The British Feed-in Tariff for small renewable energy systems: Can it be made fairer?

Executive summary

The British Feed-in Tariff (FiT) scheme, which launched in April 2010, pays £500 million each year to the owners of small scale renewable energy installations for the clean energy their installations produce. This paper looks at the fairness of the FiT scheme by examining how its costs and benefits have been distributed across rich and poor households during the scheme’s first three years.

379,000 installations had been registered under the FiT scheme to March 2013. Matching the installations data to socioeconomic data from the 2011 census shows that a disproportionately small number of installations are located in relatively poor areas and a disproportionately large number of installations are located in relatively rich areas. The benefits of the scheme appear to be flowing more to rich households than to poor ones. A key reason for this is that there is no policy mechanism in place to support access to the scheme for poor households.

Even though richer households are benefiting more from the scheme and poorer households less, no provisions are in place to ensure that the cost of the scheme is spread fairly across households. The Government has relinquished responsibility for how the cost of the scheme is distributed to the electricity suppliers. The electricity suppliers are authorised to pass on the cost to consumers through higher electricity bills but the Government provides no guidance or oversight to ensure that the cost is spread fairly. So, while poor households are participating less in the scheme, they are likely bearing a similar financial burden to support the scheme as rich households.

Compared to similar microgeneration promotion schemes in Australia and California, the British scheme differs because it does not have a policy mechanism in place either to ensure that the cost of the scheme is spread fairly, or to counteract forces, such lack of access to financial capital, that tend to shut poor households out of scheme participation.

The analysis in this paper suggests that the poorer half of British households receive (at least) between £14.2 and £26.6 million less per year in FiT payments than they would if FiT-registered installations were distributed equally across income groups. This pattern in the distribution of FiT payments across income groups could persist for the life of the scheme – until 2033 and beyond – unless reforms are made.

The following changes to the scheme are recommended to address fairness issues in the way the scheme is targeted and paid for:

• Ofgem should establish whether the electricity suppliers are passing on the cost of the scheme to electricity customers as a fixed or variable charge and require electricity suppliers to state the cost of the scheme clearly on electricity customers’ bills.
• Scheme cost information should be provided alongside information about the proportion of the bill attributable to wholesale electricity costs, transmission and distribution, and other environmental programs, so bill payers can see the relative contribution of the FiT scheme to their bill.
• Ofgem should review how the cost of the scheme is being spread across income groups, produce best practice cost-distribution methods, and enforce uptake of this best practice by the electricity suppliers where the electricity suppliers do not implement best practice voluntarily within 1 year.
• Ofgem should set a target for 10 per cent of FiT installations delivered until 2020 to be registered to relatively poor households, and publish progress towards this target annually in the FiT scheme Annual Report.
• To support the 10 per cent target, the Department of Energy and Climate Change should facilitate a public awareness campaign targeted at relatively low income households. This may be complemented by an incentive scheme to induce installer companies registered under the Micro-generation Certification Scheme to target low income households through the marketing methods they are already using.
• Multi-household dwellings like council estates present unique barriers to installation uptake. The Department of Energy and Climate Change and Ofgem should include some number of multi-family dwellings in the 10 per cent target. The Department of Energy and Climate Change and Ofgem should produce guidance on overcoming the installation issues faced by these dwellings and take further action as necessary to fulfil the installation target for these dwellings.

David Grover