The FIT system is intended as the mechanism for supporting small deployments of renewable electricity generation. The Government will use powers in the Energy Act 2008 to introduce a system of feed in tariffs to incentivise small scale, low carbon electricity generation by providing “clean energy cashback” for householders, communities and businesses – to allow them to become generators of electricity, as opposed to simply consumers. These feed-in tariffs will work alongside the Renewables Obligation, which will remain the primary mechanism to incentivise deployment of large-scale renewable electricity generation, and the Renewable Heat Incentive (RHI) which will incentivise generation of heat from renewable sources at all scales.

At the small scale, the RO has been seen to be unwieldy and failing to incentivise householders and other small investors. The FIT scheme should deliver a mechanism which is easier to understand, as well as allowing additional support for smaller scale and more expensive technologies. However, for wind energy, the two systems will operate well together because the FIT for larger schemes (up to 5 MWe) is similar to the RO Certificate trading value.

It is expected that by 2020 the scheme will support over 750,000 small scale low carbon electricity installations and will have saved 7 million tonnes of carbon dioxide.

FIT systems are used extensively across Europe to incentivise renewable electricity. The schemes are different in every country. The GB FITs will consist of two elements of payment made to generators, and paid for, by licensed electricity suppliers. The first element is a generation tariff that differs by technology type and scale, and will be paid for every kilowatt hour (kWh) of electricity generated and metered by a generator.

This generation tariff will be paid regardless of whether the electricity is used onsite or exported to the local electricity network.

The second element is an export tariff which will either be metered and paid as a guaranteed amount that generators are eligible for, or will, in the case of very small generation, be assumed to be a proportion of the generation in any period without the requirement of additional metering.

Therefore a FITs generator may use electricity generated onsite, thus avoiding having to purchase that electricity from their supplier, or may export their generation directly to the grid, or (in many cases) some combination of the two. For exported electricity, they can either opt to receive a guaranteed payment of 3p/kWh exported, or may opt out of the export tariff and sell their electricity on the open market.

FITs will be paid to individuals, households, communities and businesses when they generate electricity from eligible small scale low carbon energy sources, including solar photovoltaic, wind, hydro, anaerobic digestion and domestic-scale microCHP. Payments will be made by electricity suppliers and the cost will be shared among them by a process called “levelisation” so that each supplier pays an amount that is proportional to their share in the electricity market in Great Britain.

The individuals, communities and businesses who are supported by FITs are referred to as generators.

FITs will be paid to generators by licensed electricity suppliers, and all licensed suppliers will be required to make their fair contribution to the cost of the scheme. Licensed suppliers with more than 50,000 domestic customers will be obliged to pay FITs, whereas those with fewer than 50,000 domestic customers may choose whether or not to offer tariffs to generators above 50kW.

Any individual installation, once starting to receive a tariff at a certain level, will continue to receive the same generation tariff level throughout its entire support period under the FIT scheme. This tariff will however be increased annually in line with inflation (RPI).

FITs generators will be able to opt to receive a guaranteed market and price for that electricity. There will be a single export tariff that applies across all generators who chose to benefit from it, and that the tariff will be adjusted for inflation.

FITs generators who are able to follow market peaks should be able to be rewarded for doing so and as the market develops for small scale low carbon electricity, competition in the market may be able to provide a better position for generators. It will be possible for generators to opt out of the export tariff if they wish to take the risks that such a move would bring, and for that decision to be reversible.

Tariffs will be paid for 25 years for photovoltaic generators, and for 20 years for anaerobic digestion, hydro and wind generators; projects within the micro CHP pilot will be paid for 10 years.

Degression is where tariffs for new installations are set at a lower level each year than for installations made in previous years. This is to reflect, and also to encourage and drive, decreases in technology and installation costs. However, wind schemes above 100kWe do not have any degression to their starting tariff.

 

The export tariff is set at 3p/kWh. As for generation tariffs, the export tariff will be indexed annually by RPI. Generators will have greater flexibility in regard to opting out of the export tariffs; generators will be able to opt in or out on an annual basis.

Whilst waiting for Smart electricity meters to be fully deployed, and strictly as an interim measure, for domestic scale generators, it will be possible to pay export tariffs on the basis of estimated (deemed) exports.

There is a need to know how an individual installation is defined in order to verify capacity limits per installation.

The key provisions are:

• if a generator installs two different technologies on a single site (e.g. a PV panel and a wind turbine) they will be classed as two different installations;

• if the generator has multiple installations of the same technology, they will be classed as a single installation site when determining the tariff;

• site is defined in relation to a number of factors including address, map reference and electricity meter identification;.

• any expansion of an installation within 12 months (of the same technology) will be treated as an increase in the capacity of the installation; if an expansion takes place more than one year after confirmation in the Central FITs Register, the expansion will be treated as a separate station - the original installation will be treated as having continued in the same class, while the new installation will be rated at the capacity of the aggregate of the two stations.

OFGEM have said that the distinction between sites is likely to be that they have independent electricity metering.

The FIT scheme is a major development in the fiscal incentives offered to generators of renewable electricity. There is every indication that they will be very effective and influential.

The Renewables Obligation was introduced in April 2002, and requires all licensed electricity suppliers in England and Wales to supply a specified proportion of their electricity sales (3% in 2002-2003 rising to 15.4% in 2015-2016) from a choice of eligible renewable sources.

Suppliers have to demonstrate compliance with their target each year (the compliance period is April to March) by either:

a.       surrendering one Renewable Obligation Certificate (ROC) to the UK's electricity regulator OFGEM - the Office of Gas and Electricity Markets - for each MWh of its obligation, or

b.      paying a "buy-out price" of £30.00 (adjusted annually by RPI) to OFGEM for each MWh of its obligation

 

Renewable sourced energy includes the following:

•Landfill and sewage gas

•Hydro schemes

–All new and existing <1.25MWplant

–Refurbished plant up to 20MW

•Onshore and offshore wind

•Biomass

–Energy crops, agricultural and forestry wastes

–Pyrolysis, gasification and anaerobic digestion

–Co-firing until 2009 (with energy crops until 2016)

•Tidal and tidal stream power

•Wave power

•Photovoltaics

 

A ROC is proof that electricity has been generated from an accredited renewable generation plant. Each ROC represents the generation of 1 MWh of renewable electricity. It can be traded separately from the underlying electricity.

Electricity suppliers have an incentive to comply by purchasing ROCs as it is beneficial for some suppliers to be seen to be meeting their renewables targets by buying green certificates, rather than just paying a fine for failing to meet their targets.

The buy-out payments made to OFGEM go into a communal pot, and are re-distributed to the suppliers in proportion to the number of ROCs they have surrendered in the relevant compliance period – a "recycling payment". The true value of the ROC is therefore derived from the avoided fine plus the amount of the recycling payment. Suppliers, generators and traders all speculate on the amount that this payment will be worth, however only ROCs surrendered by suppliers (and not those held by generators) will be eligible for this payment.

The value of the ROC being achieved at recent auctions is shown below. This is similar to the £45 generation tariff of the FIT scheme for the 1.5 to 5 MWe size of wind turbine schemes.

Auction Date	Average ROC Price	Lowest ROC Price	Total No' of ROCs
19 January 2010	£46.25	45.00	56,382
13 October 2009	£45.52	45.50	97,842
7 July 2009	£52.90	£52.65	150,506
7 April 2009	£52.65	£52.50	148,333
13 January 2009	£51.81	£51.75	108,899