contribution towards becoming a low carbon economy. It is a scheme that WHICH should support.

Not quite Adrian.
Your array cost £8700.
Your annual benefit is £596 with FIT and reduction in electricity bills.
It’s reasonable to assume the £596 will be the annual average over the 25 year life of the system.
I think the bit you’re missing out is that if you had invested that £8700 somewhere else then at any time you could pull out and get your capital back. Not the case if you’ve spent it on a PV array, you’re locked in. So part of your figures should have taken into account “payback”, which will take 14.5 years (£8700 divided by £596).
Ok so you then go on to make £596 (or so) every year for the remaining life of the installation, thats maybe another 10.5 years or a total of £6,258. So that’s what you actually make over the 25 years expected life of the PV array which I suggest equates to approx 2.85% per year, and you see none of it until you’re in year 15 because until then it’s payback.
Now of course from year one you could be reinvesting “the profit” and over the 25 year life time of this exercise the final return would be a bit more than 2.85% but that is very dependant on where interest rates go.
So I think the way to “test” the investment is to say, over the 25 year life of the PV array how much money has it made after my initial £8700 is recovered?
And for you Adrian I think an expectation of just under 3% is more realistic and you’re locked in for the first 15 years.

Don’t get me wrong, I’m not saying this is a bad investment it’s just perhaps not as good as some would have us believe.
And there are also several unknown variables like;
The true life span of the setup (might last longer than 25 years, might start losing efficiency sooner)
Wheather variability and therfore the real power generation levels each year (who can say what average light levels will be over the coming 25 years)
The price of electricity you do have to pay for (night time consumption), fair bet this will increase which could improve on your benefit because you buy less.
Interest rates over the next 25 years, but who is to say how much that £8700 could otherwise make.
Decomissioning cost at the end of 25 years (unless you want to leave a non-functioning array up there)
Etc. etc.

One thing I would suggest though is that if you borrow to intall by perhaps remortgaging at perhaps 4% or 5% over 25 years I think you’re looking at an overall loss.
Of course your motives for going PV may well be to help save the planet which is commendable but you won’t be wanting to shell out too much to do so will you?
Good news is Solar will get cheaper through economies of scale so the deal may well get better year on year, if of course the FIT continues.

Chris says:
11 June 2011

The scheme is dubious as it effectively subsidises those of us who can afford to “invest ” £10,000 on PV. Meanwhile everyone else s bill goes up. That’s a stealth tax in my book and likely to be regressive. The moral and economic arguments are not convincing either.
Firstly the science on global warming is not settled and indeed warming appears to have stopped in 1998 or so. Moreover warming has been going on for at;east 150 years so carbon dioxide is unlikely to have been the prime cause.Whilst it is true to say that resources are scarce , the switch to renewables are going to put up the cost of electricity and power dramatically over the next 20 years. This will render what industry we have left uncompetitive [wind turbines /pV are very inefficient] with deleterious effects on the exports and jobs.
Finally as pointed out above you have to bear in mind at the end of the period you wont get your capital back [sooner if you move home] so real income doesn’t start until well after [say 10 years ] first installation. There may well be maintenance issues too. During that time you have to consider the opportunity costs – that is you would also have got interest on your £10k[ if in the bank-rates are low now but will increase] or if in stocks dividends and it is possible that stock s and shares might have risen giving a capital gain, I doubt PV cells on a house will add much if anything to its value. The whole exercise is dubious . Even if CO2 is proven to be the prime cause of warming [looking increasingly unlikely] as other countries with far larger emissions are unlikely to follow suit.

Adrian Phillips says:
12 June 2011

Dear Chris
I am not sure if you are the same Chris who also replied to my message but assuming you are:

– your comments re my own experience don’t really undermine the economic case for my investing in solar PV, especially as 1) the income from the FIT is tax free,whereas the income from most alternative investments are not; 2) the investment in solar panels is in the capital value of the house (just like a gas boiler or a wood burning stove); 3) yes, the day-to-day weather is uncertain, but over 25 years one would expect sunshine amounts to average out; 4) you ignore what is happening to the costs of other forms of energy, with oil and gas prices rising, the attraction of generating some of one’s own energy from solar etc. only increases with time.

