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SARAH LONSDALE (SUNDAY TELEGRAPH) HOW TO BE GREEN AND STAY SANE

It's midsummer, the number of daylight hours is at its zenith and Britain's fledgling solar-electricity industry is at its peak production. There is now a generous tariff paid for solar electricity exported to the grid, so putting panels up on your roof represents an excellent return on investment -- between 5 and 8 per cent, depending on how far north or south you live. No wonder money pages and finance websites are recommending home owners install these income-generating mini power stations. No wonder installers such as PV Solar are putting up 25 systems every week and have over a million pounds' worth of orders.

With the promise of clean, green, free electricity and a guaranteed income from it for 25 years, what's not to like? Quite a lot, actually, say some, who are critical of the Feed In Tariff (FiT) system. There is an increasingly polarised debate between those who say solar PV must play a vital part in our future renewable energy mix, and those who say it is a horrendously costly scheme that ultimately subsidises the middle classes to put incomegenerating panels on their roofs. The system pays home owners 41.3 pence per unit of PV electricity they produce, while most people pay, at the moment, between 9 and 13 pence per unit for what they buy from the grid. Where will this enormous shortfall be plugged? In higher electricity bills for those not fortunate enough to afford the Pounds 20,000 outlay it costs to put panels up, say critics, including George Monbiot, the green campaigner, and the TaxPayers' Alliance.

Mike Hillard, an engineer and environmental consultant, says the main defect of PV is that when demand for electricity is highest - during winter, production, which relies on sunlight, is at its lowest: "On a winter evening, nothing comes from PV - so no matter how much PV there is, we would still need all the same power stations. PV supply is the opposite of our demand," he says.

"If we had 16 million houses fitted - on a sunny June 21st at midday we would have to turn everything else off and stop the wind turbines. But the same 16million installations [at Pounds 10,000 a time] would only provide 5.2 per cent of our annual electricity and would cost us Pounds 160 billion," he argues.

He says the Feed in Tariff is a "huge bribe.

We don't want PV and the less of it the better.

The only people to benefit are the suppliers."

Others have a different view. Cathy Debenham, who runs a microgeneration users' website, YouGen, representing some of the estimated 5,000 home owners with solar PV on their roofs, says having solar panels makes people more aware of their energy use. "When you start generating your own electricity, your relationship with it changes. Having solar panels makes me think about when I run the dishwasher, or the washing machine. Now that we will have bills that take outgoing energy into account as well as what we're buying, there's even more incentive for us to reduce our use of the imported stuff. It's not just the middle classes who can afford to put them up. Wellsited solar panels probably give people a better return than putting their pension into an annuity now." She says by kick- starting the microgeneration industry, FiTs will help reduce the cost of panels. Already, the cost of solar PV has fallen 30 per cent this year.

FiTs can also pay for other carbonreducing efforts, such as insulation and double glazing, if it is used in large-scale social housing projects, says Matthew Rhodes, of engineering consultancy Encraft.

His company is involved in a pilot project in Birmingham that is using income generated from PV to repay loans taken out by low- income families and social landlords, to conduct retrofit projects on poorly insulated pre-war houses. Early results show that these projects can reduce carbon emissions from poor-quality Victorian and Fifties homes by 79 to 95 per cent -- and save low-income households hundreds of pounds in energy bills. "It's not just the middle classes who will benefit here," he says.

"People on low incomes can take out a low-interest loan to retrofit their home and pay back what they borrow with savings on their fuel bills and income on their solar panels. We can use the tariff in a positive way to pay for thousands of tonnes of carbon reductions from our housing stock."

He adds that the Department of Energy and Climate Change estimates that paying for the FiT will only add one per cent to the average electricity bill. "Compared to the 30-odd per cent rise from oil price hikes in recent years, the FiT is a tiny addition to bills."

BDO LLP Comment

Feed in Tariff Scheme
With the introduction of yet another incentive scheme to encourage renewable energy generations, there is significant opportunity for investors.

The Department of Energy and Climate Change (DECC) has recently announced the introduction of the Feed in Tariff (FIT) scheme. The scheme has been introduced to incentivise individuals, local community groups and small businesses to generate renewable energy.

But while the lending market for large scale generation projects using some of the more established technologies, such as solar, wind and anaerobic digestion is already quite developed with lenders offering the full range of financing, including, equity, mezzanine finance and senior debt, the market for small projects is far more limited.

At the lower end of the scale, generators have limited access to funds and have to resort to personal loans, asset finance and corporate lending which is relatively expensive and drastically reduces the return on investment.

