From April this year, the Government will pay homeowners, real estate companies and other businesses for every unit of renewable electricity they generate whether it be for direct use or to be sold to the grid. Known as FIT, the scheme is likely to transform the UK renewables market, making projects affordable to developers and attractive to investors. For the first time we expect costs of generating renewable electricity to be comparable to buying it from the grid. FIT is likely to stimulate the rapid growth of small to medium scale electricity supply projects across the UK and create a new class of investment opportunities to land and property owners interested in developing projects or creating additional income streams through leasing sites for development.
So what is the scheme, how does it work and how can you benefit from it?
Do the payments make a difference?
Yes they do. FITs mean that for the first time renewable technologies such as solar panels and small scale wind projects can become commercially viable across the UK, typically paying for themselves in under ten years. FIT provides revenue on the generation of renewable electricity, but the scheme is designed primarily to favour direct use of electricity and reducing the consumption of centralised grid electricity. See our example earning scenario’s to get a clearer idea.
How does FIT work in practice?
The scheme is designed to promote the direct use of electricity locally as the sale price to the grid is fixed at £0.03 / KWh over the life of the scheme. The retail price of electricity is estimated by OFGEM to rise by 8% per year over the next 10 years. Generation payments are index linked and will increase by 2.5% year on year for the life of the scheme. So you will make more money reducing your utility bill than by selling clean energy back to the grid.
What projects qualify?
To qualify, projects have to be of less than 5MW in capacity and not operational before July 2009. The following
technologies will qualify for the FIT payments: Photovoltaic; Wind; Anaerobic Digestion; Hydro; and Micro CHP (up to 30,000 installations /units). Biomass and gas CHP are excluded from the scheme but they will be eligible for the Renewable Heat Incentive presently under consultation and planned for 2011.
Quick facts on FITs
- OFGEM is responsible for managing the scheme
- The Government guarantees payments for renewable electricity generated, sold or used directly for a period
of 25 years on a reducing balance basis
- To be eligible you must fulfil qualifying criteria and register the scheme – your chosen installer will do this on
- Energy supply companies will be responsible for paying the FIT to customers
- You may use all the power generated to reduce the amount you import from the grid, or decide to export it all
to the grid and still qualify for payment under the scheme
- You will need an existing electricity supply, alternatively contact your preferred supplier to get connected
- You may need planning permission for the installation
- Ideal locations are either the South of England for solar power or any windy location for wind energy
How can land or building owners in particular benefit from FIT?
- Lease land or roof space to third party independent power producers to develop qualifying projects in return
- Property owners may wish to establish ‘roof to power’ deals, receiving green electricity to fulfil corporate
environmental or planning commitments in return for using roof space. Such deals could be managed through
- Alternatively you could become part of a development consortium for qualifying projects