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Principles-based SEG-ulation

Tom  Faulkner Tom Faulkner Analyst
22nd January 2020

The Smart Export Guarantee (SEG) went live on 1 January 2020. While billions around the world were welcoming in a new decade, new obligations meant that from that moment all suppliers with over 150,000 domestic electricity customers had to have a SEG compliant tariff. A SEG compliant tariff, simply put, is a tariff offered to anyone with eligible small-scale low carbon generation that pays said person more than 0p/kWh for the energy they export to the grid. This tariff must be offered to anyone regardless of their energy supplier but cannot be offered to those already benefiting from the Feed-in Tariff (FiT) Export Tariff or SEG payments from another SEG licensee. It is worth noting that as a licensee you can be below the 150,000 threshold and still choose to offer a SEG tariff even though it is not compulsory.

With the FiT now closed to new generation, BEIS developed the Smart Export Guarantee policy to create a new route to market for small-scale, low-carbon generation, deliver market innovation, reduce costs to consumers, and support the transition to a smart and flexible energy system.

Now a smart and flexible energy system is not one without regulation and Ofgem is perfectly clear that its main responsibility is to protect the consumer, both now and in the future. The standards of conduct (SLC0) sit at the start of the licence and place a responsibility on suppliers to treat customers fairly in everything that they do. This includes SEG generators. However, the SEG states that a compliant SEG tariff has a floor of 0p/kWh and thus in theory there is little or no challenge to offer a competitive tariff at all – if as a supplier with >150,000 customers you didn’t want to offer a SEG tariff you could set it at 0.0001p/kWh and still be compliant. After all there is little detriment caused by not offering a competitive SEG tariff, as the customer would be able to still get a more competitive tariff, just from another supplier.

The text of the SEG licence condition has definitely handed this over to the suppliers, this is very much principles-based regulation rather than prescriptive. Granted there are some more prescriptive areas, but within limits the suppliers can do what they want in terms of tariff offerings. Similarly, the licence requires the supplier to make SEG payments, but there is no real prescription on this other than the payment must be calculated using actual meter reads. Ofgem is not putting suppliers in a box here, but there is no doubt it will want them to act in the spirit of the licence. The regulator has offered a break from the total prescription that once reigned following the retail market review decision in 2013, but if suppliers do not place customers’ best interests at the heart of their decision making we may see Ofgem returning to fully prescriptive rules.

The licence can be a necessary burden, but there are instances where it allows suppliers to blaze a trail and do things in their own way. The SEG is one of these instances and the regulator may hope that it does not need to take enforcement action, but that suppliers can evolve the obligation to fit their customer base and circumstances. Understanding obligations and licence requirements can be a minefield as a supplier. Our Energy Supplier Compliance Portal helps you understand your obligations through the customer journey as well as distilling the licence into clear and intelligible language. For more information on the portal or to enquire more about the services, we offer please get in contact with Tom Faulkner at t.faulkner@cornwall-insight.com or telephone on 01603 542123.  

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