Thus, there appears to be a clear opportunity for an alternative form of finance in return for the guaranteed, long term cash flows. Obviously, there are issues to be addressed, in terms of administration, cost of finance and availability of funds but perhaps this could sit well alongside a pension fund, with a long term, low return strategy?

The FIT scheme offers the generator three main benefits:

• Generation tariff
• Export tariff
• Reduced electricity bill by using a proportion of the generated electricity on site

• Period of Scheme - the generator will receive FIT tariff for a period of 25 years for solar photovoltaic installations, 20 years for wind, hydro and anaerobic digestion installations and 10 years for micro CHP.
• Installation Size – the scheme will cover installations with a capacity of up to 5MW. Generators with an installation size of between 50kW and 5MW have a one-off right to choose between the RO and FIT scheme.
• Technologies supported - wind, solar photovoltaic, hydro, anaerobic digestion. The FIT scheme is also supporting the first 30,000 micro combined head and power installations (2kw or less) as a pilot programme. Generators who install two technologies on the same site will receive FIT payments for the different installations.
• Generation Tariff – fixed price per kilowatt hour generated, linked to RPI. To be paid by electricity suppliers to generators for the amount of electricity generated. The fixed price depends on the size and type of technology used by the generator.
• Export Tariff – single export price per kilowatt hour generated, linked to RPI. To be paid by electricity suppliers to generators for the surplus energy generated that they will export to the grid.
• Indexation - generation and export tariffs will be indexed annually by RPI
• On site use of Electricity – Generators are able to use the electricity generated on-site, at no further cost, as this is the most efficient use of the electricity.
• Taxation – domestic householders generating their own electricity will not be subject to income tax. Companies will be subject to Corporation Tax on the tariff income.
• Financing – the scheme will not provide the up-front financing for the installations.
• Return on Investment – expected to achieve a rate of return, in nominal terms, of between 7-10%

The government is currently consulting on another incentive scheme, the 'Renewable Heat Incentive', to be launched in April 2011, which rewards generators of heat rather than electricity.

Each of these schemes follows similar principles, i.e. providing long term, fixed revenue payments to the generator in return for investing in renewable energy generation. The schemes allow for a wide range of technologies, including wind, solar photovoltaic, hydro, anaerobic digestion, air and ground-source heat pumps, CHP and biomass to name but a few.

The schemes have been developed to provide a rate of return to the investor that reflects the level of risk associated with each of the technology types and the size of the installation.

Solar panel investment

“Buying a solar panel is now the best investment a householder can make. The tariffs will deliver a return of between 5-8% a year, which is both index-linked (making a nominal return of 7-10%) and tax free. The payback is guaranteed for 25 years. If you own a house and can afford the investment, you'd be crazy not to cash in." - George Monbiot (Gaurdian Enviroment Consultant)

REA responds to the outcome of the General Election

In response to the outcome of the General Election, REA Chief Executive Gaynor Hartnell commented,

"To meet our legally-binding renewable energy target, the UK needs to be on the steepest growth path of any European member state.  We cannot afford any stalling.  Whoever forms the new Government, the strong cross-party consensus on renewables must be quickly converted into action.  If any changes are to be made to existing policies, they must be done in a way which maintains investor confidence and momentum."

"We need to see primary legislation for a new Green Investment Bank. New regulations must be in place by April next year to implement the Renewable Heat Incentive so that renewables can start to play their part in heating the nation. We also need the new government to quickly implement sustainability standards and to drive forward higher greenhouse savings in biofuels. Some adjustment is needed to the feed-in tariffs for some small-scale renewables technologies.

From a national energy security, climate and jobs perspective, the UK cannot afford to delay expanding renewables investment."

Solar PV market 'to increase five fold'

The market for solar photovoltaics (PV) is expected to increase dramatically.

This is according to a recent study by accountancy firm PricewaterhouseCoopers (PwC), which suggested that feed-in tariffs from the government are behind the predicted growth.

The analysis found that the use of solar PV could grow five-fold over the course of the year.

Gus Schellekens, sustainability and climate change director at PwC, commented: "The focus on PV is timely with recently published roadmap documents outlining the future global potential for PV technologies.

"While its use in the UK is small today, PV has a promising future if supported by strong government policy that sustains early deployments and supports the technology's transition to cost competitiveness."

The technology uses cells to capture and convert sunlight into electricity.

However, contrary to earlier solar systems, the PV cells can be of particular use in the UK because they will even work on a cloudy day.