What is the Smart Export Guarantee?

After the closure of the Feed in Tariff (FiT), the government introduced The Smart Export Guarantee (SEG) which launched in 2020. The scheme allows growth in electricity generation from green microgeneration technologies.

How does the Smart Export Guarantee work?

Licensed electricity suppliers can offer a tariff and make payment to small-scale low-carbon generators for electricity exported to the National Grid (considering certain criteria are met).

The following low-carbon, renewable technologies are eligible for the SEG:

• solar panels (solar pv)
• wind turbines
• hydro electricity
• micro combined heat and power
• anaerobic digestion

If you decide install any of the above renewable generation for the home, you should be eligible for the SEG tariff, providing you meet certain criteria.

• Your installation must be 5MW capacity or less (50kW for micro-CHP).
• You need to take electricity readings from your meter – this is going to be easier if you have a smart meter installed, which will automatically take the readings for you.
• Your installation must be MCS-certified.

Savings on electricity bills

Every kWh of electricity that you create yourself and then use in your home means that you don’t need to buy that unit from the electricity company. Electricity is currently priced at about 15 pence/kWh when you buy it from any of the big six energy companies, so the more electricity you produce and use in your home, the more you save.

Smart Export Guarantee registration

In practice in the UK, the energy companies with over 150,000 customers (British Gas, EoN, SSE, Scottish Power, EDF and NPower, etc) are required by law to provide the SEG to homes and businesses. Other smaller electricity suppliers may not offer the SEG as it is not compulsory for them to do so. The full list of registered SEG licensed suppliers is available on the OFGEM website here.

Once you have the product installed through the MCS, you should receive a certificate confirming MCS compliance. Speak to your energy company  that is approved for the SEG – express your interest in receiving the SEG. Your supplier will confirm your eligibility, cross checking your details to the MCS database. On confirmation of the SEG your details will also be added to the OFGEM Central SEG Register.

You may also need to agree a process for meter reading and whether you want to opt out from export tariffs. An important point to note is that it is far more economical to use as much of the electricity you produce in the home as you can, rather than selling it back to the grid. Using a kWh of the electricity you produce in your home saves you buying it from the energy suppliers at 15p, while you can only sell it back to the grid for 4.77p.

The roadmap for the UK Budget for 2012/13 was set out Wednesday by the Chancellor, George Osborne, but what does it mean for our Green Sector and Cleantech in the UK?

In 2010, PM David Cameron, pledged that this government would be the ‘greenest ever’. This year’s budget seemed concerned (rightly so) with measures to stabilise the deficit and shore up general industrial growth (green or not) for the UK economy. How then did Mr Osborne and Mr Cameron seek to power this growth?

It seems that the Chancellor has opted to go for tried and tested hydrocarbon technologies as opposed to newer industrial renewables.

Over the next few years, and certainly by the end of this decade, several of UK’s nuclear power stations are going to be decommissioned, and therefore, other sources of electricity need to be introduced to take up the slack in energy production (just ask Sir David King – who is predicting blackouts within a few years). The lead time to bring nuclear power stations online, to bridge the gap, is just not viable on these time scales, and the operational risk with nuclear power at present is simply too high.

Surely then, this would be the perfect time to fulfill those election promises and give equal weighting to solar, wind and other Green technologies, along with fossil fuels.  However, the Chancellor appears to have ignored this, throwing his full weight behind (tried and trusted) gas and oil to plug the gap.

Going for ‘tried and trusted’ solutions not only increases our dependency on finite resources, but also does not seem to be aligned to a strategy of making the UK a world leader in Cleantech. The Chancellor promised to introduce a package of oil and gas measures to secure billions of pounds of additional investment in UK Continental Shelf, including new deepwater drilling West of Shetland. Further credence to this was the news that approval was given for 6.7GW of new gas plant capacity in 2011.

You can be sympathetic with the Chancellor on this decision, gas plants are relatively easy to build, they have good existing infrastructure, and for now, gas prices are relatively low in comparison to other fuels. I think we can all agree though, there is only one direction in which gas prices are ultimately headed and that is upward.

