Minister updates Parliament on Smart Export Guarantee

The UK has made substantial progress in building a successful renewables industry as part of our move to a low carbon economy. In 2017, businesses active in the low carbon and renewable energy economy generated £44.5 billion in turnover and employed an estimated 209,500 full-time equivalent employees[1]. Our modern Industrial Strategy sets out how the Government will ensure that the UK continues to benefit from the transition to a low carbon economy.

Developments in technology and the industry, supported by the Government, have driven down the cost of small-scale low carbon electricity generation to a position where some projects can now be built without subsidy. This is in line with our vision that electricity generation should be competitive, and market based.

However, from responses in our call for evidence in July last year[2], it was clear small-scale generators can struggle to access the electricity market, while some larger suppliers are unfamiliar with smaller players in the sector. Responses suggested that following the closure of the Feed in Tariffs Scheme (FITs), some form of Government intervention remains necessary while markets for small-scale low carbon generation are still emerging.

The SEG will address this by requiring licensed electricity suppliers to offer a tariff for electricity exported by small scale low carbon generators (such as households with solar panels). This means small scale generators will be able to fully participate in the UK electricity market. This new requirement will apply to suppliers with more than 150,000 domestic customers. Other smaller suppliers can also voluntarily participate in the SEG.

Other than a few core conditions, such as payments having to always be greater than zero, this policy is market-led. The rates paid to the small power producers will be determined by the market rather than set by Government. This is unlike the FITs, which was funded through levies on consumers’ energy bills.

The SEG will complement the deployment of smart, flexible technologies such as storage and demand-side response. A smart and flexible system could save £17- 40bn across the electricity system to 2050[3]. The policy will encourage electricity to be sold at the times when it is most needed and market prices are highest.

Previously, the amount of electricity exported by small scale generators has often been unmeasured and flowed to the grid without metering. The rollout of smart meters allows a more precise approach, which in turn will make it easier to manage the electricity system as the number of small scale generators (as well as electric vehicles and small- scale storage batteries) increases.

Suppliers will also be free to choose the form of the tariff they offer and be encouraged to try different approaches - provided they meet the SEG requirements. This will allow simple tariff offers to be implemented quickly, with an expectation that increasingly smart approaches will be implemented.

The deadline for compliance will be from the end of the year to provide enough time for suppliers to make necessary system changes to operate the SEG. This will not preclude suppliers from offering export tariffs in advance of the deadline, as some are already doing.

To ensure that the market is delivering meaningful and innovative tariffs, Ofgem will report annually on the provisions made by suppliers for small-scale exporters. This will include the range, nature and uptake of SEG tariffs. If we consider that insufficient progress is being made, we will consult on reviewing the operation of SEG.

The SEG will ensure that small- scale low carbon generators are reimbursed for the electricity they export to the grid and can act as a springboard to the development of a robust and competitive market solutions. SEG allows the private sector to innovate and invest, while small-scale generation technologies can compete on their own merits. We expect that the electricity market to grow smarter and more flexible, and consumers will be offered an increasing range of innovative smart products and services. These services will support the integration and optimisation of onsite low carbon generation.

I will place in the Libraries of the House, copies of the ‘Government response to the consultation on proposals for the future development of small-scale low-carbon electricity generation’ which sets out further information on the SEG.

[1] Final results from the Low Carbon and Renewable Energy Survey on the low carbon and renewable energy economy in the UK, including direct and indirect activity, employees and turnover, available at: https://www.ons.gov.uk/economy/environmentalaccounts/bulletins/finalestimates/2017

[2] The future for small-scale low-carbon generation: a call for evidence (July 2018) at: https://www.gov.uk/government/consultations/the-future-for-small-scale-low-carbon-generation-a-call-for-evidence

[3] Carbon Trust/Imperial College, 2016: An analysis of electricity system flexibility for Great Britain, available at: https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/568982/An_analysis_of_electricity_flexibility_for_Great_Britain