Energy & Utilities Update | Smart Export Guarantee

Written on 17 Jan 2020

Understanding the Smart Export Guarantee

The UK government's new tariff and payment guarantee will be welcomed by smaller renewable generators, so long as the market-set tariffs remain competitive.

The Smart Export Guarantee (SEG) came into force on 1 January 2020 as a replacement for the Feed-in Tariff (FIT) scheme, which closed to new applicants in March 2019.

The SEG is an obligation set by the government for licensed electricity suppliers to offer a tariff and make payments to small-scale low carbon generators for electricity exported to the National Grid.

Who is a SEG licensee?

By 14 February each year, all licenced electricity suppliers must notify Ofgem whether they are a:

  • Mandatory SEG licensee: if they have at least 150,000 domestic electricity customers as at 31 December of the preceding year. These licensees are obligated to offer SEG payment to eligible generators.
  • Voluntary SEG licensee: if they have less than 150,000 domestic electricity customers but elect to participate in the SEG arrangements.
  • Non-SEG licensee: if neither of the above applies.
    The status will then apply for the duration of the relevant year (1 April – 31 March) in which they enter.

Who is eligible to receive SEG payments?

Anyone who has installed one of the following technology types in the UK up to a capacity of 5 megawatt (MW), or up to 50 kilowatt (kW) for micro combined heat and power (Micro-CHP):

  • solar photovoltaic (PV);
  • wind;
  • micro-CHP;
  • hydro; and
  • anaerobic digestion (AD).

These eligibility requirements are the same as under the FIT scheme, except that under the FIT scheme the maximum capacity for Micro-CHP was 2kW.

How does it work?

Similarly to the FIT scheme, the SEG generator needs to apply to a SEG licensee for payment of electricity exported to the National Grid. The applicant needs to demonstrate that their installation and installer are suitably qualified as outlined below. The eligibility requirements for capacity and technology broadly mirror those under the FIT scheme:

Technology Capacity Installation certified by the Microgeneration Certification Scheme (or equivalent)? Installer certified by the Microgeneration Certification Scheme (or equivalent)?
Micro-CHP, solar, PV, wind ≤50kW Yes Yes
Micro-CHP, solar, PV, wind >50kW-5MW Yes No
AD, hydro ≤5MW Yes No

AD generators must also demonstrate that all electricity that they are claiming payments for has been produced using sustainable biogas and they must meet ongoing requirements to report against their feedstocks used.

In order to be eligible to receive SEG payments, the installation must be metered and the meter must be capable of taking half-hourly measurements and have an export Meter Point Administration Number (MPAN).

The SEG licensee does not need to be the same company as the SEG generator's energy supplier. The contractual relationship between a SEG licensee and SEG generator is standalone.

The SEG licensee must offer an above-zero pence per kilowatt hour (kWh) tariff for export at all times. The SEG payments must be calculated using export meter readings. The SEG licensee determines the rate of payments, the frequency of payments, the length of contract and other terms.

A SEG generator can receive SEG payments as well as FIT generation payments, Renewable Heat Incentive payments and Renewable Energy Guarantees of Origin certificates, but cannot also receive payments under a FIT export tariff. Receipt of SEG payments and FIT export tariff payments constitutes fraud. (The introduction of the SEG does not affect FIT payments to installations already accredited under the FIT scheme).

The SEG generator can install additional capacity that takes the installation over 5MW (or 50kW for Micro-CHP) but SEG licensees are not obligated to make payments on any additional capacity. If the SEG generator adds capacity to an existing SEG installation using a different source of eligible technology, this is a separate eligible installation and so can have a separate installed capacity of up to 5MW.

Initial SEG tariffs

SEG licensees have announced their initial SEG export tariffs. It is encouraging that three suppliers are offering fixed-rate tariffs that exceed the current FIT export rate of 5.38p/kWh: Social Energy offers 5.6p/kWh and Octopus Energy and Eon both offer 5.5p/kWh.

However, because the SEG only requires the payments to be greater than zero, most of the announced tariffs are far lower than these headline figures. The lowest rate offered is 0.5p/kWh.

What are the main differences between the SEG and FIT Scheme?

Unlike under the FIT scheme, there is no prescribed or index-linked tariff rate under the SEG. Under the SEG, suppliers choose the amount they are prepared to pay for exported electricity and compete for customers. Unlike the FIT scheme, there will be no provision for "levelisation" (where suppliers with proportionally fewer FIT customers make cross-payments to those with more to spread the cost of running the scheme).

The thresholds mean that more suppliers will be obligated to offer an export tariff under the SEG. Mandatory SEG licensees are those with at least 150,000 domestic customers whereas mandatory FIT licensees were suppliers with at least 250,000 domestic customers.

Comment

The introduction of the SEG is a welcome development for smaller renewable generators, especially those who cannot access the FIT export tariff. It is encouraging that some suppliers have offered SEG export tariff rates that currently exceed the FIT export tariff rate. However, the SEG export rate and term of contract are at the discretion of SEG licensees. Consequently, generators will be closely monitoring whether these initial rates are preserved or enhanced as this new market develops and provides a sustained and competitive offtake option for the longer term.