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The impact of the new feed-in tariff rates for small scale solar PV

Feed-in tariff rates for solar PV installations of 4kW or less will fall from 21p to 16p per kWh from 1 August 2012. This was just one of the changes announced by energy minister Greg Barker in the House of Commons today.

He also announced that from 1 August the export rate will increase from 3.2p per kWh to 4.5p per kWh. The tariff will continue to be linked to the retail price index, and the life time of the tariff will reduce from 25 years to 20 years. He said these reductions are aimed at delivering a 6% rate of return. However, my calculations indicate that higher returns are likely.

Below I have done the figures for installation of a 4kW installation now and compared it with figures for the new rates after 1 August. By these calculations rate of return will fall from 11.8% to 10%, and pay back will take a bit longer, increasing from 8. 4 to 10 years.

Until 31 July 2012
Cost of installation: £8,500
Annual output: 3,400 kWh
Feed-in tariff generation rate @21p/kWh: £714
Used in the home: 1,700 kWh
Savings from electricity bill @14p/kWh: £238
Exported: 1,700 kWh
Income from export @3.2p/kWh: £54.4
Annual return: £1006.40 (for 25 years, with tariff linked to retail price index)
Return on investment: 11.8%
Payback: 8.4 years

From 1 August 2012
Cost of installation: £8,500
Annual output: 3,400 kWh
Feed-in tariff generation rate @16p/kWh: £544
Used in the home: 1,700 kWh
Savings from electricity bill @14p/kWh: £238
Exported: 1,700 kWh
Income from export @4.5p/kWh: £76.50
Annual return: £858.50 (for 20 years, with tariff linked to retail price index)
Return on investment: 10%
Payback: 10 years.

Click here to see the Department of Energy and Climate Change's method of calculating rate of return.

Barker also announced the new system for planned degression of the feed-in tariff rates. The rate will come down every three months. The amount of the cut will depend on rates of deployment in the months before the decision, and the rate will be made public two months before it comes in force. For example, November's rate will depend on how much solar is installed in the period May to July; and will be announced on or before 1 September.

Rather than being political decision, Barker announced an automatic system. The rates will be frozen if less than 200MW of solar is installed in the preceding three months. They will be cut by 3.5% if between 200MW and 400MW of solar is deployed. If more than 400MW is installed cuts could be as high as 28%.

This he says is a system of TLC (transparency, longevity and certainty) which aims to smooth out deployment of solar PV.

Read the original article by Cathy Debenham here

 

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