Renewables just got a lot more interesting.

From April this year, a scheme will be launched that encourages British homes and small businesses to generate renewable electricity by paying you to produce it.

That means paying you for every unit you produce, up to 5 MWh a year — even what you use yourself.

It makes £0 energy bills a reality, and turns solar panels and wind turbines into an investment that can potentially generate you an 8% return.

“Clean Energy Cashback” is what Ed Milliband calls it. It’s not a new idea: elsewhere it’s called a Feed-In Tariff, and has boosted wind and solar electricity production in Germay, Spain, Denmark and elsewhere. Many said it wouldn’t happen in the UK: with 63 other schemes in place worldwide, we’re playing catch-up. But a look at the plans reveals that we’re getting a scheme with a few differences.

So let’s look at our new way of selling energy to ourselves. Is it good for homes, for businesses, and if not, why do we need it?

First, some basics.

What is a Feed-In Tariff?

Feed-In Tariffs (FITs) are a way to encourage low-carbon electricity to be generated by users.

They work by rewarding your upfront investment in renewable generation technology by paying you back for each unit you produce.

Yes, you get paid even when you use it all. When you make surplus electricity, you can sell it to the National Grid at a slightly higher rate. When you don’t produce enough, you can still use grid electricity produced elsewhere.

Why are feed-in tariffs necessary?

They’re necessary to make renewable energy growth happen.

Whereas fossil-fuel and nuclear power need large centralised plants to feed the grid, renewables are the opposite. The most obvious renewable resources, wind and solar energy, are spread out. You need a network of small producers to capture it all.

By incentivising those of us willing to invest in clean energy, and providing a way to interconnect our production capacity and store the surplus, it solves a national problem of how to produce more clean energy. On a technological level it works too, because renewable energy needs to be stored. Batteries aren’t feasible on that scale, so where better to store it than the National Grid?

You could compare it to the Internet and cloud computing: many small users forming an interconnected two-way network with huge power.

British feed-in tariff: particulars

Our “clean energy cashback” scheme will be introduced for qualifying renewable electricity generation from April 2010. Here’s a rundown of what we know so far:

• Install a qualifying system:
• solar PV, wind power, hydro power or anaerobic digestion biomass, with a capacity up to 5MW, or
• a domestic CHP (combined heat & power) plant up to 2kW capacity
• Earn a guaranteed rate of payment for all generated electricity
• Earn an optional guaranteed export price for surplus electricity sold to the National Grid.

There are differing bands of payments, depending upon the technology and installed capacity, of up to 36.5 pence per kWh. An additional 5 pence per kWh could be paid for any surplus exported to the grid.
» View the tariff details (downloads a .doc file)

Small businesses: how does a zero electricity bill sound?

Since the scheme allows capacities up to 5MW, this should appeal as much to businesses as to domestic customers.

The eye catching part is the opportunity not just to weigh the savings on electricity bills against the
The feed-in tariffs would be payable for 20 years (25 for solar), which in theory should give you a return on investment.

Questions:

There are lots of questions to tie up before the launch, though. Here are some of mine:

• Will the return on investment be high enough for businesses to consider the upfront cost?
• Will we need two meters? This means paying tax twice (VAT on power in, Income tax on power out) compared to using one (net metering)
• Will the cost of technology come down as the scheme gets going, benefiting those who wait — or will the incentives decrease over time, as they have done elsewhere in Europe, benefiting the early adopters?