/ Home & Energy

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

Tim Yeo MP today said on radio 4 that the whole issue of higher fuel bills has shown a good case for opening up the books of the energy companies, so that we can all see just how much they are really paying for energy.
I understand that businesses will want to protect their interests, but every house in the country has to use an energy service/product, it should be open and accountable.
This ties in with your post here, are we really only paying £8.50 per month to subsidise this scheme?
Until I read this post I wasn’t even aware I was subsidising it.

Why is this information not included on my energy statements?

Adrian Phillips says:
10 June 2011

Dear Miranda:

If you are really to launch a well informed debate about the costs of the Feed in Tariff, you had better be clear about the additional cost on bills. These are estimated at £8.50 a year but you say £8.50 a MONTH in the last para above! No wonder people are confused, Red faces I hope at WHICH!

Adrian Phillips

Thanks for pointing out that error Adrian. As you can see the cost was correct in previous paragraphs, however we’ve now corrected it. Sorry for the confusion.

Chris Powell says:
10 June 2011

Hello,

I feel like one of the losers of the FIT scheme having installed 2 wind turbines in June, 2009. I receive 9 pence per unit produced compared with more like 27 pence per unit had I installed the turbines 1 month later.
Both the Conservatives and lib dems stated before the election that ‘early’ adopters of renewable energy would receive the same tariff as later adopters. The coalition reneged on this about 6 months after taking power.
Had I known 2 years ago the amount of red tape, changes of policy, etc. that goes on I would not have installed alternative energy as just too much hastle. I received my first FIT payment last week, 15 months after submitting my returns, the holdup being entirely due to OFGEM’s inefficiency or inability to cope.

As an aside you mention in your article above that money is earned for export to the grid. Far more payment is made for every unit of electricity generated whether exported or not.

Are the energy companies really directly or indirectly investing the profits (which they reap from us) in the FITS scheme?

If this is the case then we are being scammed twice for the energy we are obliged to pay such a high price for and which we, the average consumers, can only obtain from them.

Absolutely disgusting!

Eric G. Knowles says:
10 June 2011

The true costs of the scheme should also include any costs for maintenance, servicing, and replacement of the equipment. How long do the parts last before they need to be replaced?
We are beginning to identify the true cost of the more energy efficient boilers and the problems due to sustained low temperatures. We need to have visibility of the issues associated with equipment used for providing renewable energy.

Although the government try to encourage installation of this equipment by making the VAT penalty on so doing 5% rather than 20%, the VAT penalty on getting it serviced is still 20%. This is probably an oversight, but it needs to be corrected. Wind turbines that are not serviced are likely to be less efficient, and could indeed become dangerous as they age.

These kinds of proposals for feed-in are no use for ordinary people who live in small houses or flats. How about letting us club together to buy shares in generators/solar arrays/heat pumps etc, then get some rebate on our bills for the feed-in? Oh, isn’t that a bit like publicly-owned electricity supply (which we used to have?)

Michael Smith says:
10 June 2011

The FIT scheme is a good scheme for reducing our dependence on fossil fuels. In some ways it is a shame that the larger PV schemes will no longer be supported as these can generate significant quantities of power. The problem with looking at current costs is that they make no allowances for the rising price of fossil fuels. The real cost of fossil fuels is rising rapidly, and will continue to rise for the forseable future as the world recovers from recessions and economies in China, Inda South and Central America grow. Our dependance on imprted fuels makes us extremely vulnerable to political events. Do we really want to continue to rely on imports from Russia and the Middle East, or Fracking to release shale gas locally,or return to deep coal mining with all that implies?
Whether or not you believe in global warming, we desparately need to invest heavily in renewable energy for the future of our children.

John says:
10 June 2011

The FIT scheme is a poorly adapted copy of a very successful scheme which has been operating in Germany for almost a decade. The German scheme looks at how mature (cost effective) each type of renewable electricity gereration is and sets the tarrif to support the less mature technologies, ie PV pannels. So the tarriff for windfarms is set low relative to PV i think in the region of 1/7.

One of the fundamentasl diffrences between the German and UK systems, is that the tarrif is very simple in Germany .The German Government REQUIRED the electricity generators to enter into 25 year contracts (the expected working life span of a wind turbine or PV pannel) with the provider of the micro renewable electricity provider (householder ). The upfront funding of the microrenable instalation comes from banks as a loan based on a guarenteed income from the electricity sold.

Thus i am concered that the UK Government is changing the tarriffs on renewable energy. My concern is not regarding the impact on solar farms, but that the government did not think out the impacts of the FIT scheme on the UK power generation market, before implementing it.!

Paul Wakelam says:
10 June 2011

Having spent A LOT of money installing 20 panels on our roof, and despite receiving very useful cheques as payment for ‘fuelling the grid’, to hear that Boards are going to raise their charges by 19% it seems quite clear that there is no financial benefit to us: we are now in effect paying ourselves for what produce via increased charges! Or am I missing a trick somewhere?

