Also known as the ‘FiT’, the ‘Feed in Tariff’ is a Government backed financial incentive designed to encourage more people to invest in solar technology. If you invest in a solar system, the government guarantees ‘FiT’ payments for 20 years. The payments are tax free and rise accordingly with inflation.
The FiT can be broken down in 3 parts:
- You get paid for all the electricity you produce
This is called the GENERATION tariff as you get paid for all the electricity you generate, regardless of whether you use it or not.
Your electricity supplier will pay you for every unit of electricity you generate at the current FiT rate. This varies depending on system size, but for domestic systems under 4kWp it is 14.38p.
- You get paid extra for the electricity you don’t use
You probably won’t use all the electricity you generate. So any that you don’t use will be exported back to the grid, this will generate an ‘export tariff’. The export tariff is 4.77p for every unit of electricity you export back to the grid.
Suppliers don’t tend to meter this, so it’s estimated at around 50%, that means you will get paid for 50% of the units your system produces.
- Energy bill savings
Investing in Solar means you are less dependent on grid-tied electricity (you don’t have to buy as much energy of your supplier). This means you will not be affected by dramatic energy price increases, as all the electricity your solar systems produces is fed in to power your property
Generation Tariff = the fee you are paid for every unit (or kWh) of electricity your system generates
Export Tariff = the fee you are paid for all the electricity you export back to the grid (estimated at around 50%)
Energy savings = What you avoid paying on your energy bills as a result of generating your own electricity
Generation Tariff + Export Tariff + Energy Savings = Annual Benefit (aka Big RETURNS!)
Our next solar post will focus on a case study which will show you how the FiT actually works for a real, up-and-running system. But for now, this should give you a slightly better insight on what the FiT actually is and how it can benefit those who invest in solar.
People can be hesitant to invest in solar as the up-front costs seem steep. However, if you look at a solar system in terms of a long-term investment, the returns are unbeatable as the FiT spans over 20 years. The estimated ROI for any solar installation is around 15-20% which is significantly larger than returns you would get from stocks/shares/ISAs.
Any questions regarding the FiT, solar energy or renewable technologies please leave a comment below and we’ll do our best to give you the best possible answer!