From April, households and communities that install generating technologies such as small wind turbines and solar panels will be entitled to claim payments for the electricity they produce.

Energy and climate change secretary Ed Miliband today announced details of the feed-in tariff (FITs) for small-scale low-carbon electricity. It is estimated a typical 2.5kW well-sited solar photovoltaic (pv) installation could offer a homeowner a reward of up to £900 and save them £140 a year on their electricity bill.

From 1 April, those who install low-carbon electricity technology such as solar pv panels and wind turbines up to 5MW will be paid for the electricity they generate, even if they use it themselves.

Ofgem will administer the feed-in tariff scheme and suppliers will be responsible for paying the reward to their customers.

The level of payment depends on the technology and is linked to inflation. They will get a further payment for any electricity they feed into the grid. The scheme will also apply to installations commissioned since July 2008 when the policy was announced.

The energy secretary also revealed a blueprint for a similar scheme to incentivise low-carbon heating technologies in April 2011. It is believed this renewable heat incentive (RHI) will be a world first.

The incentive guarantees payments for those who install technologies such as ground-source heat pumps, biomass boilers and air-source heat pumps. Under the proposed tariffs the installation of a ground-source heat pump, which is one that uses the earth as a heat sink to store heat or as a source of heat, in an average semi-detached house with adequate insulation could be rewarded with £1,000 a year and lead to savings of £200 per year if used instead of heating oil.

Commenting on the FIT announcement today, Steve Mahon, chief investment officer at Low Carbon Investors, the investment manager for AIM-listed Low Carbon Accelerator, said: ‘We’ve long been in favour of feed-in tariffs as the best policy mechanism to stimulate the small-scale market.

‘Today’s announcement should help encourage the levels of finance required to make this a viable form of generation in the UK. It is encouraging to see that policy-makers have been long-sighted enough to make this an index linked payment so that real term returns will not drop as wider economic conditions change.’

‘I am concerned that the headline figures being quoted for financial returns could encourage people to make unwise investments,’ cautioned Doug King, Royal Academy of Engineering Visiting Professor in Building Engineering Physics at Bath University. ‘Unlike the previous capital grants scheme, feed-in tariffs will pay according to the amount of renewable electricity generated and studies have shown that small-scale renewable systems often generate far less in practice than originally anticipated.

‘A 2009 study of small-scale domestic wind turbines by the Energy Savings Trust found no urban or suburban installation that generated more than 200 units of electricity per year. Under the new feed-in tariff this level of generation would pay a homeowner just £69 per year on top of the electricity bill savings of £26.

‘I would encourage anyone planning to invest in renewable energy as a result of this announcement to have a proper appraisal of their generation potential. There is no question that a well-designed renewable energy system in the right location is a benefit.’