Clean energy cash back or Feed in Tariff.
The clean energy cash back or Feed-in Tariffs (FITs) as it is sometimes known became available in all areas of the UK except Northern Ireland in April 2010.
Under this scheme energy suppliers have to (compulsory for big six suppliers) make regular payments to householders communities and businesses who generate their own electricity from renewable or low carbon sources such as Solar Electricity Panels or Solar Photovoltaic Panels (PV) as they are otherwise known.
About the Scheme
The scheme guarantees a minimum payment for all electricity generated by the Solar PV system whether you use the electricity or not. You are simply paid for every unit of electricity you generate.
If you use the electricity at the time it’s generated then you will also save on your electricity bill. If you don’t use the electricity when you generate it then you will paid at extra amount for exporting electricity called the Export Tariff. These payments are in addition to the bill savings made by using the electricity generated on-site.
The Microgeneration Certification Scheme (MCS) is an independent scheme that certificates micro-generation products under 50kW and installers in accordance with consistent standards. Only systems that are installed by MCS certified installers using MCS certified equipment are eligible for the clean energy cash back.
How the scheme works
If you are eligible to receive the clean energy cash back or Feed-in Tariffs then you will benefit in 3 ways:
• Clean energy cash back (generation tariff) a set rate paid by the energy supplier for each unit (or kWh) of electricity you generate. This rate, currently 41.3p per unit, will reduce each year for new entrants to the scheme (except for the first 2 years), but once you join you will continue on the same tariff for 25 years in the case of solar electricity (PV). This generation tariff is linked to the retail price index (RPI) so will increase every year. People who install Solar PV systems before March 2012 should gain the highest clean energy cash back over the 25 year scheme.
• Export tariff - you will receive a further 3p/kWh from your energy supplier for each unit you export back to the electricity grid when it isn’t used on site. The export rate is the same for all technologies.
• Energy bill savings you will be making savings on your electricity bills because generating electricity to power your appliances means you don’t have to buy as much electricity from your energy supplier. As Solar PV systems generate electricity using sun light they generate more electricity from mid morning to late afternoon and more in summer than in winter. If you use most of the electricity you generate then you will make the maximum saving on your electricity bill. The value of these savings will increase with the cost of electricity
Domestic solar PV systems usually have their export deemed (estimated) at 50%. In other words you will be paid an extra 3p for half the electricity you generate whether you export it or use it. If you can use all the electric you generate you will save the most money. It is likely the energy suppliers will install smart meters in all premises sometime in the future which will allow them to not only read your electricity meter remotely but also work out when the electricity was used. At this time it is likely they will be able to accurately record the actual units exported and you will then be paid accordingly.
As an example, a typical domestic solar electricity system, with an installation size of 2 kWp could earn around:
• £785 per year from the Generation Tariff
• £30 per year from the Export Tariff
• £120 per year reduction in current electricity bills.
This gives a total saving of around £935 in the first year.
This assumes 50% of the electricity generated is exported and 50% of the electricity is used. If you used all the electricity then you would save another £120 in the first year making a total saving/earnings in the first year of £1055.
In future years the total saving/earnings will increase because
• The clean energy cash back is linked to the retail price index (RPI). Over the last 25 years this has averaged at about 2.5% per annum.
• As electricity prices increase so will the savings on your electricity bill.
No tax on earnings- going green has never been so profitable!
The clean energy cash back is paid free from income tax much in the same way as an ISA is paid. Unlike a savings account you do not pay any tax regardless how much you earn. So typically from the 2kWp system above you would make savings and earnings of about £27,000 over the 25 years. As a basic rate tax payer (20%) you would have to earn an equivalent of about 14% in a savings account to earn the same amount over 25 years. And as a higher rate(40%) payer you would have to earn an equivalent of about 18% in a savings account to earn the same amount over 25 years. Even the best savings accounts or bonds pay only about 4% making a solar PV system the best investment you can make.
Inflation proof investment.
If inflation rises the retail price index will also increase and so will your clean energy cash payments. In this way the clean energy cash payments will always be inflation proof.