Eco doctor

How do feed-in tariff payments work?

Feed-in tariffs, which were introduced on 1 April, reward investment in low carbon electricity by paying the generator more for the electricity they produce than the market pays normal generators. The FIT is subsidised by power companies charging slightly higher prices for conventionally generated electricity. An effective tax is collected from all customers using conventionally generated electricity and is already reflected in our bills.

FITs payments work on a reducing scale over time. The highest FITs payment terms are only available during the first two years, from April. Contracts awarded during this period will enjoy these high incomes for each year of their 25-year or 20-year contract (depending on the technology used). All other contracts will earn smaller amounts during the life of their contract.

Are there benefits to working with FITs right now?

Yes: the longer you wait to invest in FITs, the lower the income potential. The logic is that as more people invest, the cost comes down and therefore the level of financial incentive needed to justify the investment also comes down. The most important thing that social landlords can do is to make sure that they install as much low-carbon electricity generating technology as they can and that they share any financial incentives with their tenants.

What challenges must social landlords overcome?

First, they must sell the idea to their tenants as part of their consultation; explaining that their fuel bills will reduce when they are using free electricity from, say, roof-mounted solar panels. They will also need to make it clear that the FITs payments, both for being a generator and for occasionally exporting electricity back to the grid, will be paid to the landlord and not the tenant. Second, social landlords need to fund the high capital costs of installing low carbon technology.

How can social landlords meet the capital cost of installations?

There are several potential funding options available but, because the market is in its infancy, it is difficult to plot one approach. It is also not clear at the current time how the government’s promised low-carbon investment fund may help social landlords in the future. At Black Country Housing Group, we are investigating what financing options the utility companies and installers can provide to help us maximise the potential of FITs. Although difficult to see how it works just yet, I believe the social housing model for ‘pay as you save’ - in which loans for renewable technologies are repaid through the ensuing energy savings - could also play a part in funding an installation up-front. The problem that we need to resolve is passing the cost forward from one tenancy to the next.

Key to making this work will be to ensure PAYS repayments can be made part of a tenant’s rent. While social housing providers with head-room in their rent ceilings might be able to do this, many will not. With so much rent paid for by housing benefit, many social landlords will need to secure Treasury agreement to include PAYS repayments by way of a rent increase above current caps. Aside from using their own reserves, social landlords could also investigate borrowing money to fund an installation with the FITs payments being used to cover the loan repayments.

Richard Baines is director of sustainable development at Black Country Housing Group

Have your say

You must sign in to make a comment