On 8 January, the Department for Business, Energy and Industrial Strategy (BEIS) launched an eight-week consultation on a new legislative drive for small-scale low-carbon electricity generators called the Smart Export Guarantee (SEG). The SEG mandates that electricity utilities with more than 250,000 domestic customers pay small-scale generators with sub-5 MW capacity for the electricity they supply to the grid. BEIS will use the consultation to decide whether, and how, to proceed with the SEG.
The SEG is a replacement for the Feed-in Tariff (FiT) scheme that was launched in 2011 and covers the same low-carbon technologies as those eligible for FiTs. While FiTs were largely responsible for the boom in the domestic rooftop PV industry, they were costly. A precipitous drop in the price of solar panels resulted in windfall profits for those with their own generation systems. Electricity costs rose for those without their own generation systems because the costs of FiTs were levelised across utilities’ customers. In 2015, BEIS announced that no new applications for FiTs would be accepted starting in 2019. In late 2018, BEIS confirmed this would occur on 31 March 2019.
Following the end of FiTs, the SEG relieves fears of a policy vacuum by ensuring that utilities will continue to support small electricity generators. The SEG and a FiT differ in that SEG payments to generators are based on variable market rates. The end of FiT subsidies and their market-based SEG successor fits into the UK’s ongoing wider transition to a post-subsidy economy and energy system.
BEIS has proposed that the SEG will not include any cost levelisation associated with FiTs. Instead, the administrative costs of the SEG will be deducted from its payments to generators, introducing the possibility of competition between utilities over their SEG offerings. The SEG proposal has received a mixed response from renewable energy associations and Labour’s shadow business minister. It has been criticised for its complexity and the likelihood of a shaky phase-in period. As with any market-based instrument, a significant challenge the SEG faces is in its beneficiaries’ access to fair, transparent, and barrier-free markets. Among key enablers to this new system are the penetration of smart metering and the continued transition of the role of distribution network operators (DNOs) to distribution systems operators (DSOs)
Nick Fedson MEng MSc
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