What Is The Feed In Tariff?

Introduced in April 2010, the Feed in Tariff (FIT) is a scheme designed to encourage and reward people who invest in electric generating renewable technologies.  The government has set in stone a 25 year payment plan for all customers who install a solar PV system in 2010 and beyond.

The rate as of 1st April 2011 is 43.3 pence for every kiloWatt of electricity your system produces, and is income tax free. So even if you use all the electricity your solar PV system produces you still receive 41.3p per kiloWatt guaranteed for 25 years.

On top of this, you will also save on the electricity that you do not have to acquire from your electricity provider. This means that on a standard 2 kWh system you will save an additional £200 per year AND earn over £680 from the feed in tariff.

If you manage to produce more electricity than you consume any excess will be exported back to the national grid and you will receive a further 3p per kiloWatt for this.

From the 1st April 2011 the FIT rates for solar PV systems up to 4 kWh-p has increased by the Retails Price Index to 43.3 p/kWh, a rise of 4.8% and will continue to rise by inflation each year.

The Financial Incentive

To translate the feed in tariff into figures, we will take 3 examples of typical domestic solar PV systems. We will use the Government required Standard Assessment Procedure to accurately calculate the energy production of each system.

2.00 kWh Solar PV System


A 2.00 kWh system on a south facing roof will produce on average over 1,700 kWh of electricity per year. Using the Feed in Tariff rate of 43.3 pence, this equates to a tax-free income of £743 in year 1. This payment is guaranteed for 25 years and also increases with inflation.

If you pay an average of 12p per kWh for your electricity, that would equate to a further saving of £100 per year on your current electricity bills based on your using 50% of the generated electricity. With every price rise, this figure increases.

Taking into account the FIT and the saving on electricity this equates to over £870 of benefits in year 1. Each additional year will bring extra benefits as the FIT rises with inflation each year as well as additional cost savings due to increased electricity prices.

Over the lifetime of this system (25 years), and taking into account inflation and electricity price rises, a 2.00 kWh system could produce income and savings worth around £35,000.

3.00 kWh Solar PV System


A 3.00 kWh system will produce on average 2,575 kWh of electricity per year. Using the Feed in Tariff rate of 43.3 pence, this equates to a tax-free income of £1,115 in year 1. This payment is guaranteed for 25 years and also increases with inflation.

If you pay an average of 12p per kWh for your electricity, that would equate to a further saving of £155 per year on your current electricity bills based on your using 50% of the generated electricity. With every price rise, this figure increases.

Taking into account the FIT and the saving on electricity this equates to over £1,300 of benefits in year 1. Each additional year will bring extra benefits as the FIT rises with inflation each year as well as additional cost savings due to increased electricity prices.

Over the lifetime of this system (25 years), and taking into account inflation and electricity price rises, a 3.00 kWh system could produce income and savings worth over £52,400.

4.00 kWh Solar PV System


A 4.00 kWh system will produce on average 3,434 kWh of electricity per year. Using the Feed in Tariff rate of 43.3 pence, this equates to an income of £1,487 in year 1. This payment is guaranteed for 25 years and also increases with inflation.

If you pay an average of 12p per kWh for your electricity, that would equate to a further saving of £206 per year on your current electricity bills based on your using 50% of the generated electricity. With every price rise, this figure increases.

Taking into account the FIT and the saving on electricity this equates to over £1,740 of benefits in year 1. Each additional year will bring extra benefits as the FIT rises with inflation each year as well as additional cost savings due to increased electricity prices.

Over the lifetime of this system (25 years), and taking into account inflation and electricity price rises, a 4.00 kWh system could produce income and savings worth around £70,000.

Summary - The Financial Incentive

The chart below shows the expected electricity generation of this system and the income that is produced by the feed in tariff. Note also that an electricity saving is made since the client no longer has to pay for the amount of electricity that his system produces.

System Size 2.0 kWh 3.0 kWh 4.0 kWh
Annual Generation kWh 1,717 2,575 3,434
Electricity Saving @ 12p/kWh * £103 £155 £206
Feed In Tariff @ 43.3p/kWh ** £743 £1,115 £1,487
Export Income @ 3p/kWh £27 £40 £54
Year 1 Income & Savings £873 £1,310 £1,747
Year 5 - cumulative totals ** £4,659 £6,989 £9,318
Year 10 - cumulative totals ** £10,127 £15,190 £20,254
Year 25 - cumulative totals ** £34,965 £52,447 £69,930

 

* We have based this figure on using 50% of the generated electricity off the system. If you use more than 50% then the savings will increase.

** The feed in tariff is guaranteed for 25 years and is index linked and therefore rises each year. We have taken a 3% inflation figure for this illustration.

To read about some recent installations please click here for our case study examples.

Homeco Energy - Solar Panel and Solar Electric PV Installers for Sheffield and South Yorkshire