Smart Export Guarantee a step towards smart energy market

An increasing number of homes, businesses and communities have begun to use solar panels and wind turbines to to generate their own electricity.

These renewable schemes have been boosted by developments in electricity storage. Better storage technology has also helped these small-scale electricity generators to supply excess electricity back to the grid, providing the grid with greater flexibility in relation to where it sources power which has traditionally been obtained in large degree from major power plants.

Up until now the UK government has operated a 'feed-in-tariff' (FiT) scheme to remunerate small-scale energy generators for the excess electricity they supply back to the grid. However, the FiT is being scrapped from the end of March this year after it was deemed by the government to not be in alignment with the "move towards fairer, cost reflective pricing and the continued drive to minimise support costs on consumers", or to support the UK's climate change vision.

The government has acknowledged that small-scale low-carbon electricity generation is "beneficial" to its objectives and the electricity system more broadly and has set out plans to replace the export element of the FiT scheme with a new Smart Export Guarantee (SEG) to remunerate small-scale energy producers for the excess electricity they supply to the grid.

The "supplier-led" SEG would see the largest electricity suppliers in the country – those with at least 250,000 customers - required to "offer small-scale generators a price per kWh for the electricity they export to the grid", according to the government's plans, which are open to consultation until 5 March (44-page / 395KB PDF).

The scope of the SEG would match that of the FiT scheme in relation to the renewable technologies that benefit from remuneration. A cap of 5MW capacity would apply to the scheme.

According to the plans, suppliers would determine the tariff per kWh for remuneration, and the length of the contract, and they would be obliged to provide at least one export tariff providing remuneration that is "greater than zero". The suppliers would be prohibited under the SEG from requiring the small-scale generators to remunerate them "at times of negative pricing", according to the government's proposals.

The government said it expects smart meters to track the electricity that is exported to the grid.

Further details of the design of the SEG are set out in the government's consultation paper.

The Department for Business, Energy & Industrial Strategy (BEIS) said: "The new scheme could create a whole new market, encouraging suppliers to competitively bid for this electricity, giving exporters the best market price while providing the local grid with more clean, green energy, unlocking greater choice and control for solar households over buying and selling their electricity."

Becca Aspinwall, who specialises in commercial energy contracts at Pinsent Masons, the law firm behind Out-Law.com, said: "It is good to see a positive movement from government towards the transparent remuneration of small-scale generation. For too long we have seen consumer generation projects hampered by uncertainty regarding the investment proposition of the FiT deemed export tariff."

"As the Smart Export Guarantee promises to remunerate based on actual export, the question is to what extent investors will be able to get themselves comfortable with the income stream in the long-term when the tariff and contract length are to be set by suppliers themselves," she said.

"There is still some way to go with technology to allow a smarter energy market place to flourish, provide consumers the control that they desire and create an energy system where small-scale consumer generation can be locally integrated with, and properly remunerated alongside, battery and electric vehicles," Aspinwall said.

BEIS said a decentralised energy system can help improve "the resilience and flexibility" of the energy system in Great Britain. Electricity in Northern Ireland is regulated separately and energy policy is devolved to the Northern Ireland Executive.

"We are seeing more generation located nearer to people’s homes, greater demand with the increased use of electric vehicles, the ability to store energy, and potential for avoiding investment in new generation assets through demand-side response (DSR) to manage electricity more flexibly," BEIS said. "There is enormous potential for greater home energy management through smart meters, smart appliances and smart tariffs. As a result of these developments, we expect significant changes to patterns of supply and demand in the future as we move to a smarter, more flexible energy system."

"In response to these exciting changes, new and innovative business models are appearing, which advance the digitalisation of our system and improve our ability to dispatch electricity at a time and location when they are needed," it said.