And if if you are the same Chris, it is regrettable that you are churning out a whole lot of stale nonsense on climate change etc. The world did not stop warming in 1998, nor is the role of CO2 being questioned by serious scientists. I rather suspect that your scepticism re solar power may be an extension of your denial of global warming.

Adrian,
I think you are replying to different arguments from two people called Chris.
I’m not the climate change sceptic Chris. I’m sure climate change is real and I’m also sure we must reduce fossil fuel Co2 not just for “planet saving reasons” but also to get away from our reliance on foreign oil and gas imports.
I’m also the Chris who is against the FIT money coming from energy bill payers rather than from general taxation, it’s simply unfair, and the Chris who is sure the economics of PV arrays are not as good as people who have them think they are (including you).
As I said not a bad investment but the return is nearer to 3% per year over the 25 year life of the array and payback takes at least 12 years. So 12 years (or in your case using your own figures, 14 years) before a penny profit is realised.

I’m all for PV but don’t borrow to do it because you’ll very probably lose money. and if you buy outright be aware of real economic performance expectations , which as I said before are not as good as some would have us believe.

Bill the Bear says:
11 June 2011

I’m in Brighton. Had solar hot water since 2003 (OK – I did have a grant to encourage me). Payback time – as suggested by my installation company – around 5 to 6 years. Main problem is on switching to new energy supply company they set monthly payments too high.

Recently installed solar PV – I do profit from the FIT that gives me a return of around 10% p.a. on my investment of £9000 installation costs (OK – not taking into account full-lifetime costs of replacing worn-our parts – so possibly 5 to 7%).

As a result of this I can afford more expensive green tariffs from my supplier – using my profit to encourage power companies to expand the green generating. I can also support other green initiatives with my profit. My footprints are also smaller! And more of them are being offset!

If it encourages “the country” to have solar panels on every Southern facing roof in (say) Brighton to reduce the UK carbon footprint then I think it is a good thing.

The fact that some households gain and others do not applies to almost every grant/subsidy/benefits scheme in existence. Should we all object to electric car users paying less car tax the rest of us are susidising them?

Individual households need to do the maths – I have friends in Glasgow that looked into FIT and found that it was not financially viable even with the generous FIT payments. As a taxpayer I’m subsidising the increased health costs of the West of Scotland – but I don’t care. We are all part of “team-UK”.

Some grant if the payback is only 5 to 6 years?
Your outlay could not have amounted to any more than about £300?
Which I doubt so if I were you I’d take another look at the sums.

Although using any solar power is good if you think you’ll live to see the payback on a hot water system think again.

Tony Dutton says:
11 June 2011

Note: The illustration shows a continental two pin plug!
Surely for a solar or other type of “green” generator the outlet must be a socket
and preferably a British flat pin type.

From Tony Dutton

Damn Young says:
30 July 2011

It would be beneficial if all appliances had a standard 12V DC supply socket, which would allow easy connection to PV panels. It wastes a lot of power to convert the PV DC power into 240V AC, because once inside your appliance, it is often inefficiently converted back into DC again. Modern LED lit TVs no longer need to use high voltages. Only synchronous motors, found in hoovers and the like, need AC power. They could be designed to use 12V DC motors.

