The Green Company's Ben Cosh: why the feed-in tariff is good for business

This scheme – also known as Clean Energy Cashback – rewards those who invest in green technologies by guaranteeing to pay a set rate for each unit of energy produced. This breaks down into two sub-payments. Firstly there is a ‘generation tariff’ payment for each unit of green energy created (whether it is used on site or exported) and then there is another payment for any units that are sold (exported) to the National Grid. If the owner has an on-site energy requirement then they can use the electricity on-site to reduce their electricity bills rather than exporting it – if this is the best economical decision.

This model of incentivising investment in green technologies has been successfully deployed in over 45 countries already and guarantees a set rate for each unit of electricity generated. The guarantee in the UK is 20 years for wind technologies and 25 years for solar projects.

There has been much talk about whether the returns are there for businesses but the FiT does create investment opportunity for the right renewable technology in the right location.

Our analysis shows that owners and investors who raise their own capital can reach up to 10 per cent nominal returns (eight per cent real returns) with a reasonable site. There are a handful of premium sites where better returns are possible, but even 10 per cent return is better than leaving cash in the bank.

We at The Green Company are so confident of a return on investment that if a client does not want to develop the site themselves – and they have a good enough site – we will take the risk of the development and give them a guaranteed return by renting the site from them for the life of the FiT.

Finding the best site for renewables

For the business owner, the biggest challenge is making the best use of each site.

Developing wind projects is more technically challenging than solar. Turbulence around buildings and trees even in larger rural spaces has an incredibly disruptive impact on the performance of wind turbines and although the blades may turn they do not create the consistent forces to be economical even with the vertical axis turbines. So roof top wind turbines, which ironically seem to be the image of choice when discussing green electricity, should disappear from our rooftops.

Even rural pole mounted domestic scale turbines struggle to be economic at heights below 15 metres (which is the maximum height for easy planning permission), by the time you take real wind speeds and maintenance bills into account.

Unfortunately, the small wind sector (less than 15 metres high) has attracted ‘double-glazing’ type sales teams and even with the protection of the Government’s Microgeneration Certification Scheme, we expect many people will get their fingers burned. This could create negative publicity for the green sector and for the Government.

FiT opportunities for mid-sized wind turbines

Nevertheless, real opportunities still exist with the FiT and we see these particularly for mid-sized wind turbines.

Wind turbines from 50 kilowatt through to 500 kilowatt sited on farms and industrial sites where there is significant on-site usage can be a great investment. An average site can achieve about 10 per cent real IRR (Internal Rate of Return), but a great site can achieve a lot more. If the customer also has access to capital grants, low cost debt and tax write-offs this can make the returns over the 20 years even more attractive.


The UK’s small-scale residential solar market has developed through a grant-based scheme and this sector should continue to grow under the FiT. But there are also opportunities for business with mid-sized solar systems.

PV solar panels low risk option under FiT

PV (photovoltaic) solar panels (which generate electricity, not hot water) are a low risk option with the sun surprisingly predictable even in the UK. Many people think the technology is not there yet, but the FiT subsidises the technology cost, therefore making it viable.

We at The Green Company are working on various sizes of PV installations – from large residential up to commercial projects of 400,000 square feet (four hectares) that will generate over £300,000 income per year for 25 years after an initial £3 million cost.

The industry and investors have been waiting for the UK to follow the rest of Europe and bring in a FiT. It is a proven incentive model with proven technologies – but should you wait until the technology price falls?

As the unit price of the technology falls the development of new PV projects will probably become cheaper.

But the FiT rates will also be lower through a process called degression: when you install a micro-generation system, you lock in the feed-in tariff rates that were in force at the time of commissioning. These rates are then guaranteed + RPI (Retail Price Index) for the 20 or 25 year life of the system. If your neighbour then installs a system in a subsequent year, they will receive a lower (degressed) rate locked in for the life of their system. And so it goes on so the later you leave it, the lower the rates you will get, but once you have taken the plunge you have a lock in on that rate for the term.

In the most successful markets for solar FiT – Spain and Germany – the best returns were available in the first few years of the scheme so waiting has not historically been the best decision.

The UK initiative has its first review in 2013 and given that a project can take two years through feasibility and planning, I suggest that those who have a good site make their investment while the tariff ‘shines’.