The New Testament

Is now a good time to have a FiT? If your building project is currently taxiing for take-off, you really ought to be aware of an exciting new initiative called FiTs (Feed-in Tariffs), which are due to go live in April 2010. A FiT might just cause you to rethink your roof design — and quite possibly your financial arrangements.

So what are FiTs, and why are they so significant? FiTs are a subsidy paid to producers of renewable electricity. With a FiT in place, every kWh (kilowatt hour) of power you manage to feed into the Grid earns you a premium price way above what you pay for any electricity you buy in. And I mean way above — nearly three times the price. Furthermore, this price is guaranteed for 20 years. We are not talking about payback periods anymore — FiTs for domestic renewables will be serious moneymaking investments.

The idea of FiTs is not new. It was first tried in the USA during the energyefficiency orientated Jimmy Carter administration in 1978, but it didn’t take off. It wasn’t until the Germans got hold of the idea in 2000 that it began to sing — so much so that it is now being adopted across the globe. Australia, Israel, Spain, Holland, California, France, even places like Bulgaria and India, have all championed FiTs. And in April 2010 the UK is following suit.

It’s not that we haven’t had renewable energy subsidies schemes before. We have pootled along with Clear Skies, and then with the Low Carbon Buildings Programme which replaced it in 2006. However, these schemes concentrated on giving grants to help with the capital costs of installation of various technologies. FiTs are a different animal: you have to pay full whack for the installation, but in return you are guaranteed to buy the resulting output at a pre-agreed price for a fixed period. And the more you produce, the bigger the return.

The German FiTs are very carefully targeted with a view to not only creating green electricity but also jobs in the renewables sector. In addition, different technologies receive different subsidies. Roof-mounted PVs (photovoltaics) are best rewarded — suppliers are paid around 45 euro-cents/ kWh, guaranteed for 20 years. By comparison, biomass gets 12 eurocent/ kWh and wind turbines five euro-cent/kWh.

So how much is that worth? A 50m2 installation of PV would set you back almost £30,000 — around ten times as much as you would spend on a conventional roof. But it would be capable of producing around 5,000kWh per annum in the south of England and maybe 4,000kWh in Scotland.

Now the actuaries at the Treasury will be busy working out just what return is required to incentivise UK homeowners to take the plunge. If it was set at the German level, you would be getting around 40p/kWh, which would equate to £2,000 a year. Set against this is the cost of installation, which would be written off over a 20-year period, and also maintenance. However, all in all, this payback doesn’t represent a bad return — quite the opposite.

But is this enough to tempt you? It has certainly tempted a lot of Germans. There are around 200 times more PV installations in Germany than in the UK, and because the industry is now so competitive, installation prices have fallen so that the returns are around 8-10% per annum. It’s also created a new buy-to-let market, with people letting out their roof space to the electricity companies.

The success here in the UK will all depend on what rate the Government sets for its version of FiTs. Set it too low and people won’t be tempted; too high and the Government will be accused of profligacy, even though the money actually comes from a surcharge on everyone’s utility bills.

However, there has been so much talk in the credit crunch of creating green jobs, that it seems hard to believe that our FiTs won’t be at least a headline-grabbing amount, especially with a General Election pending. If the FiT is above 40p/kWh, then the financial returns are going to be of interest to a lot of people.

Feed-in Tafiffs

Feed-in tariffs are an incentive mechanism designed to encourage homeowners and small businesses to invest in renewable technology. FiTs apply to small-scale renewables which produce no more than 5mW per annum. They are anticipated to launch in April 2010.