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Feed-in Tariff rate drops to 16p – is the sun still shining on solar?

The Feed-in Tariff (FiT) rate – the rate paid per kWh for electricity generated from renewable sources like solar panels – dropped on 1 August from 21p to 16p.

Conversely, the export tariff – the rate paid for excess production exported back into the grid – increased from 3p to 4.5p per kWh, but the guarantee period dropped from 25 years to 20.

More than 250,000 domestic properties with the technology already installed will continue to receive the rate of 21p per kilowatt hour. However, is 16p per kilowatt hour still a worthwhile return on investment for the newcomers?

The benefits of solar

Despite the clear environmental benefits, the main attraction of domestic solar installation remains the economics, even after the rate cut. The cost of installation has dropped from £10,000 to as low as £2,500, whilst generating annual profits of up to £473.

What’s more, fluctuating energy prices mean that those with the panels will be more self-sufficient and less impacted by price rises, as they produce up to half of their electricity themselves.

For those unable to pay the upfront cost, schemes like free solar, where the installer pays installation and receives the Feed-in tariff benefit, but you get the energy bills reduction, and solar loans offer alternatives.

The incentive provided by FiT is the result of emission targets set out by the European Union. The UK is obliged to cut its carbon emissions and see that 20% of its energy comes from renewable sources by the year 2020. In order to do this, domestic property owners and individuals need to be encouraged to do their bit to help bring about this change.

If the UK aim to meet its targets for 2020 and reduce carbon emissions by 80% by the year 2050, solar is likely to play a vital role.

feed in tariffs

So why is FiT being cut?

The original rate was so desirable that there was unprecedented uptake of the scheme leading to the government having to withdraw it earlier than expected.  This meant that funds put aside to pay for the scheme were allocated much more quickly than had been anticipated.

Instead of increasing the budget the government cut the rate – too quickly, as they were taken to court over the fact that a proper consultation period was not observed.  This saw the original rate remaining in place for longer than expected, but it was only a matter of time before it was cut again.

As well as domestic customers, a number of public buildings embraced solar panels after the FiT scheme was introduced, including the National Trust, schools and churches. However, since the government announced plans to change FiT, the solar industry has contracted by 25% with the loss of 6,000 jobs.

Can you still make money with FiT?

– An average household uses around 3,300kWh of electricity a year, costing about £526.

– A system with 12 solar panels will generate 2960kWhs of electricity per year. The average household will use up to 50% of the electricity the panels generate.

– The average household will use 1480kWh of electricity from their panels, meaning they buy up to 44.85% less electricity and make a saving of £235.90.

-By signing up to the FiT, you will earn 16p for every unit of electricity generated (up to £473.60), plus £0.045 for every unit sold back to the Grid (£66.60p) meaning total Feed-in tariff earnings of up to £540.20.

– Over the 20 year lifetime of the FiT rate you’ll generate an income of up to £15,522.06.

Free solar panels – or buy them outright?

Buy your own solar panels if:

– You have £2,500-£15,000 available to invest.

You want to make a profit – A Feed-in Tariff you could earn up to £540 a year for generating your own electricity and selling the excess you don’t use back to the Grid. Over the 20 years of the feed in tariff, your solar panels could earn you £15,522.06* – more than double the average initial cost of £7,000.
– You want to make long-term savings on your energy bills. Energy prices will go up over time, so the amount your solar panels save you will go up too.

Get free solar panels if:

– You don’t have a substantial amount of money to invest.

– You’re happy to just make savings on your electricity bill. You won’t make any money from Feed-in Tariffs with these schemes, but you will save up to £235.90 a year without having to spend a penny.

– You’re worried about ongoing maintenance costs. Maintenance is included in most free solar schemes.

– You want to make long-term savings on your energy bills. Energy prices will go up over time, so the amount your solar panels save you will go up too.

* Based on the average user, consuming 3300kWh of electricity a year, at a cost of £526. A 2.96kW 12 solar panel system, with Irradiance of 30 degrees, South facing, with no shading and a 0.8 contstant (used to make the calculation accurate for UK conditions),will generate 2540.86 Kwhs of electricity per year. Calculated that the household will use 50% of the electricity the panels generate. (Based on figures from the Energy Saving Trust) In addition, by signing up to the Feed-in Tariff, you can earn 16p for every unit of electricity generated (£406.54), plus 0.045p for every unit sold back to the Grid (£57.17) meaning total Teed-in tariff earnings of £463.71. By adding together the savings on electricity and the earnings on the Feed-in tariff, you get a total saving of £726.71. Over the 20 year of the feed-in tariff, this means total income of £14,534.15.