Mike suttill says:
12 June 2011

feed-in tariffs are inherently unfair as they are funded from everyone’s utility bills but only the comfortable middle class upwards will be able to take advantage of the subsidy. Most lower middle class and working class people cannot afford the capital outlay and could only be locked into the schemes where companies rent your roof space and they receive the income or not participate at all (more likely) – thus they who can least afford it will be funding the slightly smug sounding people above who are able to afford the investment. As Chris points out above the return on investment is much less than people think and is totally locked into the scheme. It would be far better for the government to stop offering to subsidise all energy schemes and draw up a coherent energy production and management plan that gives direction to utility companies. Market forces (don’t laugh) would quickly identify those that are viable and affordable and energy companies would pursue those – offering wind farm subsidies and FIT etc distort markets at the tax payers expense. If you think you can afford to invest in PV and can sell your energy to a company then fine – but why do those who cannot afford it have to help you to make money? Central government is useless at putting in place policies that will not be taken advantage of by commercially aware entrepreneurs – always at the tax payers expense!

Bill the Bear says:
13 June 2011

I’m not sure where Chris (above) gets my usage figures or installation type from when he tells me I must have my water heating solar panel savings calculated incorrectly.

Years prior to Water heating solar panel – household gas usage 14691.63 Kwh.
Years after installation – 10652.16 Kwh.

Saving 4039.46 Kwh per year. In 2003 prices (1.237p per Kwh) = Annual saving £416.40.

Install costs : £2351. Payback time 5 years and 160 days.

Sorry Bill still think your numbers are still wrong.
You say the annual saving was 4039.46 Kwh and the price per Kwh was 1.237 pence per kwh in 2003. That is £0.01237 per kwh. Now £0.01237 times 4039.46 comes out at £49.97 on my calculator. That’s pretty much as I was suggesting before.
On your £2,351 investment and an annual saving of £49.97 comes out at a payback of 47 years. (these are your figures, I’ve only corrected the maths)

But nevermind 2003 prices, today a Kwh of gas is about 3p and solar hot water installations don’t come much cheaper than £4000. So assume a similar annual saving of a similar 4000 kwh of gas. £0.03 times 4000 equals £120 and a payback on £4000 of 33 years.

However I think an annual saving of 4000 kwh is a bit optimistic because my monthly hot water cost using a gas combination boiler is about £9 or £108 per year at 2011 prices and you only need the hot water you need, so you can only save an equivilent to what you normally use.
You won’t be getting much solar benefit October to March so if we assume solar works for 6 month of the year and provides all your hot water during this time (even that is perhaps a bit optimistic) that’s £54 or 1800 Kwh (at 3p per Kwh) and a payback on a £4000 installation of 74 years.
Now as gas prices increase, and they will, over coming years the payback will admittedly reduce but we will still be looking at a payback of several decades.
Which ever way you look at it, whatever assumptions you might make a 5 year payback it most certainly ain’t.

But as I said before Solar is good, the sunlight is CO2 free, you’re helping save the planet, and reducing our reliance on foreign oil and gas suppliers. I’d like to see much bigger grant support for many more solar hot water installations on many more houses.
But perhaps to encourage bigger grant support I’d also like people who have already paid for solar hot water installations to stop kidding themselves it’s the great money saver it clearly, currently, is not.

mike says:
17 June 2011

i inherited a roof hot water solar panel on a holiday home bungalow that I bought 2 years ago on south coast. it produces very hot water even during winter months, too hot to put your hand under when running water in a sink to do the washing up. the technology does not rely just on intensity of heat of the sun as implied in comment above although less daylight does make a difference. i think the previous owner of the bungalow qualifed for a grant when having it installed. Not as good a return on investment as the FIT scheme but every little helps….

Stu says:
1 July 2011

From what I read here most people are mainly interested in how much they can “earn” from feed-in tariffs. I have a 5.6kw array installed for 5 years now and although I missed the boat for the full FIT I still save a grand a year from NOT having to buy from the grid. I live in the country and my only choices are oil and electric. We use a lot of electric in our home and the solar PV covers around a third of it. I also installed solar thermal panels last year and already I am seeing huge savings on the reduced consumption of heating oil.
People need to look at renewables as a way to SAVE money, not just earn it.
Also, my installations costs are all fixed now and energy prices go up every year. This accelerates pay-back time.

I would strongly support this comment.

