Utility Week

14 | 5TH - 11TH JULY 2019 | UTILITY WEEK Policy & Regulation Analysis F ollowing nearly a decade in opera- tion, the feed-in tariff closed to new applicants at the end of March. Despite being anticipated for some time, the scheme shut without any replacement in place, or even a firm plan. However, a•er months of waiting the government has confirmed that a new Smart Export Guarantee (SEG) will be introduced by the end of 2019, obliging all suppliers to offer at least one export tariff to small-scale renewable generators. The policy means suppliers will be unable to get free surplus electricity from customers with newly installed solar panels, as they have been allowed to since April. "Generally, it's positive that we've got this measure intro- duced," says Renewable Energy Association head of policy Frank Gordon. "It's certainly better than having nothing." But, as the government explained, that is pretty much all it guarantees: "To provide space for the small-scale export market to develop, there will not be any specified mini- mum tariff rate, other than that a supplier must provide payment greater than zero at all times of export." Gordon believes it should have gone fur- ther. "We called for an index to the system imbalance price – so 90 or 95 per cent of the system imbalance price," he says. "And the reason for that is it accurately reflects the value of power at any one time in the UK market. "It's not just a flat rate. It changes based on supply and demand and we think that would have allowed generators to take some price projections to their financiers and allow them to do some business model planning on that basis, unlike the greater than zero proposals, which leave it as a free-for-all." Gordon would also like to see a minimum contract length – perhaps five or ten years – so generators could secure financing off the back of the policy. He welcomes the promise of an annual review but has questions: "We'd be very keen to know the form of the review; what would trigger a more substantial change to the pol- icy. For example, if it found that SEG tariffs aren't encouraging more generation, then what would be the response to that?" Léonie Greene, director of advocacy and new markets at the Solar Trade Association (STA), agrees there should be a higher price floor: "Our argument would be that govern- ment doesn't trust suppliers selling their power at a fair price to consumers – that's why we've had the price cap – and yet they very much seem to be trusting that that will happen going forward in terms of buying power from households." "Households are in a very vulnerable position," she adds. "They've very, very small. They're not in any position to negoti- ate. We felt that government should man- date a minimum price – certainly at the very beginning when the market established itself." She says the renewable sector will have its fingers crossed that there are enough "innovative forward-looking suppliers" that see the benefits of making a good offer to customers. "That is the hope – that the stra- tegic imperative will override the inertia that we're seeing in the system," she says. Octopus one step ahead One company that fits the bill is Octopus Energy. It is the only supplier to have already launched an export tariff for small-scale renewables and thus earn a place on the STA's new league table. It is in fact offering two tariffs. Custom- ers on its Ongoing Fixed tariff receive a flat rate of 5.5p/kWh. Those on its Outgoing Agile tariff receive a half-hourly rate pegged to the wholesale price. The company's chief executive, Greg Jack- son, is glad the government decided against setting a higher minimum price. "I think the most important thing is to create genu- inely competitive markets for innovation in the future of green energy. It's good that we're not setting a high price that then cre- ates a sort of government-dictated market," he says. "It's far better that the suppliers that want to drive this will fight each other to put the best prices out there for customers to switch to them. I think it's really important we have this room for a differential." And there is good reason to fight: "This is a cheap source of power for us… Currently when we buy energy on the grid, we have to pay transmission costs. But if we're buying it from a customer's solar panels and selling it within the same region then we're saving transmission costs and we pass that saving directly on to the consumer. "We really welcome the opportunity to buy cheap local energy, pay customers a good price for it and then sell it cheaply elsewhere." Local trading could be further encour- aged by introducing a "more dynamic pric- ing model" for distribution charges "so that if you're sending a green electron a short distance down an empty wire, it should be a cheap electron. The current distribution pric- ing really doesn't reflect that". In the meantime, Jackson says the com- pany's offering has already been embraced by customers: "We've had hundreds of peo- ple either sign up or join the waiting list… It's actually proved to be very popular, and that's with no marketing. I think it taps into an unmet need." He therefore sees no reason why other suppliers should be unwilling to enter battle. "I think getting individual meters registered for export is currently a little bit cumber- some but there's no real technical barrier to this… The existing smart meter infrastructure services it very well," he says. Nevertheless, he believes some will strug- gle: "Most big energy suppliers find it hard enough to get accurate bills out on a monthly basis. To work with truly 21st century big data is something they're all going to have to learn how to do. Will the Smart Export Guarantee be enough? The new Smart Export Guarantee will force all suppliers to offer at least one export tariff. Tom Grimwood asks whether it will be enough to ensure a bright future for small-scale renewables?

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