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UK Feed in Tariffs explained

Published by Jason Koffler on 11 July 2010

The UK Feed in tariff system

Our UK feed-in tariff system is designed as an incentive for energy producers to move away from conventional fossil fuels to renewable energy sources as part of our commitment to developing a green energy system. With an estimated 4% of our power coming from renewable sources by 2020, currently it stands at 2% of our total generation capacity. The UK governments legislation is designed to guarantee a fixed, premium rate for renewable electricity fed into the national grid – providing you can obtain a connection to the national grid. UK power companies are obliged by the government legislation to buy the renewable electricity.

The tariff explained and how finacially attractive is it?

The UK government is committed to reducing its carbon emissions through the adoption of renewable energy sources, particularly in regards to the generation of power in order to combat climate change – one of the biggest environmental challenges our carbon based economy faces.

The Energy Act of November 2008 set out a series of provisions in order to help the government meet its targets and encourage the adoption of carbon free/reducing technologies. The need for a feed in tariff comes from the fact that it is far more expensive to produce energy from green sources than it is from fossil fuels. Traditionally fossil fuels have always been cheaper however with the recent BP experience of deep water drilling we can see how much more expensive it can be in our search for ever reducing fossil fuels. Therefore, in order to attract renewable investors, a feedin tariff has been proposed to provide renewable investors with an attractive commercial incentive.

Our UK Feed-in tariff legislation fixes an above market rate for utility companies to buy electricity from renewable energy producers from large scale to small scale producers. The legislation could therefore mean for example that if the retail price of fossil fuel electricity were 25p per kWh, then the rate for renewable electricity could be up to 65p per kWh. In this case, the 40p difference per kWh would be spread across every customer of the relevant utility company with no exceptions.

It is this fixed tariff paid by the utilities which makes renewable energy an attractive prospect for investors because it guarantees them a return over a long period and has been highly successful at attracting investment where it has been implemented across Europe. Germany for example now produces over 14 per cent of its energy from renewable sources, something which has been attributed to the generous and comprehensive feed-in tariff system implemented by the German government.

What about the future?

The Feed-in tariff system has already been in place in many states such as Germany, Israel, the US, Spain and Australia for some time now and has been instrumental in the success and growth of renewable energy operations there. In a recent BBC interview on the Spanish Energy market it is worth noting that Spain has now moved to a practically carbon fee energy generation system. The BBC Radio interview featured Seat and their efforts to self generate power – a short extract is included below with more information available on request.

SEAT’s factory in Martorell was chosen by the Spanish Automaker (part of the Volkswagen Group) as the location for one of its most ambitious environmental conservation projects, where the installation of solar panels will make it possible to generate clean electrical energy. This move is the last in a trend of companies realizing that solar power may be both environmental and economically sound. By installing 10MW of solar photovoltaic panels, the system will generate over 11.2 GWh of electricity annually by the end of this year.

The solar panels will be in place on the roof of SEAT’s corporate building in Martorell (Catalonia, Spain) next March, as well as on the support structure of one of the finished vehicle parking lots. All the clean energy created will get redirected towards the power mains for distribution. With the new systems in place, the company will be able to satisfy the plant´s huge demand of energy (1.3 million Kw/h).

In order to take full advantage of one of Spain’s greatest resource, the Sun, and the high number of sunlight hours in the area of Martorell and its surroundings, the project witll cover a total surface area of more than 66,000 m2 and the roofs of assembly buildings 8, 9, 10 and 11, which will add an additional 139,000 m2. This phase will total more than 206,000 m2 of solar panels to produce solar energy.

Finally, in a December 2008 the report titled The Renewable energy country attractiveness indices by consultants Ernst & Young, the UK ranks highly as a potential target for renewable investors. Citing the falling value of the Pound and the imminent introduction of feed-in tariffs, Ernst & Young now rate the UK as joint fifth in a list of countries in terms of their attractiveness to investors. Germany rates top of this report, a success which is attributed to their excellent feed-in tariff system (Erneuerbare-Energien-Gesetz EEG).

Click here to download the Renewable Energy Country Report