As part of the Energy Act of 2008 set-out by law, and the European 2020 Climate Change Levy, the UK Government introduced the Feed-in-Tariff (“FiT”) scheme. Outlined in 2008, it then took effect from April 2010. It was designed to promote small-scale renewable and low-carbon electricity generation.
The scheme was available to renewable sources producing up to 5MWp (residential and small business premises, roof-top solar photovoltaic (“PV”)).
How the scheme worked
The feedback term for solar PV installed in 2010 was 25 years, at 43.3p per kWh, payable to the asset ‘owner’. With an additional export tariff at 3.2p per kWh paid by the electricity utilities company on an assumption that 50% of the power produced will be fed back in to the grid.
A 1kW system in the UK will, on average, produce 850kWh per year. This will give an average yield:
This framework meant that many companies, were able to offer free installation to qualifying properties (based on location, orientation, size and pitch). With reductions in installation costs, by as much as 50%, it was a feasible business model producing a good ROI yield. Companies then proceeded to build large portfolios of solar PV installations, reaping the rewards from the subsidies.
In October 2011 the Department of Energy and Climate Change announced that they had under estimated the success of the scheme with over 100,000 so far. To ensure the scheme remained sustainable, they would be cutting the solar subsidies by over half to 21p per kWh for any newly installed solar PV. This cut came into effect from 3rd March 2012. To off-set this cut a small increase was made to export tariffs was made from 3.2p to 4.5p per kWh produced.
In August 2012, a further review brought the subsidy down to just 16p per kWh produced. Then further reductions meant that from 1 November 2012 to just 15.44p per kWh, which remained set until 1 February 2013. New tariffs would also now be paid over 20 years instead of 25 years.
Sources: The Guardian http://www.theguardian.com/environment/2012/aug/01/solar-panel-feed-in-tariff-cut; http://www.theguardian.com/environment/2011/oct/28/solar-subsidies-cut-half; Wikipedia http://en.wikipedia.org/wiki/Feed-in_tariffs_in_the_United_Kingdom