The Smart Export Guarantee Explained

End of the ‘Feed-in Taffif’

The Smart Export Guarantee (SEG) is the successor to the legacy Feed-in Tariff (FiT) scheme, which closed to new customers in April 2019. If you are already on the FiT scheme you will still receive payments based on your existing contract until it expires.

The scheme applies to businesses and homeowners who are installing new renewable energy systems allowing them to be compensated for any excess electricity exported back to the grid. But the Smart Export Guarantee has some important differences compared to the previous Feed-in Tariff which we will discuss here.

What is the Smart Export Guarantee scheme?

The Smart Export Guarantee pays households a fixed tariff for any excess electricity generated from renewable sources which is exported back to the grid. All energy suppliers with more than 150,000 customers will be forced to offer at least one SEG tariff but in practice, they will provide more.

Smaller companies with less than 150,000 customers can opt into the tariff, while companies other than traditional energy suppliers can also opt-in. This should help generate a competitive landscape for customers ensuring they get the best possible rate for their electricity.

How will the Smart Export Guarantee work?

Under the scheme, each energy supplier will set the price they are prepared to pay for excess electricity. The legislation does not stipulate how much the tariff should be, only that it should be above zero. It will be down to individual energy suppliers to set the price.

Unlike the previous FiT Tariff, which was based on an estimate, SEG will be based on meter readings. That means to benefit from the tariff you will need to have a smart meter installed. Such meters must be capable of reading export readings every half-hour. Although in the future, some companies may provide lower rates for manual meter readings.

Types of Smart Export Guarantee tariffs

Currently there are two types of Smart Export Guarantee Tariffs:

Fixed-rate – This is the simplest tariff which will pay a set amount per kilowatt-hour, regardless of the time of day it is exported.

Flexible rate – With a flexible rate homeowners will receive higher rates for electricity produced during periods of high demand. Rates will be set using day-ahead wholesale prices and will pay more for electricity produced during the evening and less during the night.

As the scheme matures, energy providers may develop multi-rate SEGs which pay fixed rates for electricity produced at different times of the day and week. For example, providers will set separate day and night rates, with separate rates for weekdays and weekends.

What is the difference between SEG and the Feed-in Tariff?

Smart Export Guarantee tariffs differ from the Feed-In tariffs in that homeowners will only receive one payment for electricity exported back to the grid. Under the old scheme, homeowners received two payments, one for generation and another for export.

SEG payments are also based on the precise amount of electricity sent to the grid. Under the FiT scheme, payments were estimated to be 50% of the total electricity generated. This should make the scheme fairer for everyone, but it will mean some households receive less under SEG than they would have done under FiT.

Rates for SEG are also set by the energy suppliers themselves. Under FiT, the tariff was set by Ofgem which meant homeowners received the same amount regardless of the supplier. This should help to reduce overall energy bills because FiT was paid for by a levy on all electricity bills, while SEG is paid for by the energy companies buying power.

Benefits/drawbacks of the Smart Export Guarantee

Under the Feed-in Tariff, homeowners received two payments, an export tariff for energy returned to the grid and a generation tariff for all electricity produced regardless of use. The export tariff was calculated as 50% of the total electricity generated. That meant homes using more than 50% of the total electricity produced effectively benefited from subsidised energy bills.

Feed-in tariff rates 2010 to 2019

Data for the above chart was sourced from Ofgem. Values displayed represent pence and not pounds.

For example, under the previous FiT scheme, a home generating 3000 kWh of power each year would receive 3.79p (rate as of March 2019) per kilowatt-hour for the generation of 3000 kWh (£113.70) and another 5.38p per kilowatt-hour for the export of 1500 kWh (£80.70). So the total received by the homeowner would be £194.40.

The above example assumes the home uses half of the electricity produced. But what if the home uses 2000 kWh and only exports 1000 kWh? In this case, they are still paid for exporting 1500 kWh which results in their energy bills being subsidised by FiT. The SEG scheme is designed to close this loophole.

Under the Smart Export Guarantee Scheme, homeowners are only be paid for the amount of electricity sent back to the grid. So if a home exports 1000 kWh and the SEG tariff is 4.5p per kilowatt-hour. The homeowner only receives £45 per year. So homes on the SEG will receive lower payments than those on FiT. But the scheme is fairer and more sustainable because no subsidy is required to finance it.

Who is eligible for the Smart Export Guarantee?

To benefit from the scheme businesses or homeowners must install a renewable energy system which meets the standards set out in the Microgeneration Certification Scheme (MCS). Acceptance into the scheme is not affected by any grants or loans received to install the system.

However, SEG is not open to properties which currently receive Feed-in tariff. Customers on FiT will continue to receive payment at the rate stipulated in their FiT contract until expiry. Most FiT contracts had a duration of 20 years so it should be a decade or more before the first ones are set to expire.