Inflation of energy costs will make up the bulk of the savings for this equipment. The trouble is that inflation isn’t guaranteed, but it appears that authorities seem to like it. People write about property markets being “boyant” “firm” or “strong” (all positive words) when prices rise, yet it is the rise in house prices that have so damaged the world economies and fed through to everything else.

Solar thermal panel systems need a relay adding so that the immersion heater cuts out on sunny days (or just switch it off manually if you remember.)

You can get a 16A relay with 240V coil for a few pounds on eBay and an electrician could add it for a couple of hours work. Connect the coil to the solar circulating pump and the contacts (to open when the coil is energised) in series with the immersion heater.

Damn Young says:
18 July 2011

The place for large scale industrial solar arrays is a desert.
To use farmable land for that purpose is ridiculous, as we need it to grow crops.
We have no deserts in the UK.
What we do have is an abundance of private rooftops, and they need to be covered with solar collectors.

Family Man says:
19 August 2011

Just had a 3.92Kwp system installed. The FIT scheme is designed to encourage the take up of this technology as part of a long term govt strategy to reduce our dependence on other energy sources.
having no energy policy is not an option. It is easy to say that the FIT scheme is not perfect but the govt have already taken action to adjust the rules to focus the resources more at the intended users. In April the domestic rates will change as well. At a personal level the economics looked great so I did it. In that respect the govt scheme has added 1 more solar pv system to the grid. You cannot condemn businesses or individuals for taking advantage of attractive investments. If you need to blame somebody then it should be the scheme designers. In the meantime, what are you waiting for? There may never be a better time to invest! And when the RHI scheme starts properly next year it may be worth taking a serious look at that as well.

Hi – how will organisations delivering these solar pv installs going to survive? Will they have a problem reducing their total operational costs? What is the survival strategy? Or is it about survival or mere reduction of profits? Would welcome thoughts ….

Adrian says:
4 November 2011

The debate is reopened as the government has now decided to hit the domestic FiT with a cut of over 50%. Which was quick to support the earlier reduction in support for field arrays on the grounds that “more of the FIT payments – which come from people’s pockets – will be protected for households, communities and small businesses”. I hope they will not be so supportive of the government’s latest action which effectively undermines a large part of the domestic solar energy market. The FiT has in fact achieved its aim by creating a market in which the costs of solar installation have fallen by 30%, so a reduction in the FiT was right. But the cut should be phased in more slowly (over 6 months say) and be of the order one third. As it is jobs and businesses will be lost and the fledgling solar industry largely destroyed.

NPaignton says:
31 August 2013

I fitted PV and a solar thermal a few years ago. It is not a particularly good investment but I was interested in having solar energy production. It has not been without hassle as G4S has to check your meter every 2 years. They say they have visited but could not gain access. There is no evidence of the G4S visits and the the electricity company then say they are suspending your feed in tarriff until the meter is checked. It is well known that G4S pretends that they are doing government work when they are actually sitting on there hands. Remember the security debacle at the Olympic games.
Considering the hassles I have experienced I could not recommend Solar PV to anyone. Also when I had solar thermal installed to heat the hot water cylinder I was told there was a solar thermal feed in tariff about to be introduced and that was 3 years ago. There is still no solar thermal feed in tarrif.

Unfortunately delivery drivers, and presumably also meter readers, can call at the wrong house, find no one in, and leave a telephone card. Of course this gets thrown away as no one is going to spend a couple of hours listening to music interspersed with bare faced lies about “your call being important” just to tell them that they called at the wrong house. [Important calls are not queued at a call centre.]

As to PV, the FIT is only part of the reward. Assuming that the homeowner paid for the panels, the alternative is to invest money and use the income to pay the electricity bill. This income is subject to income tax. If you have solar panels, you are simply not buying the electricity, so there is no income tax on the value of the electricity you use on site.

What would be better than a FIT would be to have meters that read backwards when you export. This means that people could have credit in the form of electricity stored for them to use at night and on dull days.