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Feed in Tariff for hydro, and other sources of income

The Feed in Tariff for hydro (FiT) is the major component of the total value of the renewable energy generated. However, there are other also several other components which when added together become significant.  They are:

  • Export price
  • Offset value
  • Combined offsetting and exporting

Feed in Tariff for hydro (FiT)

A portion of the value of generated renewable energy is the Feed in Tariff for hydro. This is paid for every kiloWatt-hour (kWh) of electricity generated regardless of whether it is consumed on-site or exported. The amount paid under the Feed-in Tariff is banded for different sizes of hydropower system so that smaller systems which normally cost disproportionately more to implement are not penalised. The Feed in Tariff for hydropower projects is as follows:

Hydro SystemMax. Power Output Feed-in Tariff
< 100kW 7.65 p/kWh
100 to 500 kW 6.12 p/kWh
500 kW to 2 MW 6.12 p/kWh
> 2 MW 4.43 p/kWh

Notes:

  • These rates apply as of the last page update on 11th November 2016..
  • For systems that sit on a tariff threshold, the higher tariff will apply.
  • Once a hydro system is registered for the Feed-in Tariff it is locked into that tariff for 20 years. In addition the tariff will be index-linked to RPI, so its value in real terms will not be eroded by inflation.

In the government’s review of the Feed-in Tariffs during 2015 a system of quarterly ‘degression’ is being introduced which comes into effect from the 8th February 2016. The degression is a combination of default degression and contingent degression, the latter being applied if deployment caps are exceeded. Contingent degression is set at 10% on a quarterly basis. Furthermore, a system of quarterly deployment caps is being introduced from 8th February 2016.

If a quarterly deployment cap is exceeded the eligibility for the Feed-in Tariffs will be frozen until the deployment cap is lifted in the following quarter. Clearly this means it is worth progressing with hydro projects as soon as possible to avoid the degression cuts. Remember that once commissioned the Feed in Tariff for hydro is fixed for 20 years and index-linked, and not subject to degression.

Also worth noting is that once a hydropower site has planning and EA consents, and a firm grid offer it is possible to pre-register for the Feed-in Tariff, which means that at the point of ordering the turbine you would know what Feed-in Tariff you would ultimately receive and would not have the risk of the tariff being reduced between ordering the turbine and commissioning (which can be up to a year for some turbines). The export value and the offset value are a slightly more difficult to explain because depending on the site either one may apply or both. For clarity each is explained individually first, followed by what happens when both apply.

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Export value

This is payable for every kWh of electricity exported, and the value can vary between the guaranteed minimum amount, 4.91 p/kWh under the Feed-in Tariff, or the ‘market rate’ which is currently closer to 5 p/kWh. Very small systems (<15 kW) generally have to accept the default FiT export rate of 4.91 p/kWh, but as systems get larger it becomes easier to negotiate a much higher ‘market rate’. For systems of several hundred kW’s it has been known to get an export rate of 5.5 p/kWh. Exported means that it must pass outwards into the local electricity distribution network (what most people call ‘the grid’) through an export meter. An export meter looks the same as a normal import meter, but records the flow of electricity outwards from a site. Nowadays a single import/export meter is normally fitted. To export all of the energy produced by a small hydro or micro hydro system it would have to be directly connected to the grid with its own dedicated electrical supply and not first pass through the site distribution board (see more details below under ‘offset value’). Under this arrangement every kWh generated by the system would be exported, and the export rate would be paid. Back to top

Offset value

This is where the small hydro or micro hydro system connects into the site owner’s main distribution board. It is important to remember that electricity flows like water and will always follow the easiest route to the nearest load. This means that all of the site owners loads (i.e. lighting, sockets, machinery, air conditioners etc.) that connect to the same distribution board will be supplied firstly by the hydropower system, and only once all of these loads have been satisfied will any surplus energy from the hydro system flow backwards through the incoming supply cables, either to the next nearest distribution board on the site, or out through the export meter to the grid.

Also, because the electricity produced by the hydropower system is fully grid-synchronised, it will mix seamlessly with grid-imported electricity. This mean that if the hydro system cannot meet all of the site owners loads, then all of the electricity from the hydro system will go towards the loads and any deficit will be seamlessly imported from the grid.

Equally, if the hydro system was supplying all of the local loads but then a reduction in the river flow rate caused the output to suddenly drop, then the grid would instantly supply more to make up the deficit. From a consumers point of view the source of the electricity would be unknown; it could be from the hydro system, the grid or a combination of both.

In the situation where the on-site loads far exceed what the hydropower system could produce, then all of the electricity generated by the hydro system would be consumed on site. For example, if a hydropower system with a maximum power output of 100 kW was connected to a site that had a baseload (i.e. the minimum load 24/7) of 500 kW, then 100% of the energy generated by the hydro system would be consumed on site. Financially this would be a good arrangement because the price paid for importing electricity from the grid is typically 10 p/kWh (varies between 8 – 16 p/kWh depending on the import tariff), so if the amount of import can be reduced, for every kWh it is reduced by the site owner saves 10 p. If you compare this saving of 12 p/kWh to an export price of 5 p/kWh, you can see that offsetting on-site loads is worth two to three times more than exporting the electricity.

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Combined offsetting and exporting

This is actually the most common arrangement and is basically the arrangement described above under ‘offset value’ except where the on-site loads are less than the power being produced by the hydropower system. Under this arrangement the onsite loads would be supplied first, then the excess power exported.

The value would be made up of the amount of energy offset at 12 p/kWh (or whatever your import electricity price is) plus the amount of energy exported for between 4.5 – 5.5 p/kWh. Obviously the actual value would depend on the relative proportions, but these can be estimated at a feasibility stage based on existing electricity bills and forecast energy production from the hydro system.

Generally speaking it is best to offset imported electricity first, then export any remaining surplus to get the highest revenue from a hydropower system.

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Are you considering a hydropower project in the UK, Ireland or overseas?

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The first step to develop any small or micro hydropower site is to conduct a full feasibility study.

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Once complete, you will understand the site potential and be guided through the next steps to develop your project. You can read more about hydropower in our Hydro Learning Centre.

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