Don’t worry, this isn’t another article about post-Brexit financial pain.
In business, passive income is often touted as the way to maximise your returns without running yourself into the ground with a 60-hour week. The idea is that you create a strategy that with a little investment in time and/or money will provide a slow but steady stream of income over time with little or no additional work, for example writing and publishing an e-book or offering an interactive online course. (Hmmm, perhaps I should have charged for this article?)
For those with an interest in environmental matters, solar panels seemed like an obvious passive income investment when they first went mainstream, largely thanks to the very generous initial subsidy they received under the Feed-in Tariff (FiT). The FiT scheme paid upwards of 45p per kWh generated for every unit of electricity generated, along with a much smaller amount for what was exported (i.e. all the power you didn’t use within the property for your own needs – usually deemed at 50% of the generation unless you had a separate generation meter that could measure the actual export). Anyone with an ounce of financial savvy could see the potential for returns, cue a proliferation of dodgy rent-a-solar-PV system schemes that provided a free solar PV system and associated free electricity in return for the system owner keeping the FiT payments.
It didn’t take long for the government to realise their misjudgement, with FiT rates soon being substantially scaled back and eventually ended altogether. We’re now left with the successor to the export tariff – the Smart Export Guarantee scheme. As with the FiT, the SEG also applies to other forms of renewable electricity generation such as wind and hydro turbines but we will concentrate on its relevance to solar PV here as it is the most common choice for homeowners.
The SEG rates differ from the original export tariff rates in that suppliers have a choice in how much they pay you for your exported power, creating a competitive market for your business. Or at least somewhat competitive: towards the bottom end of the list of rates is Utility Warehouse which, at the time of writing offers just 2p/kWh if you buy your electricity from someone else – for reference this compares with a wholesale rate of 6-10p/kWh over the preceding 12 months.
At the other end of the scale, the most generous energy companies offer upwards of 20p/kWh, with some tariffs exceeding the current capped tariff purchase rate, although these are invariably only available to customers already buying electricity from the same supplier, and sometimes linked to dedicated import tariffs.
In order to receive the SEG payments you will need to forgo any existing export payments under the previous scheme – this will certainly be worthwhile with the more generous rates available from most suppliers. The other prerequisite will be a meter that can record half-hourly export readings, which is the case for all SMET2 smart meters and most SMETS1 meters.
For those homeowners with solar PV (or other renewable generation) and flexible demand, for example the ability to charge home batteries, EVs or shift the timing of heavy electrical consumers such as pool filter pumps, it can be worth thinking about the interplay of the SEG payments with smart tariffs. For example, it can make sense financially to charge batteries overnight on a cheap import rate, and export as much renewable energy as possible at the more lucrative SEG rates. Power can also be exported from home batteries and – in future – EVs, meaning you can charge up cheaply off-peak and export at a profitable SEG rate.
Incidentally, Octopus are the only supplier we are aware of operating a variable SEG rate at present with their Agile and Intelligent Octopus Flux – these offer higher export rates at peak times, however this comes along with a higher import rate at the same time; in the case of the Agile tariff the rates will vary dynamically according to the balance of supply and demand on the grid. We expect more of these variable and dynamic export rates to come to the market as grid balancing becomes more critical with the increase in renewable energy generation.