Feed-in tariffs (FIT) will be available for domestic low carbon energy prodcution from 1 April, giving homeowners the chance to cash-in on small-scale energy production with a 5-8% return on investment.
Community renewable energy schemes will be paid for the electricity or gas produced and fed back into the supply network.
Technologies such as wind turbines and solar panels up to 5MW will be included in the scheme, which could be used by either homeowners or communities. The FIT gives producers a fixed price for electricity, even if the producer then uses it.
The level of payment depends on the technology and is linked to inflation. Further payments are made for any electricity fed into the grid. Payments are on top of reduced bills, and will apply to installations constructed since July 2008.
Energy secretary Ed Miliband said: “The guarantee of getting an income on top of saving on energy bills will be an incentive to householders and communities wanting to make the move to low carbon living.
“The feed-in tariff will change the way householders and communities think about their future energy needs, making the payback for investment far shorter than in the past.
“It will also change the outlook for a range of industries, in particular those in the business of producing and installing small scale low carbon technology,” he said.
DECC say a typical 2.5kW solar pv installation could pay a homeowner up to £900 and save £140 a year on electricity bills.
From 2011, the scheme will include combined heat and power schemes, to ‘kickstart’ the industry in the UK, according to a Department for Energy and Climate Change (DECC) statement.
The Renewable Energy Association (REA) welcomed the news. REA Policy Director Gaynor Hartnell said; “The UK may be languishing behind the rest of Europe on renewable heat, but the proposals launched today are an important world first. The industry is confident these proposals give the UK pretty much the best chance of generating over 10% of its heat from renewables by 2020.
“Renewable heat is the sleeping giant of renewable energy in the UK with a major contribution to make. The sooner we invest and build capacity in the renewable heat industry, the better value and energy security this will bring the UK - and the more jobs will be created.”
Renewable heat generation will guarantee payments for those who install technologies such as ground source heat pumps, biomass boilers and air source heat pumps. A ground source heat pump in an average semi-detached house with adequate insulation levels could be rewarded with £1,000 a year and lead to savings of £200 per year if used instead of heating oil.
However, green group Friends of the Earth said the measures did not go far enough, and a 10% return should have been set. Friends of the Earth’s green homes campaigner Dave Timms said: “The introduction of cash incentives to boost small scale green electricity generation is welcome - however, Ministers have been far too timid with a policy that could make a significant contribution to cutting emissions and boosting energy security.
“Installing renewable technologies will now be a good investment for many homes - but farmers, businesses, communities and others will get little or no extra incentive to invest in clean electricity.
“There is huge public support for small-scale green energy schemes. The Government must do much more to tap into this enthusiasm and ensure that everyone plays their part in developing a safer, cleaner future,” he said.
The heat incentive could help wean communities off fossil fuel supplies such as gas or heating oil.