Feed in Tariff: What Was It and What’s Replacing It

The Feed-in Tariff (FIT) scheme was a government initiative that aimed to encourage renewable energy generation and was open to applications between April 2010 and April 2019.

In this article, I’ll explain what it was, how it benefited landowners, homeowners and businesses, and what has replaced it. I’ll also look at the success of the scheme and whether its replacement is worth engaging with.

What Was the Feed-in-Tariff Scheme?

The government introduced the Feed-in Tariff scheme in April 2010 and it closed to new applications in April 2019.

Although the government is no longer accepting new applications, those who applied before the closure continue to receive payments for the renewable energy they generate and export.

The scheme offered payments for surplus energy produced through renewable sources like:

• Solar panels
• Wind turbines
• Anaerobic digestion
• Hydroelectric generation
• Micro-combined heat and power

The government designed the entire scheme to encourage investment in renewable energy by reducing energy bills and offering a financial incentive. The rates given for this energy naturally varied (and you can find the exact breakdowns on Ofgem), but it has generally moved in line with RPI each year.

What are the two elements of the tariff?

Two different components make up the tariff.

These are:

• Generation tariff: This is a payment for the electricity that your site generates. It applies to all the electricity produced by a renewable system, regardless of whether it’s used or exported.

• Export tariff: This is a payment for the units of electricity you export to the Grid and is typically 50 per cent of the amount you generate. As of April 2024, this tariff is £71.40 per MWh (or 7.14p per kWh) – this will be in place until March 31st 2025.

How Much Could Landowners Stand to Earn from the Scheme?

It’s worth noting that a lot of large-scale wind and solar farms didn’t benefit from the feed-in-tariff scheme. This is because only installations with a peak output of no more than 5 megawatts qualified for the scheme. For micro combined heat and power projects, the output could not exceed 2 kilowatts.

However, for homeowners and those running small-scale renewable energy projects, it proved to be a lucrative subsidy. FIT payments were set to continue for at least 20 years. This meant that once you qualified, you’d remain in the scheme until this period ended.

So, while large-scale projects may not have stood to benefit, the FIT scheme currently pays more than 800,000 homes for their renewable energy contributions.

What about the average household?

When it comes to earnings, the Energy Savings Trust estimates that the average household earns about £150 a year from the FIT scheme. While this may not seem like much, it adds up considerably over the 20-year lifetime of the scheme and helps to reduce energy bills. This figure includes both a fixed amount for generated units of electricity PLUS any excess units exported back to the Grid.

Rates typically varied based on the type of technology, the size of the project, and its installation date. Energy suppliers made payments directly to landowners, and the government set the amount. This amount increased with the Retail Price Index (RPI) each year.

As I mentioned earlier, there were two elements to these payments – a generational payment and a fixed rate for each unit of energy generated, even if landowners or businesses used some of their energy on-site. The export tariff covered any excess energy exported to the grid and contributed to the fixed payment to landowners.

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Who Handles the Feed-in-Tariff?

TheThe FIT scheme is technically a government scheme, but Ofgem is responsible for administering the scheme via FIT licensees. While Ofgem bears a lot of the responsibility for the overall scheme, the licensees take a lot of the administrative weight off.

FIT Licensees are responsible for the following things:

• Registering and making FIT payments to eligible FIT generators and nominated recipients.
• Ensuring information provided by FIT generators around the country is accurate.
• Updating the Central FIT Register (CFR).
• Verifying metre readings sent by FIT generators.
• Assessing installations against the criteria for the Microgeneration Certificate Scheme (MCS).

While this isn’t something landowners or homeowners typically need to worry about, it’s useful to be aware of these licensees, as they are the main point of contact for any queries about FIT payments.

Ofgem on the other hand is responsible for:

• Managing and publishing reports and data.
• Ensuring that generators across the country are compliant with the scheme.

While Ofgem used to be responsible for processing new applications, this is no longer relevant now that the scheme is closed.

Why Did the FIT Scheme End and What Has Replaced It?

The FIT scheme ended because it had essentially done what it set out to do.

Between 2007 and 2022, the UK’s renewable energy capacity increased hugely from 5,745 megawatts to 53,500 megawatts. Not all of this capacity increase can be attributed to the FIT scheme (or small-scale renewables projects in general). But the almost tenfold increase isn’t a coincidence.

However, with all of these new renewable projects popping up across the country, there was less need for the same level of financial incentive. This shift is partly due to the decreasing cost of renewable technology. For example, the price of a typical solar installation has dropped considerably from £20,000 in 2010 to just £6,856 in 2024.

In short, the FIT scheme’s purpose was to provide a return on investment for homeowners and business owners. With lower costs and increased interest in renewables, the scheme was no longer necessary. Overall, the scheme was a great success in meeting its goals.

What Is the Smart Export Guarantee?

Although the FIT scheme has ended, it hasn’t left a gap. In its place, the government brought in the Smart Export Guarantee (SEG).

The government introduced the SEG scheme on 1 January 2020 and it pays homeowners and landowners for any surplus electricity they produce. While the government won’t pay for all electricity generated, you can use a smart metre to measure the electricity you don’t use (which is where the payments come from).

For reference, several providers offer the Smart Export Guarantee. This is because the government requires all energy firms with more than 150,000 consumers to offer the tariff.

Now, the main difference between FIT and the SEG is that governments set the FIT rates and companies set the SEG rates. Although neither scheme is necessarily better than the other, you do need a smart metre to get a Smart Export Tariff.

Because the smart meter measures the actual exports from a given site, you’ll get an accurate figure that’s different from the 50 per cent export allowance under the FIT scheme. This naturally means that the overall SEG payments are likely to be lower than what you’d receive under the FIT scheme.

However, since companies are responsible for setting SEG rates, you may be able to find a more competitive deal by shopping around. In fact, some energy providers offer far higher rates than others.

At the moment, Octopus is leading the country with a flat rate of 30.31p/kWh of electricity produced during peak hours. But who can say whether another provider will come in and offer a more competitive rate in the near future?

Was the Feed-in-Tariff Scheme a Success?

The FIT scheme has (and will continue to) cost the government a significant amount. The government estimated that the entire cost of the scheme running through to 2030 would cost around £8.6 billion.

However, it helped to increase the UK’s solar capacity from just 95 MW in 2010 to 13,345 MW by 2019. The UK aims to raise renewable energy generation to 45 per cent by 2030. So, it’s certainly made a significant impact. In 2023, 43 per cent of the UK’s energy came from renewables. This figure is up from 7 per cent in 2010, marking an impressive leap.

Now, I can’t say that this rising figure is entirely due to the FIT scheme. It’s down to a combination of the government introducing subsidies for new renewable projects and a move towards climate-friendly initiatives.

With the British public largely supporting solar and wind, it’s hoped that investments in renewables will only continue to rise.

Do You Want to Understand Your Land’s True Potential?

Are you interested in getting a renewable energy project on your land? Or would you like to learn more about schemes that might make your site more lucrative? Simply get in touch with the team at Lumify Energy.

We’re experts in getting landowners an excellent deal from leasing their land and hosting renewable energy projects on their site. So, why not get the lay of your land and understand how much additional income you could make with renewables?