The UK’s Feed in Tariff scheme closed to new entrants from April 1 2019, leaving small scale renewable energy without support and awaiting the introduction of the Smart Export Guarantee (SEG).
Since 2010, the Feed in Tariff has paid small-scale low carbon generators a tariff for all of the electricity they generate. That payment has now ceased and solar and other small-scale renewables are entering a subsidy free future. How that future looks will depend greatly on the treatment of exported electricity.
Exported electricity is power that your system generates that does not get used on site. Rather, it is exported to the grid. Under the Feed in Tariff Scheme, the generator was paid an “Export Tariff” to compensate for this production. With the closure of the scheme the export tariff is also closed to new entrants, leaving no system to compensate homeowners for electricity that they are providing to the grid.
What is the Smart Export Guarantee and how will it work?
In January 2019, the UK Government announced a consultation on proposals for a Smart Export Guarantee. The Smart Export Guarantee will effectively replace the export tariff in paying small-scale generators for the electricity they send to the grid.
The government is proposing that all large energy suppliers will have to pay generators for the electricity they export. Electricity suppliers will offer the generator a price per kilowatt hour for exported electricity. The level of payment and length of contract being left to each electricity company to determine.
Key elements of the SEG proposal:
- Larger electricity suppliers will be required to offer small-scale generators a price per kWh for the electricity they export to the grid.
- Smaller suppliers can opt to voluntarily.
- Suppliers would determine the tariff paid per kWh and the length of the contract.
- Electricity exported to the grid must be metered.
At this stage, the level of the payment is being left to be decided by the electricity suppliers. The only floor price that has been committed to is that the price should at all times be greater than zero.
A smarter tariff system?
Under FIT the export tariff was uniform. It is currently 5.24 p/kWh. Under the proposed Smart Export Guarantee there won’t be a set tariff rate. Each supplier will set their own rates and the government’s approach to the export pricing is “smarter the better”. BEIS envisages simplistic options like flat rate tariffs giving way (perhaps over time) to flexible prices. For example prices might rise and fall based on half-hourly wholesale electricity market prices. So there won’t be an SEG tariff, rather a variety of price offers and rates from different suppliers.
When will the Smart Export Guarantee begin?
The consultation process sought views on the proposed SEG and closed to responses on March 5th. BEIS are currently analysing feedback from the consultation so there is no date yet for the start of the Smart Export Guarantee. There are however a small number of suppliers already trialing export payment offers (see below).
How much will the Smart Export Guarantee pay?
Although there have been discussions of a price floor, the government does not seem minded to set the level of payment under the SEG. The system envisaged is a flexible one where homeowners are paid a market rate for the electricity they produce. This rate will be set by the electricity companies and ultimately should vary based on time of day.
What can be said is that the government approach is a ‘hands off’ one when it comes to the rate. Subsidising or incentivising solar and other renewables is not the aim. The policy is relying on the market to find a fair price for exported electricity.
What is a fair price?
The consultation document sets out a market based approach. So the obvious answer to this question seems to be that energy companies would pay small-scale generators the same or similar to what they pay other providers. According to the Solar Trade Association, wholesale electricity prices in 2018 averaged around 6p/kWh. Importantly, this is higher than the current export tariff (5.24p/kWh).
The other option might be to use the System Sell Price, which in 2018 averaged 5.4p/kWh.
It is important to note that under the SEG, suppliers will be allowed to “Make appropriate discounts in the setting of the tariffs for any administration costs.”
What SEG tariffs are currently being offered by suppliers?
Some energy suppliers are already testing the waters and have released export tariffs.
|Octopus Energy||Outgoing Fixed||5.5p/kWh||Requires smart meter|
|Octopus Energy||Outgoing Agile||Day-ahead wholesale rates||half-hourly prices Requires smart meter|
|E.ON||Solar Reward||5.24p/kWh||50% deemed export, 1 year only|
|Bulb||Unknown||Alpha trial for first 50 members. Requires smart meter|
So initial offerings from the market are quite positive. The tariff levels being offered are matching or exceeding the export tariff under FIT.
It is good that some companies are clearly seeing a value in making a tariff offering. Presumably, they feel that a fair export offering can assist them in gaining and retaining customers. This is a positive sign for the development of the competitive market that the government is hoping for.
More from Green Business Watch
The Smart Export Guarantee will cover the same technologies that are eligible under FIT. These are:
- Anaerobic digestion
- Micro-combined heat and power (micro CHP)
- Onshore wind
- Solar photovoltaics
Other eligibility requirements
- Under 5MW of capacity
- Metered using a meter capable of metering half-hourly export volumes.
- Solar PV, wind and mCHP installations up to and including 50kW need to ensure they use Microgeneration Certification Scheme (MCS) certified (or an equivalent scheme) equipment installed by an MCS-certified installer.
- Other technologies with installations above 50kW must as a minimum provide the same details as are required under the MCS certification process
Battery storage and green vs brown electricity
Battery storage has been coming down in price for several years now and is becoming increasingly popular, especially in conjunction with solar panels. The SEG proposal recognises that storage is a factor already and is likely to grow over the coming years. Battery storage allows homeowners and businesses to maximise the value of their generated electricity either by increasing the use of that electricity on-site or by exporting at the most profitable times.
Battery storage co-located with generating technologies has the potential to allow small-scale low carbon generators to make the most of their systems. This is in line with the commitment the SEG makes to “smart homes and businesses”. It does present a question for the SEG however.
The Smart Export Guarantee is being introduced to ensure payment for “green electricity” exported to the grid. Battery storage may be a key part of “green electricity” systems going forward but batteries can also be charged from non-green sources. One question addressed in the consultation is whether the SEG should pay only for “green” electricity. This would require a metering system able to determine the source of the electricity and what proportion of exported power is “green electricity”.