Smart Export Guarantee: is a market-led initiative the right approach at this time?
The Feed-in-Tariff (FIT) scheme closed to all new eligible applications on 31 March 2019. That means there are now no government-mandated incentives in place to support continued deployment of small-scale low-carbon generation. Will the proposed Smart Export Guarantee (SEG) foster the right kind of innovation to achieve an affordable, sustainable, secure and flexible energy ecosystem?
Here, we take a look at the new SEG scheme design, make some comparisons with the FIT scheme which it replaces, and consider whether the SEG as proposed will be fit for purpose.
Out with the old….
With the FIT now gone for new schemes, the reality is that, without further regulatory intervention, relevant low-carbon technologies sized up to 5MW will no longer benefit from a guaranteed income stream and so are at the whim of market forces. The FIT was certainly successful in encouraging early renewables deployment, notably solar PV, but a fixed flat subsidy is not exactly the cornerstone of innovation and competition.
Furthermore, market conditions now are quite different to those prevailing when the FIT commenced in April 2010, not least after a significant reduction in technology costs (80% since 2008 for solar PV for example). As we steadily move towards a smarter, more flexible energy system, many have also put into question the continued suitability of the FIT in a world of more cost-reflective market based (and, therefore, arguably cheaper) pricing for end-consumers.
In with the new….
The SEG is intended to offer something new. BEIS argues it is a solution that bridges the gap from government “hand-holding” of embryonic low-carbon technologies to subsidy-free market-driven solutions. The counterfactual to the SEG would be having no regulated mechanism in place to support the deployment of more small-scale low-carbon generation. This could give free rein to utility-scale low-carbon projects, benefiting from economies of scale, to roll out subsidy-free projects (especially solar) whilst leaving behind residential consumers aspiring to go green.
Although BEIS is currently considering responses to its consultation on the SEG design, what seems clear enough is that the SEG will mandate electricity suppliers to provide at least one export tariff to small low-carbon generators, thereby guaranteeing a route to market (but not price) for small “prosumers”. But it remains to be seen how some operational and administrative hurdles will be overcome. It is by no means a certainty that the SEG, in its current proposed form, will achieve the market-led innovation the Government is hoping for in the short to medium term.
FIT vs. SEG
So how does the proposed SEG scheme shape up compared with the FIT scheme?