Why the Feed in Tariff should be abolished

Yes, you read it right – I firmly believe that the Feed in Tariff scheme should be dropped. It might seem strange coming from a beneficiary of the solar industry, but read on and it will make sense.

First, a bit of background information…

How is our electricity generated?

Our electricity in the UK comes from many power stations – fossil fuel, renewable sources (such as wind, solar and hydro) and nuclear. We are even connected to other countries and purchase electricity from them (mainly France).

The demand for electricity is constantly fluctuating and some of our means of generation (e.g. renewable sources) are intermittent. Many power stations cannot react quickly to these changes, therefore we have a system of ‘base load’ generators together with quicker acting ‘peak load’ generators. The latter are more expensive to operate, therefore they drive up the average cost of electricity.

The generated electricity is then carried across the country using high voltage ‘transmission’ cables to substations, where the voltage is then reduced and further ‘distribution’ cables take the electricity to homes and businesses. The losses in transmission and distribution averages around 8%, meaning that we only actually receive around 92% of the generated electricity.

The effect of Microgeneration

‘Microgeneration’ refers to the practice of electricity being generated and used locally, such as that from small scale solar photovoltaic systems and wind turbines.

Producing electricity locally to the point of use reduces the demand on the transmission and distribution system, and therefore results in lower losses from the electricity grid. It also means that more expensive sources of electricity such as peak load generating plants and importing from overseas is reduced. For these reasons, the cost of producing electricity is reduced which benefits every bill-payer, and the emissions of greenhouse gases is also reduced, which benefits the planet and every living thing on it.

Financial incentives for Microgeneration

I’m going to focus on Feed in Tariffs (FITs) for solar panels here (it’s what I do, after all), but other forms of microgeneration also have their own FITs.

At the time of writing the FIT rate is 4p per unit of electricity generated and 4.9p per unit exported (units exported deemed to be half of that generated). A typical 4kW solar PV system unencumbered by shading will generate around 3500 units of electricity per year. This means that the owner enjoys an income of around £225 per year from their solar PV system. The also get the benefit of any of the electricity that they consume on site, in the form of a reduced electricity bill.

In practice, in the majority of households well over half of the generated electricity is exported to the grid, closer to two thirds for most. If the household that generates 3500 units manages to use only a third of it, they have offset 1155 units of electricity. At 14p per unit, this is worth £162 in savings on their electricity bill. Their total income and savings is therefore £387.

Many PV system owners see export as ‘lost’ electricity, and look for ways of storing it so that they can make the most of their investment. This has created a demand for household battery storage systems.

The reality is that any electricity exported from the PV system owner isn’t really lost. It doesn’t disappear altogether, in fact it is consumed by the neighbouring households. Our FIT system has created a new industry in battery storage systems.

The problem is, batteries are expensive and most of them use lithium, an element that is extracted from the earth using mining. Not exactly kind to the environment. Batteries have a finite lifespan too, after which they need to be correctly recycled. Round-trip losses in a battery storage system are typically around 10%.

Enter ‘Net metering’

Net metering is an alternative way of incentivising the uptake of microgeneration. Like most good ideas, its beauty is in its simplicity. The microgeneration system operator does not receive any financial incentive for their generated electricity. Instead, they are billed for the net amount of electricity that they consume.

If a household imports 6000 units of electricity in a year but generates 3500, they will have to pay for 2500 units. In that particular scenario, they have reduced their consumption by 3500 units, which (at 14p per unit) is worth £490. As they are being rewarded for their export, they will not be looking to install an expensive battery system.

The money saved by the PV system is intrinsically linked to the cost of electricity, therefore if the cost of electricity increases, so does the benefit from the system.

The enhanced incentive (compared to the current FIT scheme) would further encourage uptake of microgeneration, resulting in cleaner air which would have public health benefits.

The lithium being extracted from the earth could be put to better use, such as powering electric vehicles and the electricity grid stabilisation.

With net metering, there is no need for Government subsidies and no requirement for costly scheme administration, therefore the cost to the taxpayer would be eliminated.

So, as I said earlier, it’s about time that the FIT scheme was withdrawn in favour of net metering.

(Here I will point out that net metering is not my idea, it is operated in many countries around the world)