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Updated: 18 Feb 2020

New solar panel payments scheme proposed

Feed-in tariff replacement would pay only for electricity actually exported

Just six weeks before the current solar panel feed-in tariff payment scheme closes, plans have been unveiled for a new solar power payment scheme. If it goes ahead, this would pay households for excess renewable electricity they generate to the grid.

The government is proposing a Smart Export Guarantee (SEG) to allay fears that households could end up giving electricity to the grid for free after the end of the feed-in tariff.

The feed-in tariff - which launched in 2010 - closes to new applicants at the end of March 2019.

Find out about the Feed-In Tariff and how much it pays those who generate renewable electricity. Read on to see how the proposed Smart Export Guarantee compares.

What is the feed-in tariff?

The feed-in tariff (or FIT) pays households that generate renewable electricity from technologies such as solar pv panels, wind turbines or generating energy from waste. The most popular option is rooftop solar panels, which make up 99% of installations receiving FIT payments.

Around 560,000 households and small businesses currently receive feed-in tariff payments, totalling £1.2bn a year.

It has two parts:

  • Generation tariff - paid for the total amount of electricity generated, per unit.
  • Export tariff - paid for electricity exported to the grid (ie power you haven't used in your home). This is 'deemed' at 50% of the electricity your system generates.

The payments are made for 20 years (25 years for some who joined the scheme very early on) and the rates when the scheme first started were very attractive. Payment rates have since been cut by around 65% compared with the original level.

How would the new solar payment scheme differ from the feed-in tariff?

The feed-in tariff payments were for both generating renewable electricity, and for exporting it. The new scheme would pay only for electricity supplied (exported) to the grid.

Payments would also be based on the actual amount you supply to the grid, rather than an estimate.

The new scheme would let suppliers set their own prices for buying electricity from householders who generate it, and determine the length of contracts. The FIT scheme's rates were set by Ofgem, revised every three months and guaranteed for 20 years.

But like the current scheme, energy suppliers with more than 250,000 customers would have to offer the payments to households that install small-scale renewable systems. Smaller suppliers could choose to do so.

When will the new solar payment scheme start?

The plans are currently being consulted on. The consultation will close on 5 March, after which the government will make a decision on whether to implement the scheme and, if so, how to do it. It expects that there would be a gap between the end of the FIT and the start of the SEG.

But the government said that those who miss out on registering for the FIT may be able to apply for SEG payments once open. Payments wouldn't be made for electricity supplied to the grid in between the two schemes.

The government says that the plans would create a new market with different suppliers bidding for the renewable electricity, so households that export could get the best price.

However, only households with smart meters would be able to get the SEG payments. This is because payments would be based on actual electricity supplied to the grid, as measured by a smart meter every half hour.

Alternatively, households would have to have an export meter installed, costing around £300, plus £50 a year in maintenance costs.

Find out about smart meters, and if you should get one.

'The smarter the better' is how the Department for Business, Energy & Industrial Strategy (BEIS) described tariffs it hopes to see companies offer. It envisages that future tariffs will track electricity prices half-hourly so they reflect the actual demands of the system.

Suggested tariff types include:

  • Flat rate tariff - paying the same amount for each unit of electricity supplied to the grid.
  • Simple variable tariff - paying different rates at set times (eg evening or weekend).
  • Advanced variable tariff - prices could change up to every half hour to reflect the cost of electricity in the wider system.

It also said that the new scheme aims to protect consumers from paying the 'unfair costs' of the current scheme.

But the prices that energy companies pay consumers for their excess electricity would determine how financially viable solar panels are for consumers to install in future. Energy firms would have to offer tariffs that are greater than zero, and would be forbidden from charging consumers if prices turn negative.

Should I buy solar panels?

Installing solar panels on your roof costs around £5,000-£8,000, depending on the size of the system you install.

With the feed-in tariff at its current rates, it would take the average householder around 20 years to recoup the cost of installing solar panels through FIT payments and savings made on their electricity bills.

Solar pv panels are expected to last around 25 years, though you'll need to factor in the cost of maintenance in that time. SEG payments would need to be at a similar level to have a similar payback time.

But if your motivation is reducing your carbon footprint or becoming more self-sufficient, solar panels can still be a good investment. Installing a home battery can help you use more of the electricity you generate by allowing you to store it until you're able to use it - or letting you buy electricity at cheap times and use it when prices are higher.

However, the government is considering whether the SEG should be limited to renewably generated electricity only, rather than that from the grid and stored in batteries.