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Incentives for generating renewable energy

Wise Up guides you through the Feed-in Tariffs and the Renewable Heat Incentive, set to come into force later this year...

The UK currently gets around 5.5 per cent of electricity from renewable sources. The Government says that this will need to increase to around 30 per cent to meet the 15 per cent target for all energy by 2020.

In order to meet its targets, the Government has developed a number of incentive schemes to encourage renewable energy production. They include the Renewables Obligation (RO), the primary mechanism to encourage large-scale green electricity generation, and the Feed-in Tariffs (FITs) which were introduced in April 2010. 

The particular aim of FITs is to encourage additional low carbon electricity generation by organisations, businesses, communities and individuals that are not traditionally engaged in the electricity market.

According to the Department of Energy and Climate Change (DECC), modelling shows that small scale renewable installations could meet two per cent of electricity demand in 2020.

In summer 2011, the Renewable Heat Incentive (RHI) will be added to the mix, incentivising generation of heat from renewable sources at all scales.

RO or FITs?
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”.


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