As a landowner, household or commercial business, the idea of fitting a new renewable energy system can sound tempting with the promise of clean and cost-reducing energy. However, the investment opportunities behind renewables have been slowly cut since 2010 and irrespective of the promises made; leaving only the big developers with the ability to make a profit off renewables through remaining Renewable Obligation Certificates (ROCs). With capital costs across the renewables varying significantly, the only viable option for most households remains to be solar which has seen an 82% cost reduction in the past decade. We assess below the Feed-in-Tariff Scheme and it’s baby brother, the Smart Export Guarantee – both looking to fund small-renewables.
Feed-In-Tariff (FIT) Scheme
The Feed-In-Tariff (FIT) scheme was a government programme designed to promote the uptake of small-scale renewable and low-carbon electricity generation technologies. Introduced on 1 April 2010, the scheme required participating licensed electricity suppliers (FIT Licensees) to make payments on both generation and export from eligible installations. This scheme stopped accepting new applications on 31 March 2019 but remains active for the period of the contacted term. This scheme applied to:
- AD Plants
- Hydroelectric Plants
- Micro CHP (combined heat and power)
- Solar Photovoltaic
- Wind Generation
Generators, those who own the systems, receive a set amount for each unit (kilowatt hour or kWh) of electricity generated – a ‘generation tariff’. However, since 2010, government backed incentives and subsidies have been steadily cut in line with the falling capital costs of renewables. The rates vary depending on:
- the size of the system.
- what technology is installed.
- when the system was installed.
- how energy efficient your home is.
As well as the generation tariff, generators can also sell any extra units not used back to the electricity supplier – an ‘export tariff’. Limited to half of the units of electricity generated.
|Description||Applicable Date||Export Tariff (p/kWh)|
|01/12/2012-Present (June 2020)||5.50|
|01/08/2012-Present (June 2020)||5.50|
The most recent generation tariffs can be found on the government website. Generators will need to know when they applied, the size of their installation and the energy efficiency of their home rating given as below:
- Higher tariff rate will be applied if an EPC of level D or above is achieved before commissioning
- Middle tariff rate will be applied if an EPC of level D or above has been achieved but the Generator owns 25 or more installations
- Lower tariff rate will be applied if an EPC of level D or above is not achieved before commissioning.
But this scheme is finished now? What does this mean for new small scale installations? After the announcement of the scheme closure, this saw a step increase on solar installations before the deadline and a slower growth following. Therefore, this left a lot of questions regarding the future of small scale renewables in the UK. The FIT scheme performed an excellent job at implementing and reducing the capital cost of renewables to more sustainable and investment worthy levels, with 992,065 new solar panel installations for the period it was active. However, what is next in-line to provide the revenue for small-scale renewables?
Smart Export Guarantee (SEG) Scheme
The smart export guarantee (SEG) is an obligation set by the government for licensed electricity suppliers to offer a tariff and make payment to small-scale low-carbon generators for electricity exported to the National Grid, providing certain criteria are met. The SEG came into force as of 1 January 2020.
The SEG is an opportunity for anyone who has installed one of the following technology types up to a capacity of 5MW, or up to 50kW for Micro-CHP:
- Solar photovoltaic (solar PV)
- Micro combined heat and power (CHP)
- Anaerobic digestion (AD)
These installations must be located in Great Britain.
The SEG Licensee is required to put processes in place to pay for the electricity exported by the eligible installation and to report to Ofgem on installations under the SEG arrangements. SEG Licensees determine the rate they will pay, contract length and other terms. However, whilst wholesale electricity prices can sometimes fall below zero, SEG Licensees must always offer a tariff that remains above zero. SEG payments must be calculated by SEG Licensees using Export Meter Readings.
Further guidance for Generators can be found here.
|Supplier||Tariff Name||Tariff Type||Tariff Length||Tariff Rate (p/kWh)||Payment Cycle||Inc. Battery Storage?|
|Social Energy||Smarter Export||Currently Fixed||No Fixed End Date||5.6p||3 Months||Yes (SE battery)|
|Octopus Energy||Outgoing fixed/Agile||Fixed or Variable||12-month fixed||Fixed: 5.5p Variable: half-hourly wholesale rate||Monthly||Yes|
|E.ON Energy||Fix & Support Exclusiver||Fixed||12-month fixed||5.5p||Unknown||Unknown|
|Bulb Energy||Export Payments||Fixed||No Fixed End Date||5.38p||3 Months||Yes|
|OVO Energy||OVO SEG Tariff||Fixed||12-month fixed||4.0p||3 Months||Case-by-case basis|
What does this mean?
For new installations up to 5MW, the SEG scheme offers a means of pay-out on exported electricity as an excess on what is used. However, given that the rates are set by the supplier, Generators will need to shop around for the best rate that will provide a bigger return for longer hours. The variable rates, although potenially offer higher peak rates and lower minimum rates with a greater spread, may fall short for seasonally dependent renewable sources. Whereas fixed rates have the benefit of a guaranteed rate for whenever the generation occurs. There have been cases of households on variable tariffs learning not use energy during peak periods in order to see a significant return on the generation.
Overall, the SEG scheme is currently not as widly tempting for investors as the FiT scheme was during its introduction which had rates beyond 20p/kWh. However, the SEG scheme will eventually become a market in itself with suppliers competing for the energy of the generators by beating them in prices; we may see some interesting returns for the small-scale renewables parallel to the continued reductions in capital cost.
If you have just installed a new system and are looking to join a scheme, do not worry as you are elligible to apply to any scheme irrespective of your electricity provider. Much like your provider, you can play the market as prices improve to continually find the best rates.