Government Proposes New Export Tariff Scheme for Solar

When the government announced in 2018 that it would close the Feed-in Tariff scheme with effect from 31st March 2019, it failed to put in place any replacement for the Export Tariff. Small scale solar PV systems installed after 31st March were likely to end up exporting excess solar generation to the grid for free.

Not surprisingly there was uproar within the industry at this prospect.

In response, the government has this week launched a consultation on the Smart Export Guarantee (SEG).

Under SEG, the larger electricity suppliers (those with more than 250,000 customers) will have to remunerate small-scale low-carbon generators for the electricity they export to the grid. Small scale suppliers can opt-in if they want to.

Essentially the government is legislating to create a new market for the sale of power from small scale renewables installations such as solar, encouraging electricity suppliers to bid competitively for the electricity exported to the grid. 

Suppliers would determine the tariff per kWh and the length of the contract, subject to the fact that the price for exported electricity must be greater than zero, thus protecting the consumer from ‘negative’ electricity prices when there is an excess of supply. At times when wholesale electricity prices drop below zero, generators would not have to remunerate suppliers.

Tariffs could be on a flat rate, or a simple or complex variable rate (e.g. day / night), or they could be linked on a half hourly basis to market prices. All large electricity suppliers have to offer at least one tariff.

Energy and Clean Growth Minister Claire Perry said:

“This new scheme could help us to build a bridge to the smart energy system of the future, with consumers firmly at its heart – not only buying electricity but being guaranteed payments for excess electricity they can supply to the grid”.

Industry reaction

Overall, this has to be a step in the right direction, particularly when the long-term vision for electricity supply and distribution within the UK encompasses significant local generation, with battery storage and electric car batteries being used to balance supply and demand.

There are a few concerns, in particular:

• In order to qualify for the SEG, export must be metered, which requires the system owner to install an export meter, or, more realistically a smart meter. The deployment of smart meters across the UK is not exactly going to plan…
•  There is no requirement for a minimum contract term, making it harder to model the export revenue when evaluating viability of a new solar system. However there are some well-established market values (currently in the order of 5.25p per kWh). (The key to success will be to keep administration costs tight to ensure that administration doesn’t wipe out value for suppliers or generators. The need to keep administrative costs to a minimum was the reason that the FIT scheme was designed in 2010 with a 'deemed' Export Tariff for small systems rather than a 'metered' tariff.)
•  The other short-term issue is that the consultation is set to close on 5th March 2019, just a few weeks before the closure of the FIT scheme for new applications on 31st March 2019. According to BEIS, this will lead to a "short hiatus period" before a replacement programme can be implemented. During this period, small scale low-carbon generators will effectively have no way to sell their excess capacity.

 ‘Cautiously optimistic’ summarises the industry reaction so far; it remains to be seen what happens after the consultation closes.

[Note: For the avoidance of doubt, we should stress that there is no change proposed to export payments for systems already receiving the Feed-in Tariff, or for systems registered for the FIT before 31^st March 2019, this scheme is all about systems installed after 1^st April].