by Barry Colam

In April 2010 the government introduced a scheme to reward consumers generating electricity in their homes, for example via small scale hydro, wind turbines or solar photovoltaic panels. While few have a sizeable stream running through their property, even in a wet Lake District, nor a good supply of wind, rather more will have a roof on which solar panels can be installed. Even up here in the North of England there is sufficient sunshine available to generate a considerable amount of electricity.

The scheme, known as the Feed-in Tariff, pays a fee for every unit (kilowatt hour or kWh) of electricity generated plus an additional smaller amount for every unit which is not used by the consumer but is fed back into the grid. From April 2010 the rates were 41.3p per kWh generated and 3p extra per kWh exported. However every year of the scheme, these rates are increased by inflation and from April 2011 the new payments are 43.3p and 3.1p per kWh respectively. Furthermore, the payments are guaranteed for 25 years and are tax-free.

There are no longer any grants for domestic installations, though there are some for community schemes, but the price of solar PV panels has dropped markedly over the last year and they have also become more efficient. With the price of electricity rising significantly, and likely to continue to do so for the foreseeable future, does it makes sense to invest in this technology?

In order to generate worthwhile amounts of electricity, the roof of the property must face between SE and SW with South being optimum. In addition, there must be no shading, even from chimney stacks, telegraph poles and the like as this affects the whole set-up, not just the panel that is shaded. Although bright, sunny days will give the best output, some electricity is still generated even on cloudy days.

What about the economics? One SusKes member has had a 2.55kW system for nearly 2 years generating just over 2000 kWh a year, half of which is used, the other half exported. The FIT will thus be worth 897 (2000 units @ 43.3p plus 1000 units @ 3.1p) plus a further 130 from mains electricity not used (1000 units @ around 13p). That total of 1027 represents a return of about 8.5% tax-free on a typical system cost of around 12,000. Try beating that with your average savings account! Even if you have to borrow some or all of the money to pay for an installation, for example by adding it to your mortgage, with current low interest rates it is still a very good investment, not least because of the guaranteed index-linked 25 year payments and the likely increase to the value of your home.

One word of warning. There are firms around, including some of the utility companies, which are offering to install systems for free. Effectively, they are renting your roof for the price of the electricity savings you make but taking the FITs for themselves. Be aware that some people, or their potential buyers, have had trouble getting a mortgage as they have effectively rented out both roof and loft (where the inverter &c. are housed) to the installation company.

MARCH 2012 UPDATE. The government has decided that the current FIT payments are much too generous ("a goldmine" is one term bandied about!) and has proposed to reduce the payment to just 21p per kWh from April 2012 though there is a judicial review ongoing as to the legality of the way this has been introduced. Although a big drop, it does still represent a better return than any savings account!

JULY 2012 UPDATE. The new rates for FITs as of 1st August 2012 will be dependent on the Energy Performance Rating (EPR) of the property. Those with an EPR of A to D will receive 16p/kWh for each unit of electricity generated plus 4.5p/kWh exported, those on band E or lower just 7.1p/kWh and 4.5p/kWh respectively. These prices will be uprated annually by inflation but are only guaranteed for 20, not 25 years. With the cost of installation of solar PVs having fallen by near 50% over the last year or so, this still represents a very good return on the investment!