# What is the Feed in Tariff?

## How does the Feed in Tariff work?

Introduced in April 2010, the Feed in Tariff (FIT) is a scheme designed to encourage and reward people who invest in solar panels and wind turbines. The government has set in stone a 20 year payment plan for all customers who install a solar PV system in 2012 and beyond.

The domestic rate as of 1st July 2015 is 12.94 pence* for every kilowatt of electricity your system produces, and is income **tax free**. So even if you use all the electricity your solar PV system produces you still receive 12.94p per kilowatt guaranteed for 20 years.

On top of this, you will also save on the electricity that you do not have to acquire from your electricity provider. This means that on a standard 4 kWh system you will save an additional £240** per year AND earn over £500 from the feed in tariff.

If you manage to produce more electricity than you consume any excess will be exported back to the national grid and you will receive a further 4.85p per kilowatt for this.

From the 1st April the FIT rate for existing solar PV systems up to 4 kWh-p will rise by the Retail Price Index and will continue to rise by inflation each year.

*12.94 pence FIT rate will be avalable until 30th September 2015 for PV systems up to 4kW in size. The FIT rate will vary for installations over 4kW. The rate after this date will likely be reduced.

**Assuming 50% usage of total generation and a price paid of 15p per kWh to your electricity supplier.

## The Financial Incentive

To translate the feed in tariff into figures, we will take 3 examples of typical domestic . We will use the Government required Standard Assessment Procedure (2012) to accurately calculate the energy production of each system.

### 2.00 kWh Solar PV System

A 2.00 kWh system on a south facing, unshaded roof will produce on average over 1,700 kWh of electricity per year. Using the Feed in Tariff rate of 12.94 pence, this equates to a **tax-free FIT income of £220 in year 1**. This payment is guaranteed for 20 years and also increases with inflation.

If you pay an average of 15p per kWh for your electricity, that would equate to a further saving of **£127 per year** on your current electricity bills based on your using 50% of the generated electricity. With every price rise, this figure increases.

Taking into account the FIT and the saving on electricity this equates to **over £388 of benefits in year 1**. Each additional year will bring extra benefits as the FIT rises with inflation each year as well as additional cost savings due to increased electricity prices.

Over the lifetime of this system (20 years), and taking into account inflation and electricity price rises, a 2.00 kWh system could produce income and savings worth around **£10,000**.

### 3.00 kWh Solar PV System

A 3.00 kWh system, unshaded will produce on average 2,575 kWh of electricity per year. Using the Feed in Tariff rate of 12.94 pence, this equates to a **tax-free FIT income of £333 in year 1**. This payment is guaranteed for 20 years and also increases with inflation.

If you pay an average of 15p per kWh for your electricity, that would equate to a further saving of **£193 per year** on your current electricity bills based on your using 50% of the generated electricity. With every price rise, this figure increases.

Taking into account the FIT and the saving on electricity this equates to **over £588 of benefits in year 1**. Each additional year will bring extra benefits as the FIT rises with inflation each year as well as additional cost savings due to increased electricity prices.

Over the lifetime of this system (20 years), and taking into account inflation and electricity price rises, a 3.00 kWh system could produce income and savings worth over **£16,100.**

### 4.00 kWh Solar PVSystem

A 4.00 kWh south facing, unshaded system will produce on average 3,434 kWh of electricity per year. Using the Feed in Tariff rate of 12.94 pence, this equates to a FIT income of **£444 in year 1**. This payment is guaranteed for 20 years and also increases with inflation.

If you pay an average of 15p per kWh for your electricity, that would equate to a further saving of **£257 per year** on your current electricity bills based on your using 50% of the generated electricity. With every price rise, this figure increases.

Taking into account the FIT and the saving on electricity this equates to **over £785 of benefits in year 1**. Each additional year will bring extra benefits as the FIT rises with inflation each year as well as additional cost savings due to increased electricity prices.

Over the lifetime of this system (20 years), and taking into account inflation and electricity price rises, a 4.00 kWh system could produce income and savings worth around **£22,100**

.

## Summary - The Financial Incentive

The chart below shows the expected electricity generation of this system and the income that is produced by the feed in tariff. Note also that an electricity saving is made since the client no longer has to pay for the amount of electricity that his system produces. The initial cost of installation needs to be recouped over the payback period before a net financial gain can be made.

System Size | 2.0 kWh | 3.0 kWh | 4.0 kWh |
---|---|---|---|

Annual Generation kWh | 1,717 | 2,575 | 3,434 |

Electricity Saving @ 15p/kWh * | £127 | £193 | £257 |

Feed in Tariff @ 12.94p/kWh ** | £220 | £333 | £444 |

Export Income @ 4.85p/kWh | £41 | £62 | £83 |

Year 1 Income & Savings | £388 | £588 | £785 |

Year 5 - cumulative totals ** | £2,266 | £3,398 | £4,531 |

Year 10 - cumulative totals ** | £4,970 | £7,454 | £9,939 |

Year 20 - cumulative totals ** | £12,100 | £18,100 | £24,158 |

* We have based this figure on using 50% of the generated electricity off the system. If you use more than 50% then the savings will increase.

** The feed in tariff is guaranteed for 20 years and is index linked and therefore rises each year. We have taken a 3% inflation figure for this illustration.

To read about some recent installations please click here for our case study examples.