The government's new feed-in tariffs for electricity that is produced by renewable energy offer a way of helping the environment while generating a high real return.
The feed-in-tariff scheme was introduced in April 2010 and enabled individuals and organisations to benefit in three ways from putting solar panels on their roofs.
First, they get paid a set rate by the energy supplier for each unit of electricity they generate (currently 36.1p/kwh for newly built solar installations). Second, they get paid for any surplus electricity they do not need and sell back to the grid (they get a further 3p/kwh). Third, they benefit from the electricity produced and use themselves because this lowers the amount of electricity they need to buy from the grid.
The reason the returns are so attractive is that the scheme is new and designed to attract new participants. It is affordable because the utilities have to pay an enhanced tariff for renewable energy. However, they are allowed to raise their prices to consumers, so it is consumers in general who fund the scheme. In the case of solar electricity, the enhanced tariff lasts for 25 years and rises in line with the retail price index.
The scheme does have some drawbacks. It applies only to up to five megawatts of power generation and replaces the grants previously available under the Low Carbon Buildings Programme. It is suitable only for sunny spaces and those that do not need planning permission. In addition, it could make other uses of the property more difficult.
In general, the attractions outweigh the drawbacks, as highlighted by the interest of companies in the scheme. The Clean Renewable Energy Group set up a £50m scheme to enable not-for-profit groups to put solar panels on their buildings. British Gas has also set up a £15m scheme to put free systems on school roofs. Although the installation is free, schools get only cheaper electricity and the benefits of the feed-in-tariff go to the British Gas Energy for Tomorrow Trust.
With the 2 per cent index-linked 2035 stock issued by the Treasury yielding only 1.35 per cent, a scheme which most commentators think offers a real yield of more than 7 per cent is clearly very attractive.
Charities ought to consider allowing others to set up schemes on their roofs. However, the best profit might well come if they make the investments themselves and benefit fully from the attractive tariffs that are currently available - and they will know they are helping the environment, too.