better generation

Advantages of the Feed-in Tariff (FiT)

For many years the UK has been stuck with the Renewables Obligation (RO) scheme which hasn't really done a great deal to stimulate investment in Renewable Energy (RE). Under this scheme, licensed electricity suppliers are given a quota for the amount of RE they have to generate each year. RE generators receive a ROC (Renewables Obligation Certificate) for every MWh of clean energy produced, which they can then sell to suppliers. As you may have heard, the Feed in Tariff enters in force in the UK on the 1st April 2010. 

The problem with quota systems such as the RO scheme is that they offer little financial security, as prices for ROCs fluctuate depending on electricity supplier demand and supply. As a result, interested parties cannot be sure of what price a ROC is or will be worth tomorrow, next year or in ten years. Such financial risk discourages smaller players and inevitably leads to a market dominated by large centralised energy generators who can deal with the price uncertainty; a situation which does little to promote widespread RE acceptance. In addition, a quota system doesn't differentiate between alternative RE technologies; a ROC is a ROC regardless of whether the MWh comes from a wind turbine or a solar panel. This leads to increased development in the cheapest technologies, whereas more costly ones are neglected.

 
The advantages of a well designed Feed-in Law are exactly the reverse to the disadvantages of a quota system like the RO:

• With FITs there is ease of entry for all sizes of generator.
• Decentralised energy generation leads to greater public awareness surrounding the benefits of RE and helps to avoid NIMBY and other negative attitudes towards such technologies.
• There are differentiated prices for different technologies which helps to broaden the technology portfolio and doesn't lead to investment in only the cheapest options.
• Feed-in Tariffs are guaranteed for 20 years for all technologies except solar (which is proposed to be 25 years), and guaranteed rates equal financial security, which pleases investors interested in committing funds to RE projects.
• Increased investment leads to technological advancement which gives rise to lower prices.

Disadvantages of the Feed in Tariff

The principle drawback people state regarding the Feed in Tariff is that by setting tariffs above current market prices, this distorts the market by creating artificial support. Thus, if tariffs are not monitored, there is the potential that Renewable Energy installers and manufacturers don't improve technology, or lower costs, as whatever happens the tariff is the same and all customers are happy. This can be rectified using "degression", whereby tariffs are reduced a certain percentage each year, as a result encouraging all parties within the industry to continually improve products or services whilst at the same time reducing costs.

A second qualm people have within the UK, although it not a direct disadvantage, more of a problem with Government thinking, is that those who had originally installed Renewable Energy technology before the 15th July 2009 cut off are automatically transfered to the FiT at a rate of 9p/kWh (for those with capacity of less than 50kW). This tends to be  less than what generators were previously receiving under the old ROCs scheme, where for example under Scottish and Southern Solar Energy plus, customers received 28p/kWh. For more information about this issue see YouGen's Campaign for Equal Cashback scheme.