UK renewables industry on tenterhooks over tariff plan

The Government will today set out the details of the "feed-in tariff" scheme designed to encourage small-scale, green electricity generation, concluding years of intensive lobbying from the renewables industry.

Subsidies for home or community use of wind turbines or solar panels, for example, will start in April. But the details of how much they will be worth, and what will be eligible, have been the subject of much debate. The biggest concern is that the Government will set the subsidy too low for it to act as a significant stimulus to the market.

The renewable-energy industry has pushed hard for a tariff with a potential return on investment of 10 per cent over the 20 to 25-year life of the payment, rather than 5 to 8 per cent proposed by the Government.

Although the more modest figure reduces the overall cost of the scheme – which will be funded by a levy on electricity bills – it will also stunt investment, according to the Renewable Energy Association (REA). "The tariff level is key: if it is set generously enough, then all kinds of financial institutions will come forward with products and plans," Leonie Greene, at the REA, said.

The Government's calculations suggest that the lower level tariff will encourage small-scale generation to the tune of just 2 per cent of Britain's electricity by 2020 through fewer than 1 million new installations. By raising the return to 10 per cent, the size of the scheme will triple to nearer 3 million sites, claims the REA.

At the moment there are around only 15,000 micro-generation installations in Britain, a far cry from European rivals with long-standing feed-in schemes, such as Germany and Spain. As a result, more than 90 per cent of the UK renewable industry's business is overseas. But if the Government gets it right today, it could transform the British sector. "Feed-in tariffs open up the energy market to all kinds of suppliers and investors," Ms Greene said. "In the UK, the energy industry is incredibly consolidated so that is an important contribution."

Bob Bowden, a director at Durham-based Cleaner Air Solutions, which distributes and installs solar panels across Europe, says the economic impact of major micro-generation schemes should not be underestimated. Cleaner Air Solutions has just built one of Europe's largest solar farms in Spain, funded by private investment lured by a generous feed-in tariff. "That means a lot of employment, on both the manufacturing and installation side," Mr Bowden said.

The company has already spent £2m on an assembly and training facility in Durham, but it stands to grow exponentially if the UK micro-generation market gets off the ground. "In the next 12 months in the UK we could employ a further 500 people if the return on investment level can encourage investors," Mr Bowden said. "Without that it's dead in the water, and the Government will never achieve the 2020 commitment on carbon emissions."

Under the feed-in scheme, electricity of up to 5 megawatts generated on site will receive a payment for 20 years, or for 25 years for photovoltaic (solar) panels. Any electricity which is fed back to the grid will receive at least a floor price – expected to be around 5p per kilowatt hour – although major energy suppliers may bid to buy the surplus to meet their own green requirements. Today will also see the launch of the Government's proposals for a similar tariff mechanism to apply to renewable heat generation. The two subsidies are designed to dovetail, so a homeowner with solar panels on the roof and a ground-source heat pump is paid for all the energy produced, regardless of its form. With the advent of smart meters – the real-time, digital technology to be rolled out to all British homes by 2020 – heat will be measurable in the same way as electricity is now.

A renewable heat feed-in tariff would be the first in the world. And it could help drag Britain up from its woeful position on renewable heat generation. Against a European average of 10 per cent, just 0.6 per cent of our heat is from renewable sources.