Bruce G says:
10 June 2011

I think that your article completely misses the point of having Feed in Tariffs. We are aware that our current energy production is either unsustainable or potentially unsafe. Therefore there has to be a mechanism for us to address this and encourage the energy industry in what ever way, shape or form to move to alternative and sustainable production. As with any new industry there needs to be development and research before the technology becomes economically efficient – look at computers. If we do not allow the large businesses (normally backed by pension funds) into the industry we will not have the development of technology. With out that, we will not get to a point of efficiency such that the energy can be produced cheaper than fossil fuel and nuclear.
This does not even touch on the issue of energy security. As we saw with the gas pipeline into Germany being shutdown and the dramatic impact it had on the economy, we need to ensure we can be self-sufficient to avoid political or financial energy blackmail.
In conclusion, we need to encourage EVERYONE to be moving to renewable energy sources and all be willing to dig into our pockets to look after the next generation. As to the actual financial impact on households, the cost increase per household in a year is less than the tax on one tank of fuel in the car.

Kj says:
10 June 2011

As a household we are planning to install solar PV and hot water, primarily to reduce our oil dependency / carbon footprint. Having the FIT payments acted as a sweetener to sell the idea to my partner. Once installed, we will change to an electric oven, install electric under floor heating and, if needed, night storage heaters (that will be set to heat up during the day). But even with all these changes we will still need some grid electricity, and probably gas heating, for the winter.

As I’m benefitting from generating power and selling it back to the grid, I’d be happy to pay a higher tariff for anything from the grid that we do use if it helps others stay above the fuel poverty line.

However, I would like more transparency from the energy companies – I would like to know the business case for building and running, for example, a new coal fired power station vs. paying the FIT tariff for enough households to cover that much extra energy. If the FIT payments are on a par with the new station, then why are the energy companies allowed to pass off the costs to consumers anyway?

Peter says:
10 June 2011

After two years debating the issue of solar PV I finally got an initial 2.45Kwp system installed in early April and it has almost completely covered my electricity costs for April (when it was very sunny remember) and May when the evening temperatures improved. I expect to be a in “profit” for June-August from the FiT payments. That said I don’t think the electricity supply companies are being encouraged to work with small householders enough and their payment of 3p / KWh (FiT is from the government) is free money as they charge far more than this even on optimal pricing schemes. The real question is how to store the electricity/energy generated. One route is divert any excess to heat water which I am seriously considering for the short term, the other is to use deep cycle batteries which may be the longer term solution. One thing is for sure at 3p I don’t see why I should sell my electricity to the power companies, I would expect to sell it for what I pay for it.

Rod says:
10 June 2011

Hang on a minute – you are getting 43.3p per Kw anyway, plus the 3p. Are you sure you want to sell it for what you pay fo it? – like 13p?

Peter & Lynn Nelson says:
10 June 2011

Whilst it is good that the government is going to restrict F-I-T for very large scale schemes, we do hope that it doesn’t penalise and jeopardise village and other community-based projects. That would be a real pity and frustrate the aims of reducing reliance in fossil fuels, creating greater diversity in energy generation and extending access to alternative energy. The creation and maintenance of a world-class renewable energy industry is vital to our whole economy. It’s sad that so much of the hardware for this industry is being made elsewhere; we could all benefit from promoting British-based manufacturing and innovation in this field. That’s not going to happen if the incentives to participate in the industry are curtailed.

jab says:
10 June 2011

We need to encourage the investment in pv to make it cheaper for future generations .the cost will come down.But it is not fair to make poor people pay for this initial investment.Can the companies not consider making the standing charge disappear and making high consumption users pay more as they can obviously more afford it.Also it will encourage careful consumption.The goverments we have had over the last 30 years have all been making poor decisions.I see many examples of bad judgement.Thank god they have stalled health reforms

David says:
10 June 2011

Yes, I agree that large firms should not be able to make fat profits out of Solar Voltaic production. However, that should not mean that large schemes are not allowed. There are many house-holders who would like to pay for an installation and reap the benefits but are unable to do so for reasons of sun direction, or because the house is old and is a listed building. Why not make it possible for people to subscribe for panels which are not on their own houses but are part of a large installation on a suitable site? They would pay for the number of panels they wish to have and receive the pay-back but the installation may be some miles away. It would mean that all their electricity would be fed into the national grid but isn’t that what we as a nation want? Would this not save the building of a power station or two?
I mentioned this to our local MP so hope he may have passed this on to the relevant Committee in parliament for consideration, but it might need a bit of a push!

Solar PV and Solar hot water systems do work.
The problem is how the economics pan out and how the economic systems have been set up.
Solar would never pay for itself without the FIT. The PV array has a working life of about 25 years and if it was just lower electricity bills this would amount to a considerable loss over that 25 year working life. As it stands spend £12,000 to £15,000 on a decent size array and with the FIT it will pay or itself in about 12 to 15 years, and from then on you could expect to make perhaps £1000 per year. So over 25 years it’s quite a positive investment. But, you’re locked in of course, unless you move house and manage to recoup the original outlay with a higher selling price than would otherwise be.
So the FIT is essential, however the problem lies with where the FIT money comes from. It is basically a stealth levey on everones bill, and that’s not entirely fair because many many bill payers could never get in on the game. The FIT money, all of it, should come from general taxation, like income tax, because only that way is the levey fairly charged on the basis of ability to pay, and it fits with the ethos that Co2 reduction is everyones problem, and as said any levey is fairly based on the ability to pay it.

