Businesses short-changed by feed-in tariff incentive scheme

Businesses keen to deploy onsite renewable energy systems could still struggle to make the financial case for investing in such technologies, despite the announcement yesterday of new feed-in tariffs that will guarantee firms and households cash payments for the energy they generate from renewable sources.

That is the stark warning from renewable energy experts, who have today cautioned that while the imminent Clean Energy Cashback scheme will provide a " huge boost" to the market for domestic renewable energy systems, many businesses will be left short-changed.

The government yesterday confirmed the so-called feed-in tariffs that will be available from April to homes and businesses installing renewable energy systems such as wind turbines, solar panels, anaerobic digestors and hydroelectric generators that provide less than 5MW of capacity.

The new tariffs were widely welcomed by the renewable energy industry, which predicted that the incentives will significantly bolster demand for low-carbon energy technologies as households and businesses seek to tap the generous new incentives.

"It's great this has now arrived," said Juliet Davenport, founder and chief executive of green energy provider Good Energy. "The rates that will be paid to renewable generators should provide the incentive that a lot of homeowners, landowners and businesses have been waiting for to generate their own energy, allowing them to follow the pioneering individuals who have put their own generation in already."

However, the level of tariffs on offer are banded for different technologies and, according to experts, the financial returns on offer for the types of larger-scale systems typically favoured by businesses and community projects are still too low to drive large-scale investment.

"In terms of households and microgeneration, this is a strong, potentially world-leading incentive scheme that provides everything we could have hoped for," said Dave Timms, green homes campaigner at Friends of the Earth. "But as the technologies scale up, the tariffs get a lot less attractive."

For example, tariffs for solar PV systems fall from 41.3 pence per kW for small-scale systems generating less than 4kW to 29.3 pence for systems generating more than 100kW. Similarly, tariffs for wind turbines range from 54.5 pence per kW for micro wind turbines to just 4.5 pence per kW for larger-scale business or community projects providing between 1.5MW and 5MW of capacity.

In addition, the export bonus previously available to firms selling power back to the grid has been cut from five to three pence per kW, while businesses, unlike households, will have to pay tax on the revenue they generate through the scheme.

The government has also set the tariffs to ensure return on investment rates stand at between five and eight per cent, despite the fact that many businesses routinely reject capital-based projects that provide returns of less than 10 per cent.

"Businesses keen to install small-scale microgeneration could do quite well, although they will still not do as well as households as they will have to pay tax," observed Timms. "But the real problem is with larger projects. The government's own modelling shows that the return on investment rates will work for households and those organisations such as local authorities not motivated by profit. But for businesses, and particularly businesses that may have to take out a loan at commercial rates of interest to pay for new technologies, the rates of return are much less attractive."