As I mentioned last time, the energy regulator Ofgem recently released a document outlining the next steps that should be taken to promote microgeneration. One of the major issues it mentions is how much households should be paid for the output of their microgeneration systems.
There are two problems here. The first, as I discovered during my research on PV households, is that households often have difficulty finding out about what offers are available:
“I do know that [his supplier] has a facility for taking solar power but every time that I take it up with the normal accounting, the normal staff there, they deny it, and the supervisors deny it. But if you take it further up the chain, they say that they do have the facility so they don’t really know themselves. You would be put off if you tried to approach them to sign up for taking solar electricity, you would be put off completely by the sales staff to start with, you wouldn’t get passed them unless you were very lucky.”
This respondent installed his PV system more than two years ago and the situation has improved since then. However you still cannot use a price comparison website like uSwitch.com to find these tariffs: it’s up to the system installer to provide advice or the consumer to make individual inquiries with each supply company.
Once a tariff has been identified, the next question is whether or not the price being offered is fair. There are currently three types of tariff on the market: payments for generated electricity (whether it is used in the home or exported to the grid), payments for exported electricity (i.e. only those generated units returned to the grid), or a profile payment based on the characteristics of a typical microgenerating household (specific to the technology and household type). The figure below (taken from my recent paper on the UK microgeneration industry (PDF)) shows that payments for generation are the most common.
Over the course of the year, an average PV system (about 2 kWp) could expect to receive £60 under the generation tariff, £40 under the export tariff, and £80 under the profile tariff; in countries such as Germany, where a premium is paid for exported electricity, a household might receive as much as £210 per year.
Interviews with industry representatives (PDF) found that most of these tariffs were “aspirational” – in other words, electricity suppliers developed the tariffs in the interest of consumer relations and to prepare for potential growth in microgeneration; they typically represented a net cost to suppliers. Because of this, and since the prices do not reflect the true value of microgenerated electricity, Ofgem and others have suggested that these offers may not be sustainable in the long-run.
So what might be a fair price for microgeneration? It’s good to start by examining how the retail price of electricity is determined. As shown in this Ofgem notice (excerpt below), the price of electricity is a mix of fuel prices, taxes, and network operation services. The value of microgeneration output can then be determined from this.
Consider the following case. You are a PV household and you have generated 1 kWh of electricity. If your electricity supplier claims the ROC value of this electricity, you should receive compensation (about 4p per generated kWh). If that unit of electricity is then exported, other factors come into effect. For example, your neighbour’s electricity meter cannot distinguish between your PV-generated kWh and a kWh from a large generating station located far away and therefore your neighbour will be charged the full retail price of electricity for receiving your PV electricity. However the electricity supplier has not had to pay to transmit that electricity over high-voltage lines. The full calculation is a bit complicated (see the full thesis) but a microgenerating household should be paid at least 4.2 p per generated kWh and 3.4 p per exported kWh. The prices should arguably be higher than this though to account for the cost of installing a microgeneration system and the value of the electricity in terms of aiding grid performance (e.g. reducing peak demand in the case of microCHP). Profile payments, although administratively easier, are less preferable as they do not reflect the real cost of microgenerated electricity (particularly important if trying to inform changes in consumer behaviour).
Following the enactment of the Climate Change and Sustainable Energy Act, suppliers are under pressure to develop tariffs for microgeneration and inform their customers of these offers. If they fail to act by June 2007, the Secretary of State can then force suppliers to introduce such tariffs (he/she must act before June 2009 though). As noted above, most suppliers already offer something for microgenerators: it remains to be seen however whether or not, these offers will change in order to remain viable in a growing microgeneration market. If you’re interested in more information on how this issue is developing, please check out the website of the Electricity Networks Strategy Group (specifically this page).