Smaller isn’t necessarily the lesser

News of the closure of closure of the Feed-in Tariff last year was not a surprise to many in the industry, but still of course, unwelcome; in particular the news that the export tariff would be taken away, leaving small-scale generators and prosumers potentially exporting to the grid for free.

The Smart Export Guarantee is the government’s proposed solution to this problem, mandating suppliers to offer a rate to all renewable generators under 5 MW, and encouraging dynamic pricing linked to the wholesale market.

The move to make the small-scale market smarter is encouraging and captures the ambition of the industry and the flexible, decentralised world we are aspiring to. And I’m pleased to see that generators will be paid for the electricity they are exporting, although arguably, we should never have been put in such a position in the first place.

Digital revolution

The industry as a whole is starting to take advantage of data and technology to apply ‘smart’ elements to almost any aspect of the energy system. There is healthy scepticism in the industry of the level of engagement demand customers will have with shifting their energy consumption to save a few pence, but we’ve seen engagement growing with easier switching, increased take up of green tariffs and an interest in dynamic tariffs – Ovo, Scottish Power and Octopus are among those already offering smart rates. You just need to take one look at Octopus Energy’s twitter feed to see how eager some customers are to wrestle control of their consumption, particularly those with high energy consumption technologies. Prosumers who are already well engaged with their energy supply are surely ideal candidates for early adoption of dynamic export tariffs.

But investing in renewable generation, electric vehicle, heat pump or storage is not a small undertaking. Without the Feed-in Tariff, the prospect is even more risky and will be reserved for those with disposable income – with 95% of FIT installations at the domestic scale, it begs the question; how much new deployment will the Smart Export Guarantee drive?

By the government’s own admission, deployment is likely to be very low with no increase as the scheme progresses[1] and industry are also predicting minimal uptake initially, due to the logistical difficulties of providing the SEG. Owing to technical problems with second generation smart meters and access to data, suppliers have expressed concerns about the cost and practicalities of providing an export rate on a half-hourly metered basis. With products unlikely to be ready soon and the FIT due to close in less than a month, this essentially puts the small-scale industry on hold.

Actual Size May Vary

So how could it recover? The government have been very clear that there will be no new subsidies until 2025 at the earliest, so we must look to other, more innovative methods to boost small-scale deployment.

In response to the call for evidence in Summer 2018, we made several recommendations which would help to increase the market for small-scale renewables. We are pleased that BEIS acted on our primary recommendation to provide a guaranteed route to market, but there are other steps that need to be taken to encourage further growth of the small-scale sector:

  • Government should set a meaningful floor price for the SEG, at a discount of the wholesale price.
  • Ofgem should establish a clearer definition and code of conduct for marketing green tariffs – green-washed tariffs are currently undermining the market for renewable energy.
  • Ofgem’s network charging reforms should support the local energy generation market.
  • Government should exempt small-scale renewable installations from business rates.
  • Innovative local supply models should be explored and enabled, including local generation tariffs, microgrids, peer-to-peer trading and aggregation.

Beyond the economic value, small-scale generation has proven its worth to the energy system; balancing demand and supply at the local level can reduce infrastructure costs. But critically, small-scale generation involves individuals and communities in their energy production; it prompts concerns about energy efficiency, security of supply and, above all, engages people directly in the fight against climate change.

Evolving to a smart world is the right direction for the energy system and for small-scale renewables, but it can only influence growth alongside a package of other measures. The Feed-in Tariff was a fantastic start and provided that much needed boom, but now it’s at an end, we must adapt and move ahead.

Read Regen’s response to the Smart Export Guarantee consultation here.

 

[1] Table 2, Impact Assessment, Consultation on Smart Export Guarantee Scheme. https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/769587/smart-export-guarantee-impact-assessment.pdf

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