Whether a renewable generation project is eligible for incentives under the RO or FIT regime will depend on the size and type of scheme and when it receives or received accreditation.
• Existing microgeneration technologies (producing less than 50 kilowatt of electricity) that are eligible for FITs will have to switch from the RO to the new scheme on April 1 2010
• No new microgenerators in technologies eligible for FITs will be able to join the RO after this date
• Small generators (producing between 50 kilowatt and five megawatt) that have full accreditation before July 15 will stay in the RO
• Small generators that receive full accreditation between July 15 2009 and March 31 2010 will have a one-off chance to switch
• Small generators that receive full accreditation after April 1 2010 will have a one-off choice to join either the RO or the FITs.
We asked energy company Good Energy to compare the payments available under the two regimes. It came up with the following two examples:
For a two kilowatt (kW) solar PV site:
• Under the FIT – likely to receive around £870 a year
• Under the RO – this would work out to be around £280 a year
For a 6kW wind site:
• Under the FIT – it would receive £2,700 a year
• Under the RO – less than £1,000
Asked whether the payments received should be the only deciding factor for generators choosing between the two regimes, a Good Energy spokesperson said: “When making the choice between the RO and FIT (which applies to 50kW generators) we would suggest that the total generation payment needs to be the primary consideration.
“For generators of this size, it’s likely that they’ll be installed against debt – so there’s a balance here between receiving a fixed FIT return for a set number of years, and participating in the ROC market.
“Participating in the ROC market would mean taking a risk but, in some cases, potentially receiving a better return for your total generation (depending on the future ROC market).
“It really depends on the individual’s willingness to take on more risk or stick with a fixed, timetabled plan.”
Asked the same question, a spokesperson for Ofgem said it was not the regulator’s role to advise on the choice available to customers, but factors to take into consideration include “ease of obtaining finance in relation to this, ability to negotiate with suppliers for ROC value under the RO and the administration the customer has to go through in each case”.
Feed-in tariffs (FITs), available from April 1 2010, are designed to incentivise businesses and individuals to install small scale electricity generating technologies by guaranteeing a minimum payment for the electricity generated as well as the electricity exported to grid.
The scheme is designed to incentivise everything from a two kilowatt (kW) system fitted to a single home to a five megawatt (MW) wind turbine powering a whole community.
Either way, the incentive comes in three parts:
• The generation tariff, which takes the form of a fixed payment from the business’s or individual’s electricity supplier for every unit of energy or kilowatt hour (kWh) generated
• An export tariff, which will pay an extra 3p/kWh, in addition to the generation tariff, for any electricity not used on-site and ‘exported’ to the grid
• Offsetting of on-site use of electricity – where the business or individual uses the electricity on-site, this can be offset against electricity that would otherwise have been bought elsewhere.
At the moment, the FITs scheme only applies in England, Wales and Scotland. Northern Ireland has not yet taken a decision on implementing the scheme.
What technologies are supported by the scheme?
Small scale, low carbon electricity technologies initially eligible for the scheme include: wind; solar photovoltaics (PV); hydro; anaerobic digestion; and, as a pilot, domestic scale microCHP (with a capacity of 2kW or less).
The pilot for domestic scale microCHP (micro combined heat and power) is initially designed to support up to 30,000 installations, with a review to start once the 12,000th installation is completed.
Solid or liquid biomass technologies are not currently covered by the FITs scheme, although they will continue to receive support under the Renewables Obligation (RO). The decision to exclude biomass from the FITs scheme when it is already covered by the RO, has been described as “confusing” by campaign group Friends of the Earth.
The idea is that FITs should only support tried and tested technologies that can be effectively deployed in the short term. Wave, tidal and pyrolysis technologies are not currently covered.
New technologies will be considered for inclusion under FITs at the first of the scheme’s reviews, due in 2013.
Is accreditation needed?
To qualify for a FITs payment, it will usually be necessary to use a product and installer certified under the Microgeneration Certification Scheme (MCS).
According to Ofgem, MSC approved products and installers must be used for any installation after April 1 2010 if it is is wind, PV or hydro at or below 50kw capacity, or fossil fuel CHP at or below 2kw.
Wind, PV and hydro above 50kw and anaerobic digestion systems of any size do not require MSC approval – indeed, the MCS does not certify these yet – instead, they must seek accreditation from Ofgem.
Lists of certified products and installers are available on the MSC website.
Microgenerators transferring to FITs, that have already gained accreditation under the RO, do not need MSC certification, however.
DECC has produced a flowchart to chow what accreditation is required (Microgenerators’ FITs eligibility flowchart).
How much do you get?
