Feed-in Tariffs: How it Works

Take a 200m² house, insulated to slightly better than Building Regulations standards, as an example, with four people living in it. The self-builders are intending to install a ground-source heat pump, solar panels and they have sufficient wind for a 5kW turbine.

Typical energy consumption will be 8,000kWh per year for space heating, say 3,000kWh for hot water and 7,000kWh for light and power. If this is an all-electric house, their demand will be 2,000kWh for space heating (heat pump with a COP of 4), 1,200kWh for hot water (balance from the solar panels) and 7,000kWh for light and power each year. A total of 10,200kWh, which would cost around £1,600 to buy (at today’s prices).

With annual average wind speed of 5m/s, a 5kW turbine will produce around 11,000kWh per year. We’ll assume only 60% of this is usable in the house.

Capital costs will be around £22,000 for the wind turbine, £5,000 for the solar panels and £8,000 for the heat pump, all installed and connected.

The returns will be:

• Generation tariff 26.7p x 11,000kWh = £2,937 p.a.

• Export tariff 3p x 40% of 11,000kWh = £132 p.a.

• RHI for heat pump at 7p for 8,000kWh = £560 p.a.

• Subtract 3,600kW purchased at 15p/kWh = £540 p.a.

• Total value of the system = £3,089 p.a.

• (Extra saving of value of electricity used — 60% of 11,000kWh at 15p/kWh) (= £990 p.a.*)

For an investment of £35,000, the house is free to run and provides an income of over £3,000 per year (*ignored for the purposes of cash return calculation). This is equivalent to an 8.5% return.

The reality will be a little different, as the Index linking, maintenance costs and the general wholesale price of electricity need to be considered. But these are all to some extent crystal-ball gazing and do not move us far from this rate of return.

By way of comparison, a solar PV system will have a payback of around ten years and a typical hydro scheme less than four years.

Saving energy, earning money

Patrick and Frances Colquhoun own a 1940s detached house in Cambridge and installed a Solarcentury Sunstation 2.15kW PV system in October 2009 — similar to the one shown. It is estimated that it will produce 1,600kWh per year (reduced from the usual 1,827kWh owing to its south-easterly orientation and the fact that the site is part-shaded).

The couple will find themselves enjoying the best of both incentive schemes — they received a £2,500 grant under the Government’s Low Carbon Buildings scheme, which reduced the cost to £9,848 including installation, and will also enjoy the benefit of Feed-in Tariffs when they are introduced in April. “We have seen substantial bill reductions already, and we have also done this for investment purposes — we’re expecting between 8-9% annual return.” They expect to enjoy an annual revenue of £710 from the electricity the system generates (plus an extra £26 from electricity exported) and it will cut £112 a year off their electricity bills — this gives a payback period of 11 years. (solarcentury.co.uk).

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More information on Feed-in Tariffs:

• Feed-in Tariffs Explained
• Renewable Heat Incentives
• Feed-in Tariffs: Expert Views

Further reading:

• Self Sufficiency: A Green Dream or a Reality?
• Saving Energy
• A Guide to Hydro Power
• An Introduction to CHP (Combined Heat and Power)