Energy Saving Trust’s Insight team has calculated how long it will take to pay back the installation cost of solar panels using early Smart Export Guarantee-type offers as an indicator of future rates. Our calculations show that for some people, the Smart Export Guarantee (SEG) will make installing solar power an acceptable investment. However, for most, installations will remain an environmental rather than a financial decision.
The Smart Export Guarantee is the proposed new mechanism to pay people for excess electricity that they export to the national grid. Anyone with solar PV panels whose system is linked to the grid will export the energy they don’t use. Until March 2019, people installing solar PV were eligible for the Feed-in Tariff (FiT), which paid a subsidy for each kilowatt hour of electricity generated and a fairly generous export tariff for electricity fed into the grid.
In April this year, the government closed the scheme to new installations of renewable energy (anyone already receiving the Feed-in Tariff is unaffected and will continue to receive the payments). But the closure to new customers of the popular scheme has made installing solar PV panels much less financially attractive.
Find out more about installing solar panels, or read on for more on how it will work.
How will the Smart Export Guarantee work?
The Smart Export Guarantee isn’t a new government scheme so much as a requirement for suppliers to put systems in place that will hopefully power new, innovative payment arrangement for people exporting clean electricity to the grid.
The proposal doesn’t currently indicate a minimum price that suppliers should pay – only that they will have to pay generators something more than zero. Part of the aim is that energy suppliers will develop tariffs to provide more innovative solutions, for example, tariffs that suit particular types of generation, or that work for users with electric vehicles (EVs) or battery storage or those that work for consumers who can shift their demand to different times during the day.
Qualifying energy suppliers may be required to offer a Smart Export Guarantee tariff by end of 2019. This would be nine months after the closure of the Feed in Tariff. But there are issues to be resolved before the Smart Export Guarantee can be fully established.
Firstly, the government needs to decide if stored energy re-exported to the grid will qualify under the SEG, or only electricity that comes directly from a solar panel. A further potential problem is that innovative time-of-use based SEG services rely on readings from smart meters, which many UK homes don’t have yet.
Investment potential based on early offer
The interesting news is that one energy supplier, Octopus, has already introduced a Smart Export Tariff that’s available to any customer with the right smart meter. Other companies have offered smart export tariffs to limited groups of customers – the Solar Trade Association is maintaining the list of tariffs coming on the market.
The Octopus offer is Called “Outgoing Octopus”, payments can be made either on the basis of a fixed 5.5p per kilowatt hour of exported electricity, or on an “Agile” tariff where payments vary according to the time of export. Customers will have to have a fully enabled smart meter, and Octopus aren’t worried about using stored electricity: the company says the tariff is “perfect” not just for homes with solar panels, but also those with “..battery storage, or any other way of sharing electricity back to the grid.”
Taking the fixed 5.5p tariff from Octopus, we’ve looked at how these export payments will affect the financial viability of solar PV. We’ve considered typical usage patterns depending on how much householders are likely to be using their solar PV-generated energy at home, and therefore how much they’ll be exporting and how much energy they’ll be using at home.
For a well-placed 4kWp PV system in SE England, costing £6,200, the income with a 5.5 p/kWh fixed export tariff, we’ve found that they will be achieving the following total income (from the export tariff) and savings (from not needing to buy electricity from the grid).
|With 5.5p/kWh export tariff||Without export tariff|
|Occupancy pattern||Annual savings and income||Simple payback||Annual savings and income||Simple payback|
|Home all day||£390||17 yrs||£240||24 yrs|
|Home in the mornings||£360||19 yrs||£195||No payback|
|Home in the afternoons||£345||19 yrs||£175||No payback|
|Out all day until 4pm||£310||22 yrs||£120||No payback|
|Out all day until 6pm||£300||24 yrs||£100||No payback|
Note this is based on simple payback: we don’t factor in any borrowing costs if a loan is needed to buy the solar PV panels, or the changing value of money over time
Our conclusion is that if early SEG offers match that of Octopus – for some households thinking of staying in their home in the long time – solar PV panels can be an acceptable investment. And for people who want solar panels for environmental reasons, the new export tariffs should provide a nice additional source of funding. That’s certainly a good step forward, but we’re still a long way from the situation a few years ago when customers buying PV panels could be confident the Feed in Tariff would help them recover costs in a relatively short period.
That’s why Energy Saving Trust stands by the feedback we gave to the government in their consultation on the Smart Export Guarantee: we said we welcomed the new system. But unless the government is willing to integrate some way of making solar PV systems more affordable until renewables system costs have come down further, the shift from Feed-in Tariffs to Smart Export Guarantees is unlikely to prevent a large drop off in installation rates for renewable energy in homes and communities.