It does a good job of setting out the options, but stops short of specific proposals. The following variables are considered:
A fixed tariff pays an overall amount per unit of electricity generated, independent of market price. A premium tariff is an amount paid on top of the market price. In a stepped tariff the amount varies according to type of technology, scale, and local conditions. A flat tariff takes no account of this.
Proposals by the working groups for the Renewable Energy Association, mentioned in the last issue, suggested that all renewable energy generators would be paid a fixed renewable tariff for all energy produced (a “generation tariff”), and an additional price for that exported to the grid, set at a level established between the supply company and the beneficiary and subject to market competition. This is Taken up in one of these consultation documents but not others, which argue on the whole for fixed, stepped tariffs.
At a domestic scale most individuals will use much of their generated electricity themselves, and their use may be unpredictable so they may still be cautious about investing in these technologies because the payback period will, even with these subsidies, be considerable without other grants for installation. The main document says that a generation tariff will be a fixed price, set at different levels for different technologies and installation sizes. "We expect to lower the tariff levels for new projects over the years, but any individual installation, once starting to receive a tariff at a certain level, will continue to receive the same generation tariff level throughout its entire support period under the FITs".
To give long-term certainty to investors, the consultation process to "require suppliers to purchase exports from FITs generators at a guaranteed minimum price". The tariff level will have to be sufficiently high to attract the level of uptake needed to meet targets. The report notes that "due to the fact that small generators provide only small amounts of electricity to the grid, they may have difficulty in securing the same wholesale price for exports that a large-scale generator can access, and may receive a much lower price".
Criticism has been made that the proposals are not being examined at the same time as those for renewable heat, which is to be introduced a year later. This is especially bizarre since the report does look at the electricity-only component of combined heat and power technologies.
FITs or RO?
The consultation proposes that from 1 April 2010 installations of 50kW and below eligible for FITs will only get the option of receiving FITs. However, those from 50kW to 5MW will be able to choose between the RO and FITs.
Deadline for responses: 15 October 2009. See the DECC consultation page
How it might work in practice
A house (it could be an office building) generates 2,500 kilowatt hours (kWh) per annum (e.g. from a solar PV panel). They use 1,500kWh of the electricity they generate. 1,000kWh is exported, because it is generated at times when the household does not use it. The household uses a total of 4,500kWh per annum. Therefore, it needs to import 3,000kWh from an electricity supplier.
If the tariff for generation is, for example, 30p/kWh, the householders will receive a FITs payment of £750 per annum (2500kWh x 30p) for the electricity they generate. They will also receive a payment for the electricity they export; assuming a price of 5p/kWh this would be £50 (1000kWh x 5p). They also derive a benefit from the 1,500kWh they generate and use on-site as that will offset 1,500kWh they would otherwise have had to buy from their electricity supplier. Assuming an import price of 10p/KWh this would be a saving of £150 (1500kWh x 10p).
If FITs were delivered by a "generation only" tariff, and generators were required to pay import rates for all electricity used (including that generated on-site) the household would receive much more: £950 per annum (2500kWh x 38p).