Shopping for solar: Are consumers getting a good deal?

Since the start of 2020, suppliers with more than 150,000 electricity customers have been required to offer at least one export tariff for households with solar panels under the government’s Smart Export Guarantee. Utility Week takes a look at the current state of the market. One analyst says although some tariffs do now appear to offer reasonable value, others are “pretty parsimonious”.

For much of its history, the UK’s rooftop solar industry has been characterised by booms and busts, its fate tied the government subsidies that were gradually reduced over time and eventually withdrawn entirely.

According to Solar Energy UK, MCS-registered installations reached a zenith of around 180,000 in 2015 ahead of a big reduction in the subsidy rate under the Feed-in Tariff scheme. The following year installations plummeted by around two-thirds to less than 60,000 and continued falling in the next. The numbers did grow slightly over the next two years ahead of the closure of the Feed-in Tariff scheme to new applicants in April 2019.

With households left without any access to subsidies, the government introduced a Smart Export Guarantee at the beginning of 2020, requiring all suppliers with more than 150,000 electricity customers to provide at least one export tariff.

But the scheme only required these tariffs to have a rate of more than zero and some of the initial offers were pretty lacklustre. Most notably, Shell Energy initially did only the base minimum to meet the fulfil the requirement, offering a rate of just 0.01p/kWh.

Unsurprisingly, installations once again dropped off in 2020 to less than 40,000.

The energy crisis has seen the sector return to a boom phase as have households sought to avoid record high power prices by generating their own electricity. There were more than 130,000 rooftop solar installations in 2022, almost as much as in the previous three years combined.

However, questions remain over whether consumers are being fairly compensated for power they are unable to consume themselves and instead export to the grid.

Rates currently vary widely, with regular flat rate tariffs ranging from 15.6p/kWh from Eon at the top end, all the way down to just 1p/kWh from E at the bottom. Dylan Johnson, a director at Future Energy Associates, said the difference between these rates could be worth “a significant amount of money if you’ve got a decent set of solar panels.”

Available tariffs

Note: The rates for Octopus’ Flux tariffs vary by location and the figures presented above are averages.

Until fairly recently, Eon’s highest export rate was just 5.5p/kWh and Johnson says there are “encouraging signs” that suppliers have been “looking to make to their export tariffs more competitive” over the last few months.

However, Johnson says the average export rate across suppliers is still little more than a quarter of the average import rate of around 30p/kWh, meaning “some customers are being underpaid for their contributions to the grid.”

These rates would have looked much worse over the winter, particularly during the first quarter of 2023 when the price cap unit rate for electricity was set at a whopping 67p/kWh.

Under the Smart Export Guarantee, all obligated suppliers must offer at least one export tariff that is available to all customers, including those who do not import electricity from the same supplier.

There is a clear division in the market between these tariffs and tariffs that are exclusive to import customers.

In the latter group, tariffs appear to have converged at a rate of around 15p/kWh, with exceptions including EDF Energy’s top offering of just 5.6p/kWh.

Martin Young, senior analyst at Investec, says under the new price cap coming in October, commodity costs for electricity, including shaping costs, will account for roughly 15p/kWh of the overall electricity unit rate of 27.35p/kWh.

Whilst this may well differ from the market value of the power that consumers are exporting from their solar panels and batteries, Young says this is a “reasonable starting point” for judging the value of suppliers’ export tariffs. “If somebody was only offering me 5p/kWh for my export, I would think that’s pretty parsimonious,” he remarks.

Rates for non-exclusive tariffs are generally much lower, although at least some of this difference will be explained by suppliers’ need to recover the costs of administering payments to customers they do not also bill for electricity import. The most generous rate in this group is 12p/kWh (Scottish Power) but most are significantly lower at 5p/kWh or less.

It seems likely that some of these suppliers are merely fulfilling their regulatory requirements and are not particularly interested in becoming the buyer for what may be a relatively small number of customers.

According to Ofgem’s latest annual report, slightly over 34,000 installations with a total capacity of almost 156MW were registered to a Smart Export Guarantee tariff in 2021/22. These installations exported more than 24GWh of electricity during the year and received payments of around £1.66 million.

Octopus Energy and recently absorbed Bulb together accounted the vast majority of these installations at nearly 26,700. Eon accounted for 3,600 registered installations and Ovo Energy for just over 1,800. The numbers for all other suppliers were in hundreds and E had none at all.

Source: Ofgem

Alex Schoch, global head of flexibility at Octopus Energy, says there has been a big increase in the number and variety of export tariffs available on the market over the last year or so: “We’ve gone from having three export tariffs at the beginning of this year to now having five and seeing the number of customers more than double over the year to date.”

Octopus’ tariffs include an export version of its Agile tariff, which offers half-hourly rates indexed to wholesale power prices on the day-ahead market. Over the first six months of 2023, rates averaged 11.81p/kWh and ranged from zero to 32.81p/kWh.

The company also has its Octopus Flux tariff, which has day, off-peak and peak rates, and Intelligent Octopus Flux, which has peak and off-peak rates.

The latter, which was launched in July, is an extension to its Intelligent Octopus EV charging tariff. It offers exactly the same rates for import and export, although it does require customers to have a battery as well as solar panels.

Prices obviously vary by time and also by location around the country, but these tariffs have by far the best rates on the market, with peak prices under Intelligent Octopus Flux currently averaging 36.1p/kWh.

Earlier this week, Octopus also announced that customers who previously combined its original Intelligent Octopus tariff with its Smart Export Guarantee tariff would instead be able to combine it with its higher rate Outgoing Octopus tariff, thereby increasing export unit rate from 4.1p/kWh to 15p/kWh.

Another recent entry to the market is Ovo Energy’s solar package launched in June, which offers customers higher rates than its base tariff if they have solar panels and batteries installed by the company. Importantly, they are not required to have Ovo as their import supplier. So Energy has also just launched a similar tariff (not shown in table) offering a rate of 20p/kWh for customers installing both solar panels and batteries.

Whilst acknowledging that offerings are improving, Dylan Johnson from Future Energy Associates says the current market lacks transparency and competition and believes some form of regulatory intervention may be required to prevent unaware consumers from being ripped off.

“It’s vital that suppliers continue to offer genuinely competitive export rates to incentivize household installations of solar panels,” he adds. “Without a fair and transparent framework, we risk undermining the public’s trust and participation in renewable energy initiatives.”

But Schoch says the increased number of higher rate tariffs, which have “grown tremendously” over the last year, demonstrates the market is competitive. He says the strong interest in their tariffs shows consumers are aware of their ability to shop around: “It’s something that just becomes more and more obvious to consumers as they get solar or start informing themselves about solar.”

He says this growth in interest is also tied to the “huge boom” in demand for solar panels, which is seeing installation rates this year return to the levels seen during the 2015 peak.

Schoch sees no need for any intervention in a market that is rapidly developing, although not yet mature.

One thing that did become apparent during Utility Week’s exploration of this topic is the difficulty of comparing the full gamut of export tariffs.

Many details of these tariffs – how long prices are fixed for, how frequently payments are made, whether they are exclusive to import customers and whether they cover exports from batteries – are seemingly absent from a number of suppliers’ websites, or at least not very obvious. The price comparison websites do not yet appear to allow customers to compare export tariffs.

Some other websites have assembled comparison tables but most have not been updated in months, and perhaps because of this are missing entries. The market may be moving in the right direction, but there is still plenty of room for improvement.