Will the Smart Export Guarantee be enough?

The new Smart Export Guarantee being introduced at the end of 2019 will force all suppliers to offer at least one export tariff. Tom Grimwood asks whether it will be enough to ensure a bright future for small-scale renewables.

Following nearly a decade in operation, the feed-in tariff closed to new applicants at the end of March. Despite being anticipated for some time, the scheme shut without any replacement in place, or even a firm plan.

However, after months of waiting the government has confirmed that a new Smart Export Guarantee (SEG) obliging all suppliers to offer at least one export tariff for small-scale renewable generators will be introduced by the end of 2019.

The policy means suppliers will be unable to get free surplus electricity from customers with newly-installed solar panels, as they have been allowed to since April. “Generally, it’s positive that we’ve got this measure introduced,” says Renewable Energy Association head of policy Frank Gordon. “It’s certainly better than having nothing.”

But, as the government explained, that’s pretty much all it guarantees: “To provide space for the small-scale export market to develop, there will not be any specified minimum tariff rate, other than that a supplier must provide payment greater than zero at all times of export.”

Gordon believes it should have gone further: “We called for an index to the system imbalance price – so 90 or 95 per cent of the system imbalance price. And the reason for that is it accurately reflects the value of power at any one time on the UK market.

“It’s not just a flat rate. It does change based on supply and demand and we think that would have allowed generators to take some price projections to their financiers and allow them to do some business model planning on that basis, unlike the greater than zero proposals which leave it as a free-for-all.”

Gordon would also like to see a minimum contract length – perhaps five or ten years – so generators could secure financing off the back of the policy.

He welcomes the promise of an annual review but has questions: “We’d be very keen to know the form of the review; what would trigger a more substantial change to the policy. For example, if it found that SEG tariffs aren’t encouraging more generation, then what would be the response to that?”

Léonie Greene, director of advocacy and new markets at the Solar Trade Association agrees there should be a higher price floor: “Our argument would be that government doesn’t trust suppliers selling their power at a fair price to consumers – that’s why we’ve had the price cap – and yet they very much seem to be trusting that that will happen going forward in terms of buying power from households”.

“Households are in a very vulnerable position,” she adds. “They’ve very, very small. They’re not in any position to negotiate. And so, we felt that government should mandate a minimum price – certainly at the very beginning when market established itself.”

She says the renewable sector will have its fingers-crossed that there are enough “innovative forward-looking suppliers” which see the benefits of making a good offer to customers: “That is the hope; that the strategic imperative will override the inertia that we’re seeing in the system.”

One company that fits the bill is Octopus Energy. It is the only supplier to have already launched an export tariff for small-scale renewables and thus earn a place on the STA’s new league table.

It is in fact offering two. Customers on its Ongoing Fixed tariff receive a flat rate of 5.5p/kWh and those on its Outgoing Agile tariff receive a half-hourly rate pegged to the wholesale price.

The company’s chief executive, Greg Jackson, is glad the government decided against setting a higher minimum price: “I think the most important thing is to create genuinely competitive markets for innovation in the future of green energy. It’s good that we’re not setting a high price that then creates a sort of government-dictated market.

“It’s far better that the suppliers that want to drive this will fight each other to put the best prices out there for customers to switch to them. I think it’s really important we have this room for a differential.”

And there is good reason to fight: “This is a cheap source of power for us… Currently when we buy energy on the grid we have to pay transmission costs. But if we’re buying it from a customer’s solar panels and selling it within the same region then we’re saving transmission costs and we pass that saving directly on to the consumer.

“We really welcome the opportunity to buy cheap local energy, pay customers a good price for it and then sell it cheaply elsewhere.”

Local trading could be further encouraged by introducing a more dynamic pricing model for distribution charges “so that if you’re sending a green electron a short distance down an empty wire, it should be a cheap electron. The current distribution pricing really doesn’t reflect that.”

In the meantime, Jackson says their offering has already been embraced by customers: “We’ve had hundreds of people either sign up or join the waiting list… It’s actually proved to be very popular, and that’s with no marketing. I think it taps into an unmet need.”

He therefore sees no reason why other suppliers should be unwilling to join them in battle: “I think getting individual meters registered for export is currently a little bit cumbersome but there’s no real tech barrier to this… The existing smart meter infrastructure services it very well.”

Nevertheless, he believes some will struggle: “Most big energy suppliers find it hard enough to get accurate bills out on a monthly basis. To work with truly 21^st century big data is something they’re all going to have to learn how to do.

“Whereas, if you’ve got a modern digital platform that’s scalable and built in the cloud the kind of processing that you need to do is not massively challenging.”

On this basis, Greene expects there to be some “pretty tokenistic offers”, at least to begin with: “If you read the response to the consultation, the government says that there are suppliers who say they simply cannot get their systems ready for a matter of years rather than months.”

She says the situation could be improved by enabling generators to access export tariffs from parties other than their supplier: “You could get competition both on who you are buying from and selling to. We’d really like to see aggregators coming into the market.”

At the moment, third parties are unable to access smart meter data through the Data Communications Company. Greene says the government has suggested this issue will be resolved over the coming years. “We very hope that’s the case,” she adds. “I suspect there’s a bit more to it than that.”

She has other concerns too. The government has decided against creating a central register for installations supported by the SEG as there currently is for the feed-in tariff scheme. Greene says this will leave the industry blind: “That’s another worry for us; actually being able to assess the efficacy of the policy decisions and the impact of some very major changes.”

Some may be picked up through the Microgeneration Certification Scheme (MCS) and the government’s central planning database. However, they only cover installations of certain sizes and accreditation under the MCS is not mandated as part of the SEG, only encouraged.

“The biggest markets in Europe tend to be the large industrial and commercial rooftops,” Greene explains. “And you’ve got permitted development there with a pretty minimal notification approve process.

“This has been going on for many, many months now and we’ve yet to see a satisfactory methodology coming out of it.”

Gordon says this issue highlights a wider problem: “As we move to subsidy-free projects we won’t have any way of knowing where solar and other distributed energy resources are being put in.

“The SEG could have been an opportunity to start addressing that by having a central database. It’s disappointing that we may lose track of where future small-scale renewable installations are being put in.”

For now, they can only wait and see whether things pan out. “We are a little bit concerned but the proof is going to be in the pudding,” says Greene. “It really is all eyes on the offers that are going to come forward.”