In November 2018, the UK’s renewable energy capacity surpassed that of fossil fuels for the first time ever. Last year as a whole, renewable sources accounted for 27.5 per cent of the electricity generated by the UK, representing a 4 per cent jump from 2017 (Office for National Statistics).
The growth in popularity of renewable sources has been partly down to subsidies available to encourage uptake. One of the most recognisable of these was the Feed-in Tariff (FiT), which will close at the end of March 2019.
How did the FiT work?
This worked by making payments to small-scale renewable power generators such as households and businesses. These were split into a “generation” tariff, based on how much energy they were generating, and an “export” tariff for anything exported back into the grid. These were paid by the country’s largest energy suppliers, who benefited from anything put back into the grid and were intended to reduce payback periods for renewables and accelerate installation numbers.
Over time, it quickly became expensive and the government has been slowly reducing the value of these payments, until they will stop completely in April 2019 for new installations.
What is the Smart Export Guarantee (SEG)?
So suppliers can now take any excess power generated from your business or personal installations without paying you then? Well, not quite.
There is still a race towards a greener global economy, so the growth in installation numbers needs to continue. Step forward the latest scheme to incentivise installation of renewables: the Smart Export Guarantee (SEG).
Under the SEG, suppliers are still obliged to pay small-scale generators a fee for any power the grid takes from their installation. Good news… kind of.
What is the value of the SEG?
Suppliers will not be given a minimum price that they must pay generators for the energy fed into the grid – it is simply defined as “more than zero”. The reason for this is to build flexibility into the legislation to allow future payments to generators to differ based on variations, such as the time of day they’re feeding the energy to the grid.
It is hoped that the SEG will also drive technological innovation within the sector. Imagine an app accompanying your solar PV installation, showing you the power it has generated and the price you’re receiving live, for instance.
What are the limits of the SEG?
Long term, as technology improves and the cost of renewable installation falls, the SEG seems to have its merits. But, critics of the scheme say that it will drastically slow the UK’s forward progress in this area short-term because it is not a subsidy for installation.
PV panels, for example, are still expensive to install. The FiT had dropped so low by the end of its life that small system installers were projecting the full lifetime of the panels to become profitable. With no level of guaranteed income from excess generation, it will now become harder to justify renewables as a revenue generator, despite their value in reducing reliance on the grid and a business’ carbon footprint.
The Energy Saving Trust in particular have voiced concerns over the short term impact of the SEG in a response to the announcement:
“We’d like to see a smart export guarantee introduced. But if it's going to take off, it needs to be introduced along with other, medium term, measures to improve the cost-effectiveness of small-scale systems for clean electricity generation in homes and communities. This way, the SEG can fulfil its potential to drive innovation in payment arrangements for exported electricity and help to build a subsidy-free market for small scale renewable energy generation.
“Alternatively, the SEG could be introduced with a minimum payment level potentially linked to the wholesale price of electricity. This would offer a clear, immediate positive impact on the financial viability of renewable electricity systems for homes and communities. Arguably the right minimum payment level could create a virtuous circle where more renewable systems are installed, there are more customers for SEG, and suppliers are able to make increasingly generous SEG offers. This bigger market would also help drive innovation.” (Energy Saving Trust: March 2019)
What does that mean for me?
If your home or business currently benefits from the FiT, that won’t change. You’ll still receive your usual payments. However, new renewables installations will come under the SEG.
It is worth monitoring how the first few months in this area go and whether the government takes any of the advice on board from impartial bodies such as the Energy Saving Trust.
If you would like to discuss your energy strategy, including renewable viability, with one of our experts at Great Annual Savings, just give us a ring on 0800 130 3514