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New plan gives solar power to the people

Government launches scheme to light a fire under microgenerators, and help them save – and make – money.

Short-term, the prospects for home-energy prices are looking brighter – British Gas has just reduced tariffs by 7 per cent and the other big suppliers are likely to follow. However, Ofgem, the regulator, is warning that down the line we could see our bills rise by 25 per cent over the next 10 years, and even that energy supplies could become scarce. But just as news came in that energy prices are set to rise dramatically, homeowners were offered hope with the launch of a new government incentive.

Hoping to encourage a movement towards renewable energy, the Government has finalised details of its feed-in tariffs, which reward people who produce their own energy by investing in technology such as solar panels and small wind turbines.

"This new scheme is a fantastic opportunity for householders to make money, cut fuel bills and play their part in slashing carbon-dioxide emissions," says Dave Timms, green homes campaigner for eco-action group Friends of the Earth. "Developing the UK's massive small-scale renewable energy potential will help to tackle climate change, create new green jobs and industries, and increase our energy security."

From 1 April, any household generating its own energy will be rewarded with tax-free payments. The cashback levels will depend on the technology used, with solar panels attracting the most generous payments. Further payments will be awarded to householders directing any energy they don't need back to the National Grid. However, these bonus payments for exporting energy have been reduced to 3p/kWh from an initially proposed rate of 5p/kWh.

The type of technology used will depend on the property type. So a solar photovoltaic (PV) system needs a south-facing, preferably sloping, roof. In England and Scotland, planning permission is not usually required, although there are some restrictions in terms of size, and exceptions apply for any listed buildings, and properties near a conservation area, national park or Area of Outstanding Natural Beauty. In Wales and Northern Ireland, householders must consult their local authorities about planning permission.

With the new tariffs, the potential returns that this type of technology can reap are impressive. A typical domestic solar system of 12 panels, for example, will initially cost about £12,500 to install, but as it will generate £1,048 in savings and income a year, meaning that after 12 years the system will pay for itself.

Overall, householders can expect a pay-back of between 5 and 8 per cent a year, so the move will go some way to alleviate the high initial costs. The Government has also confirmed that tariffs will be paid for up to 25 years, and, as the tariffs are linked to inflation, the real rate of return could end up as high as 10 per cent.

Anyone who has had an installation commissioned since July 2009, when the policy was first announced, will be able to apply for the scheme. The incentives are also open to businesses, communities, farmers, schools and hospitals, although the payments vary.

Ed Miliband, the Secretary of State for Energy and Climate Change, has said that over the next decade he predicts that one in 10 homes will have installed renewable power.

Jeremy Leggett, the chief executive of solar energy supplier Solarcentury, says: "These tariffs are going to generate rates of return that will beat high-street savings accounts by a mile, at the same time as they save carbon and generate jobs in a new fast growing, British industry. We reckon as many as 100,000 jobs by 2020, at the rates announced."

The Government has also published plans for a comparable heating incentive, which will come into effect in April 2011. The proposed tariffs will encourage renewable heat generation by offering payments for households installing technologies such as ground-source heat pumps, which use the Earth as a heat reservoir, and solar thermal, which heats water directly instead of generating electricity.

According to the Department of Energy and Climate Change (DECC), a homeowner installing a ground-source heat pump in an average semi-detached house with adequate insulation levels could be rewarded with £1,000 a year, and save £200 a year by using the pump instead of heating-oil.

But the problem is that these schemes have to be paid for, and even with the added incentives this technology remains too expensive for many people. Until recently, grants worth up to £2,500 were available for various types of renewable energy technology, including solar electricity, small wind turbines, small hydro turbines and ground or air source heat pumps. These grants were due to finish in April, but the money has dried up early and there are no plans for additional funding.

With the upfront costs of renewable energy technology still beyond reach for many, there is a risk that the people who can least afford it will be subsidising the wealthy with increased annual bills. And, when the renewable heat comes in next year, this is only going to become even more of a concern.

The feed-in tariff system has also been criticised by several campaign groups for lacking ambition. A more generous approach is necessary to bring the UK's microgeneration industry up to scratch, they argue. With more financial encouragement, unit costs will go down, and even more people will be able to afford to take steps to greener energy. According to the Renewable Energy Association (REA), every doubling of solar photovoltaic capacity has led to a 20 per cent reduction in unit costs; since the scheme was introduced in 2000 in Germany, the cost of PV has halved.

Jemma Robinson from the REA says: "We were lobbying for a 10 per cent return on investment. People would have seen a much quicker return on their investment, making it more attractive, particularly for communities and small businesses."

Setting an example

Joan and David Dennis installed solar panels on their family house in Wimbledon, south-west London, last year, and are excited about the potential rewards they will reap from their investment.

David, 79, a former chemical engineer, and his wife, Joan, 76, a retired primary-school teacher, had already made significant changes to the energy efficiency of their home, including fitting a solar hot-water panel nine years ago, installing a wood-burning stove and even using rain water for their downstairs loo.

They decided to take the next step and had solar panels fitted to the roof of their semi-detached, four-bed property in November. "I've always been keen on this kind of thing but then our church took us on a day tour in Rochester to see solar panels in action, and had all the benefits explained, including grants and feed-in tariffs," says David.

The solar panels cost £9,000, with a grant of £2,500 towards the costs. David is delighted the Government is rewarding energy-saving measures, and, while he notes that it has been criticised for not being as generous as, say, Germany, he estimates that he and Joan will save about £600 a year.

"I think we're headed for big problems in the future and anything one can do to set a bit of an example is a good thing. The more people doing it, the more the message will spread," he says.