Thursday, August 13, 2009

New Feed-in tariff Scheme for Renewable Energy by the UK Govt.

The move has potentially far reaching ramifications in the English speaking world where there has been reluctance to use full-fledged systems of feed-in tariffs, sometimes on ideological grounds. Now that Britain, Ontario, and South Africa, two of Britain's former colonies, have definitively moved toward implementing sophisticated feed-in tariff programs, there may be less reticence to do so elsewhere in the Anglophone world.

The British proposal has also contributed several innovative new twists on feed-in tariff design that will mark the program as "made in the United Kingdom".

One new feature is the inclusion of tariffs for Combined Heat & Power (CHP). While not a first, it is one of the few programs to do so. Another feature of the proposed program is a distinct tariff for small solar PV systems on new homes, and a separate tariff for existing homes.

Most significantly, program designers have included a mechanism to encourage homeowners and small businesses to reduce their electricity consumption. For example, a solar PV generator will be paid for all their generation. However, they will receive a bonus, currently at £0.05/kWh ($0.08 USD/kWh, $0.09 CAD/kWh), for electricity delivered to the grid over and above their domestic consumption. Thus, if a homeowner is able to cut their domestic consumption, and sell more electricity to the grid as a result, they are paid the bonus on top of the posted feed-in tariff.
Households which contribute electricity from renewable sources to the UK National Grid are to receive payments under a new government feed-in tariff scheme, labelled the "Clean Energy Cash-back Scheme”.

Back in 2008 the UK Government outlined policies in "The UK Low Carbon Transition Plan, National strategy for climate and energy" White Paper designed to significantly reduce carbon emissions in the country by 35% by 2020 and by at least 80% by 2050. Now, as part of its recently released Renewable Energy Strategy designed to contribute to achieving these targets, the Secretary of State of Energy and Climate Change, Ed Miliband, has announced that a feed-in tariff rate will be introduced in the UK for suppliers of renewable energy who feed energy back into the grid.

The Clean Energy Cash-back Scheme is a more user-friendly term for feed-in tariffs (FITs), which other countries such as Germany have used so successfully to promote small as well as large-scale renewable energy production over the last decade. The UK Government’s decision to introduce FITs is intended to simplify the incentives for using renewable energy sources, since the current system – the Renewable Obligation (RO) – is a very lengthy and complex system designed for energy professionals who generate electricity on a large scale (50kW+). The Clean Energy Cash-back Scheme has therefore been designed to benefit micro-generators (households, communities and businesses with installations of up to 50kW), while larger installations of 50kW-5MW will be offered the choice of either the FIT or the RO scheme.

The key now is to wait and see at what level the UK Government establishes the FITs, as previous experience in other countries has shown that setting them too low can lead to a lack of take-up of renewables, while excessively high limits become economically unsustainable and politically sensitive.

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