Solar Hot water is never going to pay for itself. For six months of the year I only use gas for hot water and it works out at about £9 per month. Solar hot water might save all of that £54, but produce next to nothing for the other six months. So we’re looking at say £50 to £60 per year, and how much is a solar hot water system? £4000 or £5000? You don’t need a degree in mathematics to see that payback is a bit on the long side.

Now don’t get me wrong I’m all for solar energy, the sunlight is free, but for solar to really take off meaningfully incentives fairly financed need to be introduced, specially for solar hot water..

If you’re rich enough to go solar to save the planet I applaud you, but be under no illusion about the economics and fairness of the whole setup.

And whatever you do don’t borrow to set up any solar installation with things as they stand. It would be cheaper to burn £5 notes to keep warm (OK bit of an exageration but you get the point)

Bob Seymour says:
10 June 2011

Re: the economics of PV.
We have been approached to consider solar PV panels, and a friend of ours is having them installed & reckons they’re a money-spinner in UK at present. But I have looked into the economics, and can’t agree.

The modules seem to be 1.5 kW capacity each, and have an area of some 11 m2. The cost is about GBP 9000 installed. Normally one to three of these are used.

There is a S. Wales local grant, apparently, of about 30% towards installation.

Each unit is expected to produce about 1200 kWh per year (i.e. 9% of its maximum capacity) for 25 years. The inverter used to synchronize with the utility supply has a lifetime of about 10 years and costs GBP 750 to replace.

The government apparently gives a grant (the “feed-in tariff”) of about 36p per unit generated. As I understand it that applies to the entire generated quantity and not just to the surplus fed back into the grid. Also, there is a saving against the utility electricity bill, current price being about 11p per unit.

We use about 6000 kWh per year, so we should therefore receive a total benefit of 47p per unit for all electricity generated.

I work out that the “payback” period (with no discount rate or inflation rate) is about 10.7 years with no installation grant, or about 8 years with a 30% installation grant (but the company claims it’s 4 to 5 years).

I calculate the Internal Rate of Return (the equivalent rate of interest, with the capital amortized over the 25 years) is 8%. So it’s a good investment over 25 years, assuming you actually wanted to tie up your capital for 25 years and get nothing back but yearly income.

The Internal Rate of Return for an 11-year lifetime and zero residual value, works out as zero, and over 13 years it is 3%. So it is only a worthwhile investment over a longer time than we might live in this house!

It probably would make economic sense for the electricity companies to invest in this way but it makes no sense for consumers. The increase in renewable generation is, I suppose, a “common good” and therefore should be invested in by society rather than individuals. From an individual’s point of view, there should be a 100% installation grant, but no “feed-in tariff”.

All these considerations ignore any effect on the value of the house. We feel it could be positive or negative in that respect.

Had to read it a couple of times but Ithink you are basically right. If you’re in it for the long term it works out that you at least lose no money but it’s not the gold mine the sales people would have you think.
I think my earlier comment was simpler though.

JCotes says:
10 June 2011

the PV scheme seems to me to be a bargain for private householders with small installations, but bad for tax payers (the efficiency in UK is only about 5%) and the scheme is
troublesome to keep going. Our electrical supply company requires readings every three months to within a week, does not provide accounts and says it makes payments direct into our bank account. These are difficult to trace. Thus the system is geared to the business community, though it is families that should benefit. Could the system be more user friendly?

Roz says:
10 June 2011

We would love to be able to generate and use renewable energy and make use of the FIT scheme. But we live in a grade 2 listed building which is divided into 3 properties. Last time I enquired our local planning authority will not allow any solar panels on the roof. The nature of the property with walled gardens mature trees and cobbled paths would make siting panels elsewhere or use of wind turbines or ground sources impractical.The large sash windows cannot be altered (again planning restraints) to reduce heat loss (heavy curtains help) so we are reliant on expensive oil as there is no mains gas and wood burners are not practical for an upstairs apartment. With our heating bills already higher than most I fail to see why we should subsidise others who are able to reduce their costs. This argument is even stronger for consumers on low incomes in rented accommodation who will also be trapped and unable to make changes or improvements for whom energy bills are a high proportion of their outgoings.

Do you think that the FIT system is fair? (NO DEFINATLEY) Is it worth paying £8.50 per year for the environmental benefits? ( YES DEFINATLY PROVIDING EVERYBODY PAYS)

Do you agree that DECC needs to be more transparent about how much you are paying in your bill for it?

( NO THERE HAS TO BE COMPLETE TRANSPARENCY FOR ALL LOCAL AND NATIONAL GOVERMENT DEPARTMENTS) Then there is no need for a FREEDOM OF INFORMATION!!!!!!!!!!!! )

Hi Mal, thanks for your comment, however please don’t type in all capitals as it sounds like you’re shouting. Please check out our commenting guidelines for more info: https://conversation.which.co.uk/commenting-guidelines/ Thanks.