Solar PV Feed-in tariff (FiT) explained
The Feed-in Tariff is a government-backed scheme to encourage homeowners to generate green electricity.
The scheme offers generous payments to homeowners for energy produced from renewable sources like solar power.
The payments are tax-free, increase in line with inflation (RPI) and are guaranteed for 20 years. An average system can provide a return of 6-8%, which makes them a great investment. Payments are also not subject to income tax so the benefits for higher rate taxpayers are quite considerable.
The current FiT rate for Solar PV (up to 10kWp) is 4.0p per kWh plus 5.03p for exporting 50% of what you generate.
How does it work?
- You get paid for all of the electricity that you produce
This is called the Generation Tariff and means that your energy supplier will pay you a set rate for each unit (or kWh) generated, whether you use it in your home or not.
- Receive extra payment for power that is exported back to the grid
The Export Tariff has been set up because you won’t be able to use all of the energy that your system produces. Your energy supplier will also pay you extra for any units that you export back into the National Grid.
- Cut your energy bills by using free solar electricity
The average home will use around 50% of the energy produced by a PV system. This is dependent on lifestyle and the more that you use your free electricity, the greater the reductions on your energy bills.
Feed-in tariff example
Mr Green wants a 4kWp system on his south-facing roof in Leeds. This will be a 16 panel system costing around £5,250 (including VAT).
A 4kWp system in Leeds is predicted to produce 3568 units (kWh) of electricity per year.
Mr Green will therefore:
- earn around £149 (4.0p x 3568 kWh) for the total amount of electricity generated by his own personal power station, regardless of whether or not it is used in the home.
- save £250 per year on his electricity bill by not having to draw as much electricity from the National Grid.
- receive £88 per year (5.03p x 3568 kWp ÷ 2) for exporting an estimated 50% of his electricity to the National Grid.
So, his annual benefit from installing solar PV will be:
£149 + £250 + £88 = £487
The FiT is guaranteed for 20 years so over this time the system will have a payback of £13,307.
That means a 20-year profit of £8,057 (£13,307 - £5,250) which is 253%.
This equates to an annual return on investment of 12.7%.
This means that solar PV is a great investment as well as an environmentally sound home improvement which should also increase the value of the property.
- This illustration assumes electricity prices of 14p per unit (kWh). If, as is widely predicted, electricity prices increase, the savings become greater.
- This illustration assumes annual (RPI) inflation of 2% and annual electricity price inflation of 5%.
- This illustration assumes an unshaded south-facing roof with pitch of 30-40 degrees.
- Output predictions are made using the Government's official MCS Assessment Procedure.