Tariff levels vary depending on the type and scale of installation, ranging from 4.5p kWh for some hydro to 41p for retrofit PV (though will generally be in the ballpark of 20-35p/kWh) for installations completed between July 15 2009 and March 31 2012.
The tariff is fixed for the lifetime of the installation (usually 20 years, but 25 years for PV) and linked to the Retail Price Index (RPI) to ensure it holds its value in real terms.
Payments for some technologies will be fixed at a lower rate after the FITs scheme has been running for two or three years, reflecting the fact that the cost of these technologies is expected to fall over time.
How are existing installations treated?
One of the most controversial decisions made by the Government in drawing up the rules for FITs payments concerns the treatment of microgenerators of less than 50kW installed and RO accredited before July 15 2009.
Such installations are required to switch to the FITs scheme in order to continue to receive financial support, but will receive a lower tariff than new installers – roughly equivalent to what they would have received through ROCs, around 9p/kWh.
Small generators, producing between 50kW and 5MW can chose whether to stay in the RO or transfer to the FITs.
More information?
In the run-up to the launch of the FITs scheme in April 2010, there are lots of possible sources of good information, including:
DECC The Government Response to the Consultation on Feed-in Tariffs
Ofgem
Carbon Trust
Energy Saving Trust
Renewable Energy Association
British Wind Energy Association
Good Energy has produced a useful set of answers to some frequently asked questions about FITs.
The Renewables Obligation (RO) was introduced in 2002 and is the Government's main mechanism for increasing the amount of renewable electricity generated in the UK. Since its introduction, it has been credited with tripling the level of eligible renewable generation from 1.8 per cent of total supply to 5.4 per cent in 2008.
Last December, the Government confirmed that the scheme would be extended for ten more years than originally planned, to 2037.
The RO requires power suppliers to derive a specified proportion of the electricity they supply to customers from renewable sources. This proportion has risen significantly since the 3 per cent required in 2003 – this year it is 10.4 per cent and it will be 15.4 per cent by 2015.
How does it work?
Under the RO scheme eligible renewable generators, which have been accredited by Ofgem, receive Renewables Obligation Certificates (ROCs) for each MWh of electricity they generate.
The usual exchange rate is one ROC for each MWh, but there are lots of exceptions to this rule – landfill gas, for example, gets just 0.25 ROCs per MWh, while a range of technologies including wave, tidal stream and fuels using anaerobic digestion get two ROCs per MWh.
The usual rate for offshore wind is 1.5 ROCs per MWh, but under a special dispensation, all such projects accredited between April 2010 and March 2014 will qualify for two ROCs per MWh.
The ROC payments available not only depend on the technology being used but when it was accredited. More details are available from Ofgem.
Once the renewable generator has received its ROCs, it can sell them on to the power suppliers, in order to help them fulfill their obligation.
Where suppliers do not have sufficient ROCs to meet their obligations, they must pay an equivalent amount into a fund, the proceeds of which are paid back on a pro-rated basis to those suppliers that have presented ROCs.
ROCs incentivise the generation of renewable energy because their value is higher than the price of the electricity itself.
At the end of 2009, to increase investor confidence and further encourage renewables deployment, the Government confirmed that new schemes would be guaranteed 20 years of support under the RO.
What technologies are supported by the scheme?
A wide range of renewable energy sources can be eligible for ROCs payments, ranging from landfill and sewage gas, to tidal and wave power; onshore and offshore wind to biomass and energy crops.
A full list of eligible renewable energy sources is available on the DECC website.
Is accreditation needed?
Electricity generators must apply to Ofgem for accreditation.
How much do you get?
The value of ROCs is determined by the market and what each buyer and seller can negotiate.
Ofgem’s annual reportfor the Renewables Obligation, published each April, details what a ROC was worth to a licensed electricity supplier in previous obligation periods.
More information
Ofgem has produced a useful guide, ‘Frequently Asked Questions for Generators 50kW or Less’, which answers a lot of basic questions about the RO scheme.
DECC
Renewable Energy Association
British Wind Energy Association
Good EnergyThe UK currently gets less than one per cent of heat from renewable sources. This will need to rise to around 12 per cent in order to meet the 15 per cent target for all energy by 2020.
At the end of 2009, DECC published plans to incentivise renewable heat generation at all scales. In October 2010, DECC confirmed the Renewable Heat Incentive would receive £860 million in funding and will come into effect by June 2011.
The scheme will guarantee payments for those who install technologies such as ground source heat pumps, biomass boilers and air source heat pumps. Ofgem will be responsible for making payments direct to heat generators.
Under the proposed tariffs, DECC suggests that the installation of a ground source heat pump in an average semi-detached house with adequate insulation levels could be rewarded with £1,000 a year and lead to savings of £200 per year if used instead of heating oil.
More information
Visit the DECC website 