Over the last few years, electricity prices from solar PV have continued to drop as key bits of Government legislation, like the Feed-in-Tariff, have made solar PV an attractive investment in the UK. The production of these technologies has ramped up, making economies of scale possible.

A recent report carried out by Ernst & Young powerfully states, that ‘large scale solar energy prices will be no higher than retail by 2016-19, provided continued support of this technology in the short term’. So surely this would have been a good bet for the economy, not just decreasing our dependence on oil and gas, but also creating new high tech jobs within the sector.

Furthermore, in yesterday’s budget, it was confirmed that Enhanced Capital Allowanceswill no longer apply to recipients of FITs and RHI payments. Also regular Capital Allowances for expenditure on solar PV will be reduced from the standard rate (18%) to a rate of 8%.

Now some more positive news – it was confirmed the government is going to launch a consultation into simplifying existing legislation and administrative burden around the Carbon Reduction Commitment (CRC) energy efficiency plan. Mr Osborne went on to say, that if the administrative savings for businesses were not deemed sufficient, then the CRC would be replaced with a simpler environmental tax.

The news was welcomed by Liz Peace, chief executive of the British Property Federation, who commented: “Today’s announcement of a review to reduce the burden of the CRCEES for business is to be welcomed. We would urge Government to rationalise the fiscal element of the CRCEES and the Climate Change Levy into a simple retrospective tax on the carbon associated with building energy consumption. The price of carbon under this tax could be set in consultation with the Committee on Climate Change.

The implications of this proposal would be that much of the administrative burden associated with the scheme would be reduced. This approach would also ensure that participants are not required to make crude estimates of the number of allowances required in advance.”

Other points of interest raised in the Budget were:

• The Green Investment Bank will be able to borrow money and raise capital (as of 2015), but in the meantime will be set up with a balance of £1bn, with a further £2bn to be raised via the sale of assets in the near future. It will start operating this year.
• A £1bn fund to support commercialisation of Carbon Capture and Storage, which initially will be a demo plant built on a coal power station
• As of 2013, a carbon floor price will be set which will be £16 per tonne of Carbon Dioxide, which is set to steadily rise to £30 per tonne in 2020, in an effort to drive the uptake of low-carbon energy
• Further highlighting the benefits of the Green Deal, which is set to launch at the end of the year.

So, on reflection, it appears to be a mixed bag for the Green Industry. In various areas investment and support is still forthcoming, however with a real opportunity for the Government to propel solar PV and offshore wind farms into the public psyche to help share the burden of the energy gap, it appears Mr Osborne prefers to play it safe by cosying up to gas.

The background to the Feed-in Tariff (FiT) Contract for Difference (CfD) mechanism

The government wants to ensure UK investment in energy generation. Some of this investment will be responsible to upgrade the existing network to cope with the future energy mix, while the rest will be used to provide a stable playing field so that enough investment happens in renewables and nuclear energy to further diversify our electricity generation.

The UK also has also signed up to stringent carbon reduction targets, which means it will have to cut emissions by 80% by 2050 (compared to 1990 levels). Electricity demand is expected to double in the same time period; therefore enough incentives have to be provided to ‘low carbon’ generators so that investment happens to meet these challenges.

What is a FiT CfD?

A Contract for Difference (CFD) is a private law contract between a low-carbon electricity generator and the government-owned company, Low Carbon Contracts Company (LCCC). The idea is that agreeing fixed rates for a certain number of years – settled at auctions – will incentivise companies to commit to producing low-carbon energy.

The FiT CfD works by guaranteeing a fixed price (strike rate) for energy generation companies, based on wholesale rates. The generators will then sell some energy to suppliers, and the cost at which they sell it at may be the same as the strike price; below it; or slightly above it.

• If the sales of energy by the generators are the same as the strike price, then there is no further action.
• If the price is below that price, it will trigger top up payments by the suppliers,
• While if the sales by the generators are at a higher price, it will result in generators paying back the difference.

The reason the government wants to use the CfD model within the Feed-in Tariff framework is that like existing FiTs it guarantees the generators a stable premium over a 15 – 20 year timeframe. This is important as many infrastructure projects such as a wind, solar farm or a biomass power station are evaluated over a long period of time. The start-up investments are sizeable, so potential investors need to have a certainty of returns.