Introduction

In the UK, the Department of Energy and Climate Change is the governmental body responsible for introducing measures to avoid dangerous climate change and reduce carbon emissions, eventually leading to a low carbon economy.

An integral part of this is to have a larger portion of the electricity generated coming from renewable sources. Since 2002, the Renewables Obligation has been available for larger scale renewable projects to encourage their uptake but as it requires a thorough knowledge of the electricity market and sufficient generating capacity, smaller producers have often found it to be economically prohibitive as the return which could be expected by small scale generators was frequently too low to justify investment. However, April 2010 saw the launch of the Feed-in Tariffs to specifically cater for small scale generators (<5MW).

Through encouraging more of the general public to become small scale electricity generators it is hoped that awareness will also be raised to the responsible and efficient use of electricity as part of the societal behavioural change needed to combat climate change.

The introduction of Feed-in Tariffs, or FITs, removes many of the nuances of the Renewables Obligation by guaranteeing a fixed, annually inflated price over a defined period for the electricity generated by small scale projects, thus making them far more financially viable and attractive to new entrants. Under the FIT scheme, payment to the generator consists of a generation tariff and an export tariff, both of which are paid for by the electricity supplier (although smaller suppliers are not obliged and can opt out).

Tariffs Explained

The generation tariff is first determined by technology type and scale, and is paid per kWh of generated electricity irrespective of whether it is used on site or exported to the grid. The generation tariffs for small scale hydro projects are shown below in table 1, with other technologies similarly structured.

The export tariff is solely paid on the electricity exported to the grid. If this is metered, then a guaranteed annually inflated amount of 3p/kWh will be paid, however, very small scale generators can avoid metering completely as a proportion of generation over a given time period can be assumed to be exported. Generators also have the chance to sell their electricity on the open market if they wish to opt out of the export tariff. The combined income from FITs can therefore be calculated as:

IFITs = ((TEG * GT) + (TEE * ET))/100

Where,

• IFITs = Income from FITs (UK pounds)
• TEG = Total Energy Generated (kWh)
• TEE = Total Energy Exported (kWh)
• GT = Generation Tariff (p/kWh)
• ET = Export Tariff (p/kWh)

Since the scale of a hydro project is determined by only four bands and the price for each band is fixed, it may be financially beneficial for generators to down scale their operation in order to qualify for a higher tariff rate, even though the available resource is not being fully exploited. These so called “grey areas” exist in the lower reaches of the scaling bands but the exact crossover points, i.e. the power at which it is no longer economically advantageous to down scale to achieve a higher rate tariff, have to be evaluated individually case by case as the amount of exported energy is installation specific. Note that hydro equipment capital costs are likely to play an important role in deciding whether to down size a scheme or not as they form a significant portion of a projects overall cost.

Conclusions

Although the introduction of Feed-in Tariffs is now making small scale generation more attractive and encouraging new entrants it doesn’t necessarily lend itself to maximising the amount of energy generated from a project as the grey areas in the tariff system can be quite large, leading to downsizing. One method of discouraging downsizing would be to reduce the size of the grey areas by increasing the number of scaling bands as this would help to ease the transition between bands as the difference between tariff rates would be smaller.

Another criticism of the system is that those with money will be in a position to invest and profit under FITs while those without will have to pay higher prices for their electricity as electricity suppliers re-coup their tariff payments to generators through rises in pricing.