Feed-in Tariffs finally on their way

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24 November 2009

Using powers in the 2008 Energy Act, the Government is about to introduce a new incentive scheme in April 2010 to encourage the greater deployment of small-scale renewable electricity. The Government has predicted that small-scale renewables will be capable of providing 2% of the UK's total electricity needs by 2020 and therefore will play an important role in helping the UK to meet its binding target of 15% of all UK energy from renewable sources by 2020.

To help realise the potential of small-scale renewable electricity generation, the new feed-in tariffs (or FITs) regime will be aimed at projects with a capacity of up to 5 megawatts and will offer a more simple alternative incentive mechanism to the Renewables Obligation, which will continue to run in parallel. This more straightforward regime is anticipated to appeal in particular to homeowners and those businesses for whom electricity generation is not a core business, such as retailers, builders, farmers, property owners, communities and the public sector, including housing associations, schools and hospitals. 

The incentives will derive from a fixed generation tariff, which will be paid by electricity suppliers for all of the metered renewable electricity produced. The amount of the generation tariff will depend upon the type of technology used and the size of the installation. Under current proposals, these generation tariffs range from 4.5 pence per kilowatt hour (for larger wind, hydro and biomass projects) to 36.5 pence per kilowatt hour (for the smallest retrofitted solar (PV) systems). Initially, the FITs regime is only intended to apply to electricity produced from anaerobic digestion, biomass, hydro, PV and wind projects.

In addition to the generation tariff, generators will have the option of either selling any electricity that is not used on-site to third parties, or collecting a further 5 pence per kilowatt hour from their electricity supplier by way of a guaranteed export tariff, for electricity which is fed back into the electricity network. As well as benefitting from these two tariffs, those generating electricity will also benefit from the avoided costs of having to buy less electricity from suppliers to meet their on-site needs.

The Government has yet to publish its response to the recent consultation carried out in relation to the proposed FITs regime and therefore there are a number of details which may still be subject to change, including the level of the tariffs themselves. However, it is anticipated that the certainty and benefits provided by the new FITs regime will, when implemented, significantly increase the interest in small-scale renewables development and open up development opportunities to a wide range of individuals and businesses who have not previously considered entering the renewable energy market.  

For further information on the new FITs regime and to discuss potential opportunities for developing renewable electricity projects, please contact James Phillips on +44 (0)117 902 7753 or james.philips@burges-salmon.com, or Ross Fairley on +44 (0)117 902 6351 or ross.fairley@burges-salmon.com.

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