Q&A: Feed-in tariffs

What are feed-in tariffs, how does the UK scheme work and which renewable energies are eligible?

What are feed-in tariffs?

A feed-in tariff is a rate of money paid by the government to homeowners, business and organisations such as schools and community groups to generate their own electricity through small-scale green energy installations such as solar panels. Under the UK scheme, which was launched on 1 April 2010 and is known as clean energy cashback, homeowners could receive up to £1,000 a year.

How does it work?

You can receive feed-in tariffs for both the generation of electricity (a generation tariff) and for giving unused generated electricity back to the National Grid (an export tariff). The level of payment depends on the technology and whether it is being fitted to an existing home, or installed as part of a new build. In the UK, future payments are guaranteed for the next 25 years for solar and 20 years for wind turbine-generated power and are linked to inflation.

How much could I receive?

It depends on how much electricity you generate and how you generate it. At the scheme's launch, anyone fitting an average-sized £12,500, 2.5kW solar photovoltaic (PV) system to their existing home will initially be paid 41.3p per kilowatt hour (kWh) generated, and those fitting the same system to a new-build house will get a slightly lower tariff (36.1p per kWh). People using wind turbines will be paid a lower rate of 34.5p per kWh for a turbine that is less than 1.5 kW (which will be the case for most homeowners) and 26.7p per kWh for a turbine that is more than 1.5kW. Households also receive an extra 3p for every kWh that they export back to the grid, on top of the money given in the first place for generation. The income is tax-free. The Guardian's Miles Brignall estimates that solar PV could generate a return of 7-10%. The Energy Saving Trust has a feed-in tariff calculator which you can use to see how much you could earn.

What changes did the government make in the autumn of 2012?

The rate paid to householders installing solar panels will be cut from 43.3p per kilowatt hour of solar electricity to just 21p after 12 December 2011, according to government documents published in October 2011. That will mean the payback rate for solar panels becomes 18 years rather than 10 years, cutting a return of around 7-10% to more like 4%, the Energy Saving Trust said. Consumers who install solar before the cut-off date of 12 December 2011 will get the current higher rate; installs between 12 December 2011 and 1 April 2012 will get the higher rate before dropping to the lower rate after 1 April 2012; anyone installing after 1 April 2012 will just get the lower rate.

What do the court cases against the solar cuts mean for me?

Anyone who installed solar panels between 12 December 2012 and 3 March 2012 will now get the higher rate, because of a legal challenge by Friends of the Earth and solar companies. Appeals by the government failed, culminating in the supreme court rejecting the government's appeal in March.

How do I know if I am eligible for the scheme?

The scheme is available to those who have one or more of the following technologies: solar PV panels (roof-mounted or stand alone), wind turbines (building mounted or free standing), hydroelectricity, anaerobic digestion (generating electricity from food waste), and micro combined heat and power (through the use of new types of boilers, for example). You will only qualify for the full feed-in tariff if the technology was installed between 15 July 2009 and 31 March 2010 or is installed in your home after 1 April 2010 using a product and installer certified under the government's microgeneration certification scheme. The rate per kWh available for the generation tariff decreases every year so the rate you begin on will depend on when you join the scheme.

I had a solar panel system before 15 July 2009. What will I receive?

People who have already got a small electricity generation system will only receive a flat tariff of 9p per kWh. Some early adopters say they have been "betrayed" by the UK feed-in tariff because they will not receive the full rate.

Where will the money come from?

From the government, with payments made via the utilities companies. Jeremy Leggett, founder and chairman of Solarcentury, argues that each household will only see a rise of £8.50 per year in their bills but this is only a projected figure.

How does the UK scheme compare to other countries' feed-in tariffs?

Germany introduced feed-in tariffs in 2000 with the Renewable Energy Sources Act, which was based on an earlier bill covering renewable energy production. Like the UK's new tariff, the German scheme differentiates rates depending on technology type, size and site, and the rates are designed to decline over time.

The level of payments in Germany have fallen considerably since the scheme's launch, and earlier this year were controversially cut by another 15% for solar PV. France adopted the feed-in tariff system in 2001 and announced earlier this year that it would increase rates for geothermal, biomass, and solar photovoltaics integrated into the fabric of a building. A typical building-integrated photovoltaic system earns €0.58 per kWh - much higher than the UK's rate.

In Spain, feed-in tariff legislation was created in 2007. Photovoltaic electricity generation is the most popular technology in the country and the initial generous rates had to be revised after an unexpectedly high response rate led to a solar market crash.

What's the catch?

Commentators such as Chris Goodall and George Monbiot have argued that the scheme is a financially inefficient way of saving carbon compared to alternatives, such as large windfarms. One analysis by the Ruhr University suggests the German feed-in tariff cost €35bn to push solar to 0.6% of the country's electricity generation.