How Have Recent Government Cuts Affected the Feed-in-Tariff Scheme (FITs)?

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The Feed-in-Tariff lets customers save and even earn money by installing renewable energy technologies, but how have recent government cuts affected the scheme?

The Feed In Tariff scheme or FITs was first introduced to the UK in April 2010 as a replacement for government grants that encouraged homes and businesses to install renewable energy generating technologies. Under the FITs, domestic customers as well as SME’s are able to reduce their energy bills and in some cases even make money by installing renewable energy generators such as solar panels, wind turbines and anaerobic digesters. But due to recent government cuts that have come into place since the scheme was first introduced, many homes and businesses are finding that the scheme may not be able to offer all that was first promised.

So how does the FITs scheme work? The government initiated scheme requires Licenced Energy Providers to pay a generation tariff as well as an export tariff to homes and businesses that use renewable energy generators that output anywhere between 50kWs and 5MWs of energy. Depending on the energy provider, customers will then receive a set payment each month simply for generating their own electricity. This payment is the same regardless of how much energy the customer uses.

On top of that there is an export tariff, which is currently set at a price of 4.64p per megawatt. Customers will receive this amount for every megawatt of energy that they generate that gets sent back into the grid. This means that if they produce more energy than they use on a monthly basis, not only will they effectively get free energy, they will also make money on the energy that they produce.

The scheme has made it more viable for households to install renewable and low carbon technologies such as solar panels in their homes as although the technologies can often be expensive to install, these costs are offset by the savings and in some cases, profits that can be gained in the long term. Some companies have even turned the FITs to their advantage, offering to install solar panels and other such systems for free in return for a portion of the tariff payments.

This led to many homes and businesses installing solar panels when the scheme was first launched, in the hope of capitalising on the potential profits. Unfortunately, however, many people found that the lucrative returns were short lived when in 2011 the government announced that the generation tariff would be cut from 43.3p per kilowatt to 21p per kilowatt. Since then it has dropped even further to 16p. The government cited the fact that solar panels had become much cheaper to produce and install, resulting in many householders making excessive returns as the reason for the cuts. The cuts had a disastrous impact for many solar panel companies who had enjoyed a boom in business when the FITs was first introduced, as the sudden drop in business caused many to go bust. Since then many companies have sued the government, after they were ruled “legally flawed” in the high court.

But despite the government cuts making the Feed-in-Tariff perhaps not as appealing as when it was first introduced, it is still an extremely viable measure for encouraging home owners and the switch to more renewable energy sources. Although the opportunity for high returns may not be as promising as it once was, many people still continue to install solar panels and other technologies in their homes in return for cheaper energy bills.

The recent record levels of sunshine that occurred in the summer of 2013 have led to record levels of solar energy being produced, meaning that even after the cuts, people have seen promising returns on their generation and export tariffs. Despite the dip in installations that occurred immediately after the cuts were introduced in 2012, this year the number of homes installing renewable energy technologies has again risen now that the market has stabilised, with the current number of homes and companies with solar panels being at around 370,000 and rising.

With careful research using energy comparison sites, customers are able to find the best providers and tariffs that will work best for them depending on the way they use their energy, so despite the fact that there are still obvious uncertainties surrounding the Feed-in-Tariff scheme people should not be put off when considering installing renewable and low carbon options.

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