Smart Export Guarantee - a new route to market

The closure of the feed-in tariff scheme is not all bad news as its replacement, the Smart Export Guarantee (SEG), could open up a whole new route to market for the smallest electricity generators.

The feed-in tariff (FIT) scheme is a subsidy paid to small generators of renewable electricity and comprises a generation tariff, where the generator is paid for the amount of electricity it generates (even if it is then used by the generator); and the export tariff, where the generator is paid for the amount of electricity they export to the grid. For smaller generators (such as solar panels installed on a domestic property) this is deemed to be 50% of the electricity generated, rather than being metered and paid on the exact amount exported.

The FIT scheme is due to end on 31 March 2019. The Government confirmed this in a recent consultation, referring to the fact that the cost of solar has fallen by 80% since 2008 and the take-up of the scheme was much higher than predicted – and the cost ended up on our energy bills.

The new Smart Export Guarantee scheme that will "replace" the FIT will, in contrast, not be Government funded but will be industry-led, underpinned by some minimal Government regulation (a new supply licence condition). It will mean that large suppliers (with over 250,000 customers) will have to offer to purchase electricity from small generators; and smaller suppliers can choose to do this. Suppliers can set their own price, but it has to be above zero, meaning that if there is more supply than demand, a generator does not have to pay to export electricity. The Government envisage there being a range of tariffs, from a fixed price per kWh exported to a tariff benchmarked to wholesale electricity prices.

The main differences between the FIT and the SEG are:

• The SEG will be a private contract between the generator and the supplier, rather than a Government subsidy.
• The rate of SEG will depend on what each supplier is prepared to offer, rather than being a flat rate. This means generators will have to shop around to get the best deal.
• Generators will need to have a meter capable of half hourly settlement.  The Government believes that a SMETs-compliant smart meter should meet this requirement.  Therefore anyone wanting to take advantage of a SEG tariff will need a smart meter.
• The tariff might vary depending on the time of day that the electricity is exported, with higher tariffs for exporting electricity at times of higher demand.  This, it is hoped, might promote a change in habits which could play a part in helping to balance the grid and minimising the need for reinforcement.
• It is not clear how long an individual SEG contract between a generator and a supplier will last, or indeed how long the SEG scheme as a whole will last.  (It will "be in place until such time that the market can operate effectively without Government intervention" according to the consultation, and the Government is considering whether to set an end date.)

In other ways, such as the eligibility criteria and the certification requirements, the SEG is similar to the FIT.

Interestingly, the SEG consultation considers storage that is co-located with generation and asks whether the SEG should be payable on exports of 'brown' electricity (i.e. where the battery was charged from the grid) or just 'green' electricity (where the battery was charged from the renewable installation), or whether the metering arrangements to distinguish the two might just be too complicated, especially at the domestic scale. 

Timings

Here's the drawback to the new scheme. It needs a statutory instrument and a new electricity licence condition to bring it into effect.  As the consultation does not close until 5 March, and the FIT scheme ends on 31 March (subject to certain grace periods), there will be a "hiatus" period where new installations will not get any support, i.e. will be exporting electricity to the grid for free.  And even when the SEG does come into force, there will be no retrospective payments.  So anyone considering commissioning a small-scale renewable generating plant may want to hold off for the time being.

Unfortunately it is too late for any new standalone solar PV projects or onshore wind schemes between 100kW and 5MW. In 2016 Ofgem introduced deployment caps, limiting the capacity that could apply for a FIT each quarter. Once the cap had been reached, projects applying after that date were placed in a queue for the next quarterly tariff. The caps for standalone solar PV and larger onshore wind have projects queuing beyond March 2019, when the FIT scheme ends. Those projects will now not get a FIT at all, so will have to wait until the SEG comes in and then find the supplier that offers them the best deal. This affects 640 standalone solar generators (3 of which are 5MW schemes), 12 onshore wind schemes between 0.5 and 1.5MW and two onshore wind schemes over 1.5MW. It also means that there is no point in new standalone solar PV or larger onshore wind applying for a FIT (or preaccreditation) between now and 31 March as the deployment caps are already full.

How we can help

The SEG is just the start of what will be a revolution in the energy market as innovative markets for small-scale generation are still at an early stage. We highlight the potential in our Energy Market Disruption report. It is clear from the responses to the consultation that as the system becomes 'smarter' and more flexible, for example when the smart meter roll-out concludes and market-wide half-hourly settlement is in place, then the market for this electricity will develop at pace.

We have extensive experience of advising both generators and suppliers purchasing electricity from a wide range of renewables projects and can assist you in responding to the consultation and in maximising revenue opportunities from your project. For more information please contact one of us below.