A Replacement to the Feed-In Tariff?

The Feed-in Tariff

The Feed-in Tariff was a government subsidy scheme designed to reward homeowners and businesses for microgeneration of renewable energy. It worked by measuring the generation and export levels of various technologies – primarily photovoltaic solar panels (solar PV) – and paying out for both.

The technologies covered were:

To be eligible for the payments, domestic applications had to be under 5MW and fall on the list of approved installations. For the higher band of payments, the property could also not have an EPC lower than a D.

The End of the Feed-in Tariff

In April 2019 the Feed-in Tariff closed for all new applications, with nothing expressly planned to replace it. Existing beneficiaries of the Feed-in Tariff continue to benefit from payments until the end of their 20/25 year contract, but no new installations are able to apply.

The Smart Export Guarantee (SEG)

The Smart Expert Guarantee is a government scheme that was announced in January 2019 and designed to replace the Feed-in Tariff, though it’s not up and running yet. It shares a lot of similarities with the Feed-in Tariff but has a few key differences.

The Smart Export Guarantee will not pay for generation

When the Feed-in Tariff was still in operation, people were paid not only for exported energy, but for the energy they generated. There is no plan for this generation tariff to be replaced; the Smart Export Guarantee will be export only.

Large energy suppliers will have to pay for your exported energy

Under the Smart Export Guarantee, any energy company with 250,000 electricity supply customers or more will be obligated to offer at least one rate for exported electricity. Smaller energy companies can opt-in to do the same, but only the bigger companies will have to.

It’s hoped that this initiative to give inherent value to exported energy will help further the aim of a subsidy-free energy market for smallscale renewable energy generation.

The energy suppliers will set the price

When the Feed-in Tariff was in place, the rate of the export tariff was set by the government. Although this varied over time (showing a significant downward trend from when the scheme first began), it was a way for OFGEM to regulate the export value and ensure that investing in FIT technologies remained financially viable. For a while now the export price is around 5.4p/kWh.

With the Smart Export Guarantee, the only guideline for energy companies is that they must offer something. It can’t be zero or a negative figure, but it doesn’t have to be much.

You’ll need a smart meter

Smart meters are fundamental to this whole thing for 2 reasons.

Under the Feed-in Tariff, the export for most homes was not directly measured but was fixed at 50% of total electricity generated. Instead, all export will have to be metered, using a meter capable of reading half-hourly export volumes. This will mean that people are rewarded a lot more fairly on the energy they use vs what they export.

The second reason is that these half-hourly readings will, the government hopes, drive the energy companies to begin paying different rates for different times of export. This will help to even the energy generation load from intermittent sources – something that the National Grid desperately needs to do.

Even though the Smart Export Guarantee isn’t running yet, installations made now will be eligible

Many people are worried that the solar industry is in freefall following the end of the Feed-in Tariff and the lack of an immediate replacement. However, more may be willing to continue investing in solar PV if they knew that they could apply for the Smart Export Guarantee when the policy kicks in, even if their solar array is installed now and the SEG doesn’t come in for another couple of years.

That said, we would advise waiting. The cost of solar power has dropped drastically over the past 10 years, and may well continue to do so (though probably less rapidly, now that market demand is slowing down). Therefore installing a system when SEG comes in may be a cheaper initial outlay, and give more immediate savings.

Issues with the Smart Export Guarantee (SEG)

Smart metres

While the residential smart meter rollout continues, there are still a massive number of homes in the UK that don’t yet have one installed. With the Smart Export Guarantee, you’ll be hard pushed to get paid for your exported electricity without one, so if you’re thinking of getting investing in an eligible technology any time in the long-to-medium term future, it may well be worth getting one.

The alternative to a SMETS device is a standalone export meter, but according to BEIS these would cost the consumer around £300 – a significant expenditure for a technology that will struggle to be financially viable for many to begin with.

Battery Storage

On a time of use tariff, electricity is cheaper at certain times of the day. With the government hoping to encourage more and more of these kinds of tariffs, battery storage and export rates are going to present an interesting problem.

There is, theoretically, nothing to stop someone from filling their battery from the grid during the off-peak, cheap electricity hours, and then exporting it during peak hours. SEG would automatically detect the export on your export meter and pay you accordingly. However, there is nothing to say that the electricity came from your microgeneration renewable sources, and you’re therefore being rewarded for exporting non-renewable energy and exploiting a loophole in the system.

It’s one of the problems that OFGEM and the government are discussing with experts in the industry to come up with a solution.

Is the Smart Export Guarantee a good replacement to the Feed-In Tariff?

It’s hard to tell at this point, as the policy is in its infancy. There will no doubt be a lot of bureaucracy and changes to the original outlay, and there’s a lot we don’t know about the practicalities of implementing the new export tariff system.

The fact that there is no minimum to the export rate that energy companies must pay means that the government is envisaging a competitive market, but it will be difficult to make this happen artificially. That means that people will likely experience very low export tariffs, much lower than with the Feed-in Tariff.

That said, it’s worth saying that this is a huge step up from the previous government stance, which was that no further subsidies of this nature would be considered until 2025. The SEG represents hope that the solar industry will not collapse entirely now that the Feed-in Tariff has stopped taking new applications.

Think we missed something? Do you have a different opinion?

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