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Government proposes new Smart Export Guarantee for suppliers and small-scale renewables

Image: Heineken.

Image: Heineken.

The government has unveiled proposals to introduce a new ‘Smart Export Guarantee’ (SEG) for small-scale renewables, legislating for large suppliers to essentially purchase green power exported to the grid.

Designed to replace the current export tariff which closes to new applicants from 31 March 2019, the SEG will see all large energy suppliers – defined as those with more than 250,000 customers – offer small-scale generators a price per kilowatt hour for all exported power.

The guarantee works by having owners of eligible small-scale renewables plant, be they homeowners or small businesses, sign on to tariffs offered by suppliers for the power they export to the grid.

The length of the contracts and the price paid will be at the behest of the supplier, however the government has mandated that the price must be above zero and suppliers will not be able to chase generators for payments should the market dip into negative pricing.

In addition, the government has decided that all exports must be metered rather than deemed, meaning that only households with smart meters installed, or an alternative means of metering all exports, will be eligible for the SEG.

Suppliers will be tasked with registering eligible installations for the settlement process and settle in accordance with the Balancing and Settlement Code, and it will be Ofgem’s duty to monitor how guarantees are implemented, track deployment and ensure consumer protection standards are met.

‘The smarter the better’

While the SEG legislation would place an obligation on providers to purchase exported electricity, the actual tariff structures being left to suppliers.

However BEIS has dictated that its vision for the tariffs is “the smarter the better”, with the long-term aim of structures that offer export tariffs that track half-hourly settlement prices, essentially reflecting wider electricity system conditions and demands.

The consultation document seeks views on the most appropriate initial design for the SEG tariff, and the government intends to keep the tariff design under review, encouraging participants to move towards ‘smarter’ tariffs as they become available.

Outside of the tariff structure, contract length and prices are to be determined by individual suppliers. While this is enabling market forces to place a value on exported power – a key requirement of government legislation under its new approach to energy matters – the lack of certifiable revenues could make it particularly harder for consumers to finance installations.

The co-location equation

While the government has stated within the consultation that it is keen to stimulate the deployment of storage technologies, it is seeking industry views on the potential eligibility of storage and co-located renewables with the SEG.

While the SEG will make payments for ‘green’ electricity, there is a conflict when batteries enter the equation should they charge using power imported from the grid that is ultimately generated from a non-renewable source. BEIS is questioning whether the SEG should be limited to strictly rewarding ‘green’ power – which may require more complicated algorithms capable of tracking the source of stored power and the installation of more than one meter – and extending the SEG to battery storage technologies considering their intrinsic value to the grid.

So far, the proposals have been met with a cautious welcome from the industry. Chris Hewett, chief executive at the Solar Trade Association, said the trade body was pleased that the government was unequivocal in its view that generators should be compensated for the power they export, but pointed towards the need for that remuneration to be at a fair market rate.

“Positively, the government again identifies the System Sell Price as accurately reflecting the market value of power spilled to the grid. However, the consultation acknowledges many of the market barriers we have raised with government and the associated costs.

“Our worry is that these may impede the ability of suppliers to offer fair and meaningful rates, even though they may wish to. Customers are freely able to switch suppliers in a competitive market so where these costs fall remains vital to developing meaningful offers,” he said.

James Court, director of policy and external affairs at the Renewable Energy Association, meanwhile said the proposals could “usher in a new era” for small-scale renewables.

“It was clear that no-one should be asked to give away electricity for free, and we strongly advocated for a market based solution and are pleased this approach has been adopted. Whilst the details around the transition from the former subsidy scheme will be important, this signal of support for the sector from Government will help our members continue to provide smarter, cleaner and cheaper electricity in the decade to come.”

However Rebecca Long Bailey, Labour’s shadow business secretary, focused very much on the hiatus period between the FiT and the SEG, describing it as a “new mountain for small scale renewable energy to climb”.

“Rather than a simple flat payment for energy exported to the grid, the government is proposing a hugely complex market mechanism in which large energy companies – notorious for overcharging consumers billions of pounds – can offer whatever sum they deem fit to households. Furthermore, participation relies on possession of a smart meter which, due to the Government’s bungled delivery of the smart meter programme, many households will not have for some time.

“Such a complex scheme will only be accessible to those with the time and resources to negotiate it. Labour plans to roll out solar on the scale necessary to tackle climate change whereas this appears to be a blueprint for hobbyists, condemning solar power to the status of niche industry,” she said.

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