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Under the European Union Renewable Energy Directive, the UK Government has been set an extremely ambitious target of generating 15% of all energy from renewable sources by 2020. To help achieve this, the UK Government introduced a FIT for renewable energy generation within the UK. The FIT commenced on the 1st April 2010 and provides generators of renewable energy with a guaranteed fixed price for every kWh of renewable electricity produced. All FIT payments are index linked to UK RPI and for Solar Photovoltaics the FIT is paid for a period of 25 years. The FIT Scheme was enacted in law under the Feed in Tariffs (Specified Maximum Capacity and Functions) Order 2010 (“FIT Order”) and is managed by the Gas and Electricity Market Authority (“Ofgem”), who is the UK energy market regulator.

Although managed by Ofgem, FIT Scheme payments are a direct payment obligation of the largest energy companies including EDF, EOn, RWE, nPower, Scottish and Southern Energy, Scottish Power and British Gas (collectively known as the “Big 6”). Because FIT payments are an obligation of the Big 6 energy companies, higher electricity prices will be levied on consumers to support the FIT Scheme and the UK Government has relaxed pricing rules to allow for this.

Update on FIT Scheme – October 2011

On 31st October 2011 the UK Government published a consultation paper on proposed changes to the UK FIT Scheme; the consultation closed on 23rd December 2011. If the proposals in the consultation document are implemented the FIT of 43.3 pence per kWh for retrofit sub 4kWh solar systems would be reduced to 21 pence per kWh. This new tariff would apply to all new solar PV installations completed on or after 12 December 2011. Such installations would receive the tariff of 43.3 pence per kWh from their installation date to 1st April 2012 before moving to the new proposed tariff. New multi-installation tariff rates for aggregated solar PV schemes, i.e. where a single individual or organisation owns or received FIT payments for more than one installation, connected after 31st March 2012, were also announced. The FIT for installations that are part of aggregated schemes would be 80% of the standard tariffs, effective 1st April 2012. 

FIT Revenue

Completing each domestic Solar PV installation between 12th December 2011 and 31st March 2012 will see the EIS 2 Companies lock in long term FIT revenue streams as described above for the gross amount of electricity generated.

Export Revenue

In addition to the FIT Revenue, under the terms of the FIT Order, 50% of the electricity generated on site for domestic installations is deemed to be exported back to the grid, regardless of whether the electricity is used on site or not.

Each year for the 25 year life of the FIT Scheme, management can make an annual election as to which energy company exported electricity is sold to. If properly managed, enhanced revenues could be achieved over time. For the current year, the minimum export price has been set at 3.1 pence per kWh (note under the terms of the FIT Order the minimum export price is also inflation linked to UK RPI).