Feed in Tariffs

The Feed-in Tariff scheme  as defined by this government is ill conceived. It does not tackle the problem of energy conservation nor CO2 reduction and appears to be more suited as an investment that will make wealthy people richer. It does not help the fuel poor, nor does it help the householder who simply wants to do their bit for the environment, rather it will make energy cost more, particularly for those who are currently struggling to pay their bills.

Below I have proposed an alternative that will encourage and reward conservation, will mean cheaper bills for the lower energy user and will support the homeowner who wants to generate their own electricity.

The Spanish FIT scheme has just closed, it proved to be too costly. Germany’s has been seriously scaled back, for the same reason. Experience shows they are not sustainable.

Our FIT scheme is going to favour the large investor taking over large plots and setting up large scale arrays, the householder is going to be sidelined – though they will ultimately pay through higher tariffs!. Basically the Labour Govt’s scheme, which you will inherit, is not at all focused on saving energy, or reducing carbon, it seems to be about developing an alternative investment.

Even now it is being touted as providing an 8% return on investment, that is so wrong, isn’t this about saving the planet?

FITs favour the investor with money and ultimately are paid for by the consumer, the energy poor, at the bottom of the heap

An Alternative?

What follows is simple and I hope innovative, solving many problems.

I would like to suggest an alternative scheme that will encourage both renewable energy generation, reduction in consumption and address fuel poverty.

Current Situation

When you purchase your electricity – as we all do – the 1st 1,000 units or so are charged at a premium. This is the alternative to paying a standing charge. In my case with Eon my current quarterly bill shows 242 units at 22.84p  then 1982 units at 8.71p.

The more I use, the cheaper (average cost per unit) it gets.

Anybody on a low income or trying to save electricity will pay a higher average cost per unit as they lower their consumption.

Here’s an alternative (domestic only).

Through OFGEN, Energy companies will be directed to reverse their charging scheme, charging a low tariff, lets say 10p per unit up to the UK average consumption for a domestic property. Any consumption above that is charged at a higher rate, I would propose a sliding scale that I have detailed below.

Immediately we have clear incentives.

  • The less energy used, the lower the average cost of each unit.
  • Those who are on lower incomes and lower energy use will immediately benefit with lower cost energy.
  • Higher users of energy will pay more and have a clear incentive to reduce energy consumption.
  • Higher users will also have a clear incentive to invest in microgeneration. Anything they generate, by definition will be saving money at the higher rate.
  • Surplus energy exported to the grid is used to reduce the overall consumption bringing the consumer / generator nearer to, or below the average.

Going forward, the average energy use will decline, there is now a clear incentive. As the average goes down, that point at which the higher tariff starts kicking in also declines, hence there is a simple process that will reinforce the incentive to keep reducing consumption. The average consumption being publicised and re-set each year. (we are all, as a nation now part of this drive to save energy)

Identifying the average UK consumption is relatively easy, the data exists and it is only numbers.

In numbers.

An average consumption of say 8,000 units per year, a baseline cost of 10p per unit, any consumption above 8,000 but less than 12,000 charged at 20p

Above 12,000 charged at 40p (sounds high?)

Low income, energy poor benefits: A low income consumer immediately benefits, their cost is 10p per unit. Considering a 6,000 unit consumption compared to now (1,000 at 23p + 5,000 at 9p = an average of  11.3p) their energy cost comes down.

Mine goes up. I use 9,000 units, about £950 or an average cost of 10.5p ie less than the person on a low income and low consumption. My cost goes up to and average of 11.1p per unit, as I use more, my average cost goes up.

Now, I have wind turbines and solar PV so my consumption is already low compared to similar families / houses. If I didn’t have these, my consumption would be higher, my average cost would be higher.

Note, the costs per unit remain in the same ball park figure as existing costs.

The process and impact

The break points for doubling and quadrupling the cost per unit above are at average consumption, 1.5 times average and twice average. (keeping it simple)

A high consumer will have a clearer incentive to reduce consumption, ie their average cost goes up the more they use rather than down! 40p per unit means I will certainly switch my lights off and choose a more fuel efficient fridge.

40p per unit means Mr Average will also have an incentive to install microgeneration. I would see a simple additional reward in that exported electricity can bring down the net overall use. If my use is 9,000 units, I export 1,200, I pay for 7,800. While the average consumption is 8,000 units I pay at the 10p rate. As the average goes down, I must in turn look for other ways to save energy if I want to keep my per unit cost at 10p!

Feed in tariffs become an irrelevance.

There is no need whatsoever for the complexity of Feed-in Tariffs, nor can the money to finance Feed-in Tariffs run out, nor, with the utilities paying for the Feed-in Tariffs will we see ever higher electricity costs being passed on to the lower income consumer to benefit the wealthy investor!

Every year the average will come down as there is more microgeneration and energy saving. That means the point at which the higher costs start kicking in will be at a lower baseline, it is self sustaining towards ever lower consumption!

The lower income, lower users of electricity are generally well below average consumption so for some years remain insulated from this process.

The energy companies?

Well, they will be free to set their rates, I have used 10p as an example, they can be  as competitive as they wish. All they have to do is follow a formula of less than average consumption is charged at X, Average to 1.5 times average is 2X , more than 1.5 times average is 4X. These figures could be fine tuned but that would give an opportunity to procrastinate for the next 5 years.

I can see tariff packages where there is a standing charge then a lower X, No standing charge but a higher X.

NB. This is workable. I have worked within the regulated Water industry and am currently working within the energy sector, in particular energy switching so am very aware of how energy companies try to differentiate and compete.

Also, consider this. There are only 500 people qualified to install microgeneration systems that might be eligible for FITs. Compare this with 60,000 Gas Safe (Corgi) qualified engineers.

Requiring an MCE (Microgeneration Certified Engineer) in order to qualify for a FIT simply duplicates existing quality schemes.


One Response

  1. Have a look at http://news.bbc.co.uk/1/hi/sci/tech/8751862.stm where Keith Harrison questions the sustainability of the FIT subsidy scheme in a period of economic downturn and the need for the Govt to save money.

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