The UK Government has issued a consultation on a proposed Smart Export Guarantee (SEG) system, designed as a partial replacement for Feed-In Tariffs (FiTs), which are set to disappear from April 2019. Under this smart export guarantee, energy suppliers will be required to offer a payment for the electricity households with solar PV panels, and other small-scale renewable electricity generators, export to the grid.
The Government is looking at new ways to support generation in a post-subsidy world for renewable energy: the renewables industry discovered that it would receive no new subsidies until 2025 in the Spring 2017 Budget. We need these new support mechanisms, both to ensure new capacity is installed and thus help with the urgent task of reducing carbon emissions, and also to aid the shift to a smarter, more decentralised electricity system as market innovation speeds up the move to localised energy systems.
Will the smart export guarantee work? Energy Saving Trust gives its views in a full response to the consultation.
If you would like to respond to the consultation, you can fill in the form on the Department of Business, Energy and Industry Strategy website. You can adapt the proposed text from the Energy Saving Trust and add in your experiences as a home owner, community group or business.
Why do we need a Smart Export Guarantee?
Currently, small scale renewable electricity generators, including households with solar PV panels on their roof, receive the Feed in Tariff (FiT) subsidy for the clean energy they generate.
The FiT consists of two payments. There’s the generation tariff, a payment for every kilowatt hour (kWh) of clean electricity generated by the household’s system. Then there’s the export tariff: a payment of 5p/kWh for the clean electricity the system exports to the national grid.
For most homes, the amount exported isn’t measured directly, but instead assumed at 50% of the total amount of electricity generated. From April this year the FiT will be axed for new installations of renewable energy (anyone already receiving the FiT will continue to receive it, including the export tariff).
Energy Saving Trust analysis shows that this will have a big impact: for the large majority of homes, solar PV will cease to be a cost-effective improvement and so we’re expecting a big drop in the number of homeowners adopting it.
For people who install small scale renewable electricity systems after the FiT, the government have now proposed introducing the Smart Export Guarantee – a new version of the export tariff. But will that be enough to make solar PV attractive to home owners and communities?
How would the Smart Export Guarantee work?
The (SEG has been proposed by the UK Government’s department for Business, Energy and Industrial Strategy (BEIS). It aims to ensure that energy suppliers pay small-scale generators for the excess electricity that they export to the grid.
The government is not currently proposing that energy suppliers guarantee a specific minimum price – only that they will have to pay generators something more than zero. Part of the aim is that at some point, suppliers will pay generators different amounts, depending on when they’re exporting excess energy, to reflect the differing value of electricity at different times of the day.
Large energy suppliers (those that manage 250,000+ customers), will have to pay small-scale generators under the new Guarantee, with smaller energy suppliers able to voluntarily opt-in.
Another aim of the smart export guarantee is to drive innovation in the market.
The idea that energy suppliers will have to introduce smart payment arrangements for exported clean electricity, from even the smallest generator, is great. But that’s as far as the smart export guarantee goes.
It isn’t a new subsidy system for renewable energy generation, and so there’s no guarantee that this will do anything to make renewable energy installations in buildings more financially attractive or create a significant market to drive innovation.
The UK government’s own Impact Assessment for the proposed Smart Export Guarantee shows this: it says the SEG will only lead to a very small amount of additional installed capacity. For example, the Impact Assessment suggests the SEG will only lead, to the installation of around 3000 extra systems each year at most (assuming all the additional PV capacity comes from individual houses, with a typical installation size of 4 Kilowatt peak per home). That is 0.01% of homes in Great Britain.
Our view on the Smart Export Guarantee
We need more renewable energy generation in homes and communities. And energy suppliers need to be encouraged to develop payment methods for clean electricity exported by householders and other small generators, as part of the shift to a smart, decentralised energy system.
We’d like to see a smart export guarantee introduced. But if it’s going to take off, it needs to be introduced along with other, medium term, measures to improve the cost-effectiveness of small-scale systems for clean electricity generation in homes and communities. This way, the SEG can fulfil its potential to drive innovation in payment arrangements for exported electricity and help to build a subsidy-free market for small scale renewable energy generation.
But, unfortunately, other measures to help pay for small-scale generation don’t look likely to happen, given the current UK government’s general objection to renewable subsidies.
Alternatively, the SEG could be introduced with a minimum payment level potentially linked to the wholesale price of electricity. This would offer a clear, immediate positive impact on the financial viability of renewable electricity systems for homes and communities. Arguably the right minimum payment level could create a virtuous circle where more renewable systems are installed, there are more customers for SEG, and suppliers are able to make increasingly generous SEG offers. This bigger market would also help drive innovation.
There’s no getting away from the fact that, for homes and communities, the Feed in Tariff was cut too soon. The SEG proposals have some merits, but unless the government is willing to integrate some way of making systems more affordable for just a few years, either alongside or within SEG, until renewables system costs have come down further, SEG won’t do much to prevent a huge drop off in installation rates for renewable energy in homes and communities.