Feed-in tariffs unveiled to mixed response from renewables industry

The UK's renewable energy industry today offered a cautious welcome to the announcement of the final version of the government's Clean Energy Cashback, arguing that it will provide a boost to domestic energy generation but still does not go far enough to support businesses keen to install renewable energy systems.

The Department of Energy and Climate Change (DECC) today announced the so-called feed-in tariffs that will be available to businesses and households that install renewable energy systems from 1 April. Under the feed-in tariff scheme, households and businesses that install renewable energy systems will receive money from their energy supplier based on how much energy they generate, providing a further incentive to invest in technologies such as micro wind turbines and solar panels.

However, the level of the tariffs has been seen as central to the success of the scheme, with renewable energy firms and NGOs arguing that the government's proposals to ensure the tariffs offer no more than a five to eight per cent return on investment are not ambitious enough to drive widespread uptake of onsite renewable energy technologies, particularly among businesses.

Renewable energy firms today said the final tariff proposals represented a " mixed bag", with some technologies seeing proposed tariffs climb following the government's consultation exercise, while others have seen no change on the original levels.

One sector celebrating today is the solar photovoltaics industry, which saw the tariffs on offer for those installing solar panels rise by about five pence per kilowatt hour compared to the original proposals.

"Home energy generation and associated jobs have been given a huge boost today," said Jeremy Leggett, executive chairman of Solarcentury. "The government's financial incentives for homes, communities and businesses to generate clean electricity marks the start of a solar revolution in the UK."

According to figures from DECC, a typical 2.5kW, well-sited solar PV installation could offer a homeowner a reward of up to £900 while saving them a further £140 a year on their electricity bill.

The government also announced all the new tariffs would be index linked and pledged to keep them at the original levels for at least the first two years of the scheme, further strengthening the financial case for investment in renewable energy systems.

"The guarantee of getting an income on top of saving on energy bills will be an incentive to householders and communities wanting to make the move to low-carbon living," said energy and climate change secretary Ed Miliband. "The feed-in tariff will change the way householders and communities think about their future energy needs, making the payback for investment far shorter than in the past."

However, NGOs and trade groups were less impressed by the final level of the tariffs, arguing that the government had missed the opportunity to provide incentives for widespread uptake of onsite renewable energy.

"The overall level of ambition has not changed," said a spokeswoman for trade group the Renewable Energy Association (REA). "It is still aiming for a return on investment of five to eight per cent and is still aiming to deliver just two per cent of the UK's energy from onsite renewables by 2020. It is good news for the domestic sector and is much better than what we had before, but it is much less encouraging for businesses."

Her comments were echoed by Friends of the Earth's green homes campaigner Dave Timms, who said that while the boost to small-scale green electricity generation was welcome, "farmers, businesses, communities and others will get little or no extra incentive to invest in clean electricity".

Critics have long maintained that businesses require return on investment rates of at least 10 per cent to justify investments in renewable energy systems, adding that the highly successful German feed-in tariff scheme began life with significantly higher rates of return than those being proposed in the UK.

The REA also warned that the government's decision to exclude biomass combined heat and power systems from the scheme, and reduce the export bonus offered to firms and households that export energy to the grid from five to three pence per kilowatt, will further undermine the case for investing in the kinds of larger-scale onsite renewable energy systems favoured by businesses.

A DECC spokesman defended the decision, telling BusinessGreen.com that the cuts in the export bonus were justified as they would be more than offset by the introduction of the feed-in tariffs. He added that businesses were still free to negotiate higher rates for the renewable energy they sell to the grid.

The announcement of the new feed-in tariffs came as the government also released fresh details of its proposed Renewable Heat Incentive scheme, which will come into effect in April 2011 and mirror the Clean Energy Cashback scheme, providing cash incentives to homes and businesses that install ground source heat pumps, biomass boilers and air source heat pumps.

The government said that precise details for funding the scheme would be announced in this year's budget, but set out proposed tariffs that would result in the average semi-detached house with adequate insulation levels generating £1,000 a year in extra income on top of energy bill savings of £200 a year by installing a ground source heat pump to replace heating oil.

The proposals were welcomed by REA policy director Gaynor Hartnell, who hailed them as an important "world first". "Renewable heat is the sleeping giant of renewable energy in the UK with a major contribution to make," she said. " The industry is confident these proposals give the UK pretty much the best chance of generating more than 10 per cent of its heat from renewables by 2020. "