The Smart Export Guarantee - smart export or exporting is smart?

Will the Smart Export Guarantee keep the lights on for Microgeneration?

Will the Smart Export Guarantee keep the lights on for Microgeneration?

So finally a response from the UK government about what is going to replace feed-in-tariffs as payment for microgeneration has arrived. A large 40 page document and fully two months after the closure of the FIT but good things come to those who wait, right?

A short round-up that should satisfy most:

As you know both the generation tariff and export tariff are now closed down and gone, but the export tariff is to be re-made as the smart export guarantee tariff (SEG). Micro-CHP up to the 50KW electric limit is eligible for SEG payments.  Every energy supplier with more than 150,000 domestic customers must offer at least one SEG tariff but the value of the export payments is up to the energy supplier company itself with no set minimum price (except the price can’t be zero or negative). The most common tariff structure is likely to be a flat rate but could also be a variable time-of-use rate depending on the supplier, with the time-of-use tariff likely to be of higher value. Suppliers are not obliged to make payments for electricity generated by ‘brown’ power generators  and can specify only ‘green’ renewable export for their tariffs. Where this leaves ‘blue’ power generation such as gas-fired micro-CHP is unsure and so further clarity is needed from suppliers as to wether they will accept gas-fired micro-CHP as a power generator. I would say it is likely that a supplier will accept ‘blue’ export unless the supplier is specifically advertising 100% green power but that will leave fewer choices for micro-CHP owners in suppliers.  

While (hopefully) a payment for export is better than nothing, it is unlikely that micro-CHP system owners will make a profit on exporting. At best we should expect a breakeven or even a (small) loss on any export under the SEG mechanism as the cost of the fuel gas is likely to be equal or greater than the value of the resulting electricity exported to the grid. This highlights the need for power output modulation control in micro-CHP systems to improve self-use of electricity and to avoid exporting electricity to the grid.


In a bit more detail:

Your understanding of the smart export guarantee (SEG) will depend on wether you read the name as meaning the export guarantee that is smart or the guarantee for smart-export. The former will more than likely be people with an interest in solar panels (or other non grid-responsive generators) who are looking for payment for their electricity exports. The SEG means that most energy suppliers will before the 1st January 2020 have to provide and advertise a tariff that will pay something for your exported solar power. It is likely to be not as generous as the previous export tariff although some energy suppliers are reported as offering similar tariffs at least for a while. If you are wondering if solar panels are still a good investment then the answer is ‘Yes’, but please don’t ask me to define ‘good’.     

The latter category, the people who think that this is a guarantee for smart exports, are people who have generators that are non-intermittent and that can respond to grid-demand flexibly. Micro-CHP belongs to this group but the UK government was more than likely thinking about home batteries when formulating its response. The consultation response mentions several times the hopes of the UK Government for microgeneration to act as a a grid flexibility service, with lots of small generators providing a flexible supply to the grid in efforts to balance out the intermittency of some renewables and to deal with peak loads. There is definitely potential, with roughly 25 million households in mainland UK, if each were to supply only 1 KW of electricity back to the grid on demand then that would equate to 25GW of flexible power, almost as much as our entire gas power station capacity. In return, generators who participate should receive higher payments from their energy supplier to match the higher value to the grid of exporting this flexible electricity. But this is all in theory and has yet to be spelled out in any detail. The government says they want to keep regulations simple and allow innovation to occur naturally in the market, but this innovation could take some time if it happens at all. In the immediate future I doubt if we will see very many flexible (time-of-use/time-of-production) tariffs and smart generators may have to make-do with a flat rate tariff for all. Another complication is the guidelines surrounding ‘brown’ power generation, where ‘SEG licensees’ are not obliged to pay for brown export and can insist on only green export that came from renewable sources. This clause puts exports from gas-fired micro-CHP in a strange middle ground and uncertain of automatic qualification, because while export is not ‘brown’ it isn’t ‘green’ either (gas-fired micro-CHP export should be labelled as ‘blue’ generation and this isn't mentioned in the consultation response).

So what do you tell your future micro-CHP customers about the smart export guarantee? Well, right now it’s not good news. Firstly, there is no replacement for the feed-in-tariff generation subsidy we’ve lost and this is a massive blow for our nascent industry in the UK. Worse still, while there is going to be an export tariff of some sort, it’s not yet certain if ‘blue’ power generation qualifies and there is a chance that the payment will be too low anyway to recover the cost of gas used-up in making the electricity for export. Things may improve in future if energy suppliers value flexible generation more or if electricity prices go up in general (relative to gas), but the best message is probably not to mention it much at all. The greatest value micro-CHP can provide is by fulfilling the internal building demand for energy as this will always be most expensive. There could be some extra value to be gained in export for flexibility services in future, and a ‘grid-aware’ micro-CHP unit that could export more on demand would be beneficial, but for now the focus should stay on self-use and the energy savings.