Friday Messenger: Feed-in tariffs – are we going back to the future?

Steve McMahon is VP Sales and Marketing / GM EMEA, Orenda Energy Solutions. He says that surely it’s not unreasonable to imagine that an end-user might benefit from FiT. Hmm. Not so fast…

When the Feed-In Tarriff (FiT) was introduced on 1st April 2010, the FiT (generation tariff) for a 50kW wind turbine was 25.3p/kWh. In addition the end–user would be able to use the generated electricity to offset his/her electricity bill and receive an export tariff for anything not used by the end-user and exported to the grid.

Therefore, it would not be unreasonable to imagine a situation where the end-user could receive a total benefit of up to 40p/kWh. This was important as it really did kick-start the interest in this sector by farmers, landowners and investors to invest in the necessary distributed electricity generation strategy for UK.

It provided good pay-back periods and ROI %, sufficient to entice these potential end-users to take the risk to invest in renewable energy projects

Steve McMahonThis strategy of combining the FiT (generation tariff) with the offset against electricity bills and the export tariff was the original intention of the scheme.

However, due to the large “headline” figure of the FiT alone, many customers invested in wind turbines to obtain the FiT with little regard to making use of the electricity to offset their electricity bills. The FiT alone was sufficient to drive decent pay-back periods and ROI %, such that many customers did NOT behave in accordance with the original intention of the scheme.

In addition, this also drove a behavior amongst customers and investors to install as large a wind turbine as practically possible to maximize the returns via the FiT.

There was little regard for sizing the wind turbine to optimize usage by the property as usage offset was not considered material in the scheme of things. Customers were focused almost exclusively in maximizing their returns based on the FiT alone.

In the intervening period since 2010, the FiT tariff level for a 50kW wind turbine has dropped to 17.32p/kWh, a drop of >30%, via the degradation scheme.

This dramatic drop in FiT has interestingly started to modify the behavior amongst the target end-user customer groups such that we are seeing a move by customers to augment the degraded FiT with the usage offset element, so that the types of pay-back periods and ROI% available back in 2010 could be approached once again through a more considered and thought out approach.

This involves a careful sizing of the wind turbine to maximize the opportunity of usage offset, which in turn will see a move to smaller wind turbines in proportion to the usage requirement of the customer’s property and/or commercial enterprise.

What we will see is a “back to the future” move whereby a more sustainable market will emerge for appropriately sized small/medium wind turbines where the combination of FiT, usage offset and export tariff will be key, with the usage offset element beginning to play a larger role as electricity prices continue to rise.

 

For further details from either Steve or Orenda Energy Solutions go to their web.

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