Wednesday 25 September 2019

The Smart Export Guarantee - Will we get a Fair Price?

Image: Viridian Solar

Selling Green Electricity For A Quote-Unquote Fair Price 

People who know the solarblogger will tell you he's a bit of a swot.  Invited to participate in a panel discussion on the Smart Export Guarantee (SEG) at Solar and Storage Live 2019, he made sure to do his homework.  So it was that reading through the government's response to the SEG consultation, one thing kept leaping off the page.

The use of quotation marks to bracket the words "fair price" in the document.

And indeed the government's representative on the panel, William Marks from BEIS did exactly the same thing - that thing people do when they curl the first two fingers on each hand to imply quotation marks - whenever he uttered the words"fair price".

Before we get into the problem with setting a "fair price", let's recap the SEG.

The Smart Export Guarantee

By January 2020, all electricity suppliers with more than 150,000 domestic customers are required to offer at least one tariff that pays generators for exported electricity.

This applies to PV generators up to 5MWp capacity, also onshore wind up to 5MWp and anaerobic digestion, hydro-power and micro combined heat and power up to 50kWp.

Electricity suppliers with fewer than 150,000 domestic customers may choose to participate but are not required to do so.

The government has not set a value for the tariff, apart from it must be more than zero.  The tariff can be fixed or the price can float around, for example tracking dynamic wholesale prices.

Exported energy must be metered with a meter capable of reporting exports on a half hourly basis.
Generators already accessing the Feed in Tariff can join the SEG if they give up their deemed export payments under the FiT.

There will be no central register of SEG installations.

Suppliers must be satisfied that installations are safe, which in practice means they must be certified to MCS or equivalent.

A "Fair Price"

The government had proposed in the consultation that the electricity companies could set the price that they bought exported electricity at, subject only to the proviso that the tariff was always positive, i.e. higher than zero.

A number of respondents to the consultation, including the Solar Trade Association had raised concerns at the government's proposal to allow the electricity suppliers themselves to set the price that they wanted to pay for electricity exported by small generators (for example homeowners or businesses with PV solar).  They worried that the electricity suppliers would not set a fair price and called for a floor price.

In their response Government ignored these concerns and pressed on with letting the electricity suppliers decide the price.

And every reference to people asking for a "fair price" was put in quotation marks.

As if to say that these people didn't really get it.  Didn't understand what the grown-ups at BEIS did, that only markets can set a fair price.

The trouble with BEIS position here becomes immediately evident when you consider how a market arrives at a fair price:

A Fair Price is defined as the price for an item or asset agreed upon by a willing seller and a willing third party buyer, assuming both parties are knowledgeable and enter the transaction freely.

So, apparently unbeknownst to the big brains at BEIS we appear to be missing a pretty crucial element of the conditions required to arrive at a fair price by market mechanisms - a willing buyer that enters the transaction freely.  The very existence of the SEG proves that the electricity companies are NOT willing buyers -  they are being forced to enter into the transaction by regulation.  If they were willing buyers they would already be buying the electricity without the need for BEIS to intervene.

And why should they be willing buyers?  Every additional solar PV installation that the SEG helps incentivise is another house or office or factory needing to buy less electricity from the electricity suppliers for its own use.  Yes, each solar PV system represents an opportunity for the electricity suppliers to buy the excess generation, but the flip side is that they also sell these buildings less energy.  The electricity companies are completely conflicted.

From installing smart meters, to insulating people's homes and now the SEG, government never seems to learn.  It keeps coming up with ideas that require the energy companies to destroy demand for their product, and is surprised when the result is foot-dragging, delays and half-hearted, bare minimum efforts to comply.

In a fit of optimism, the Solar Trade Association created a web page to allow consumers to compare all the SEG offers that were being brought to market by these unwilling buyers of electricity.  As of today only one company - Octopus Energy has come forward with an SEG tariff.

I really wouldn't be surprised if  the big old dinosaur suppliers were to leave it right until the 11th hour and bring forward unappealing SEG offers priced at £0.001p (really - no mistake on the zeroes here).

Of course BEIS didn't need to pick a price themselves.  They could have looked for an analogous market where there are willing buyers - the half hourly settled wholesale market.  BEIS could have set a floor price based on this, or a period average of it.

Credit to Octopus for being first into the market with an attractive offer.  Clearly the rapidly-growing, so-called challenger energy suppliers are unencumbered by legacy systems and thinking and see an opportunity to attract valuable customers by requiring an SEG customer to also transfer their supply-side business.  The big six need to watch out, else they go the way of the dinosaurs and leave the energy market to these new, fast-moving mammals.