07 December 2018 - Article
The feed-in tariffs (FIT) scheme came into force in the UK on 1 April 2010. It is a government backed initiative (introduced in the Energy Act 2008) to encourage production of energy from small-scale low carbon technologies. In return for the production of the electricity, tariff payments are made for both the electricity generated and the electricity sold back to the national grid.
Getting started and going forward
The FIT scheme is available for those who install a renewable energy system which produces less than 5MW of power each year. The recognised forms of renewable energy are solar, wind, hydroelectricity, anaerobic digestion and micro combined heat and power units.
The level of the tariff available will depend on the type and date on which the renewable energy system is installed. It is anticipated that the tariff rates will decrease after the initial years of the scheme in line with falling technology costs. It is therefore important to consider the different renewable energy options and tariffs available and how they suit an individual property before embarking on a renewable energy project.
The Government aims to have more than 750,000 installations operating under the FIT scheme by 2020, saving the production of approximately 7 million tonnes of carbon dioxide. Given the requirement of all types of renewable energy for significant areas of land it is anticipated that small-scale renewable power generation will become a common feature of farms and estates over the next 10 years.
What are the benefits?
The scheme will guarantee a minimum payment for electricity generated on the site and a separate payment for the electricity sold back to the National Grid. It also has the added benefit of saving the cost of buying in electricity.
Furthermore, the sale of electricity to the National Grid is a trade, which in some cases could mean that a renewable energy project will qualify for business property relief from inheritance tax.
Landowners may also be tempted to enter into agreements with renewable energy companies. These can be attractive as they can reduce the initial upfront costs of the project whilst ensuring an income for the landowner. If inheritance tax is a driver for the landowner, then care must be taken to ensure that the arrangements are drafted to maximise opportunities for relief. A straight forward lease is unlikely, in the circumstances, to qualify for business property relief.