How the new renewable electricity export scheme works

A new scheme has been launched promising a guaranteed market for surplus electricity generated by renewable energy installations.

We asked Roadnight Taylor senior consultant Richard Palmer to explain what the scheme means for farmers.

The government’s Smart Export Guarantee (SEG) aims to help future renewable energy projects by guaranteeing payment for surplus electricity exported to the grid.

It replaces the export payments and index-linked subsidy previously available through the Feed-in Tariff (FiT), which closed to new entrants on 31 March 2019.

The SEG and FiT are very different, though, especially when planning investments.

For most landowners wanting to set up a new renewable energy installation or expand an existing project, the SEG will not drive investment decisions.

What is the SEG?

The SEG legally requires all medium to large energy companies (those with more than 150,000 domestic electricity customers) to offer a “route to market” and payment for surplus electricity generated by domestic or business customers with renewable energy installations (such as roof-mounted solar). Other electricity companies can join voluntarily.

See also: Where now for renewable energy on farms?

They must offer at least one export tariff by 1 January 2020, although there is no minimum price for exported electricity or contract length, as there was under FiTs, which offered a 20-25-year, index-linked export payment, worth 5.38p/kWh in 2019-20 for eligible systems installed after 1 August 2012.

The SEG applies to the main technologies, up to 5MW, subject to certain eligibility criteria. This includes solar PV, onshore wind, anaerobic digestion, hydro, and micro-combined heat and power (with electrical capacity of 50kW or less).

Battery storage will be eligible for export payments, although metering must be in place to show the electricity has been generated from an eligible renewable source.

How much will I get?

The SEG requires only that payments are greater than zero pence at all times of export, but does not guarantee a minimum price. It is down to individual companies to set payments and contract terms.

Payments can be fixed for every kWh exported, or use smart metering systems to vary payments according to demand and supply – with higher export prices paid at times of peak demand and vice versa.

Either way, to qualify for SEG payments, the meter used must be capable of measuring exported electricity on a half-hourly basis, even if not on a half-hourly contract.

Octopus Energy was one of the first to launch SEG-compliant export tariffs, offering a fixed price of 5.5p/kWh and a “smart” contract linked to half-hourly wholesale prices.

More suppliers will announce tariffs over coming months and it is expected they will become “smarter”, especially as battery storage is more widely adopted.

What if I’m already receiving FiTs?

The SEG targets new renewable energy projects or extensions to existing schemes, installed after FiTs closed to new applicants, so anyone who qualified for FiTs before 1 April will continue to receive export payments under this scheme.

You can opt out of receiving FiT export payments and sign up for an SEG tariff instead – but only do so if it is financially worthwhile.

Is it worth it?

The SEG gives only a “route to market” for exported electricity; there is no revenue for generation alone, which is unlike FiTs, where all electricity generation and grid exports were guaranteed a long-term index-linked payment.

The SEG could help some domestic or small-scale renewable energy investments where there is no market for exported electricity.

But for larger-scale generators where there is already market access to better export prices, other export agreements or Power Purchase Agreements (PPAs) could be a better choice.

Fundamentally, a different mindset and approach is needed before making any investment.

New schemes must be tailored to the farm’s demand profile to maximise onsite electricity use and reduce the amount of bought-in electricity. Policy changes affecting electricity prices paid by end customers will also become key considerations for future investments.

Energy-intensive businesses, such as those with coldstores or diversified activities, are likely to have most to gain from new renewable energy investment.

More information about the SEG can be found at the Energy Saving Trust website.