Speaking in the House of Commons this morning, Energy and Clean Growth Minister Claire Perry announced the launch of a new consultation on proposals to create a new market for the sale of power from new small scale renewables installations such as rooftop solar panels, following the imminent closure of the feed-in tariff incentive scheme.

The new scheme could also generate benefits for the energy system as a whole, she added, arguing it should “reduce strain on energy networks with a more decentralised and smarter local network delivering resilience much more cost effectively, unlocking innovative products for electric vehicles and home energy storage”.

She hailed the proposed scheme as “a win-win for consumers and the environment and a key part of our modern Industrial Strategy”.

The Department for Business, Energy, and Industrial Strategy (BEIS) said the SEG scheme would encourage suppliers to competitively bid for electricity generated by onsite renewables, giving exporters the best market price for any excess power they provide to the grid.

The government said the new scheme would prove more cost effective than the current FiT approach, whereby households and businesses which install small scale electricity generation are assumed to export 50 per cent of the electricity they produce and are paid for it – even when the electricity is not needed by the grid or they export less than 50 per cent.

The new scheme would instead make use of smart meter technology to ascertain how much power any installation is providing to the grid, allowing households and businesses to sell it at market prices. The approach could also open the door to wider use of energy storage systems and smart grid technologies, which could allow households and businesses to provide power back to the grid during periods of peak demand when prices for exported power will be highest.

The consultation is now scheduled to run until March 5.

James Court, director of policy and external affairs at the Renewable Energy Association, said the proposals had the potential to “usher in a new era for small-scale renewables and offer a subsidy free means for homeowners and businesses to generate their own low-cost, low-carbon electricity”.

“It was clear that no-one should be asked to give away electricity for free, and we strongly advocated for a market based solution and are pleased this approach has been adopted,” he said. “Whilst the details around the transition from the former subsidy scheme will be important, this signal of support for the sector from government will help our members continue to provide smarter, cleaner and cheaper electricity in the decade to come.”

The new consultation follows a major row late last year when the government confirmed plans to scrap the FiT scheme from March 31 this year. It failed then to respond to industry warnings that the reforms would effectively force households and businesses installing solar panels without accompanying storage capacity after that date to provide some of their power to the grid to free.

Speaking at the time a government spokesperson said falling solar costs meant it was the right time to minimise costs for billpayers by ending the feed-in tariff and indicated the government would “consult shortly on a future framework for small-scale renewable energy generation”. But they provided no indication the proposed future framework would ensure generators will in future be able to sell their exported power, prompting fierce criticism from green groups who branded the decision as “perverse” and “bizarre”.

Green businesses and campaigners are likely to broadly welcome the new proposals, which promise to provide a boost to the market for solar installations, storage technologies, and other forms of onsite renewables.

However, some concerns are likely to remain over the gap between the FiT scheme ending this spring and the new SEGs scheme being fully up and running, as well as how the new market for exported power will be created and regulated given the high profile technical challenges and delays faced by the government’s national smart meter roll out.

It also remains to be seen how energy companies will package purchase agreements for exported power and whether the price they are willing to pay will improve the financial argument for businesses, schools, and households to install onsite generation technologies.

Many industry experts maintain the best financial returns for solar installations are to be found by installing battery storage systems in conjunction with solar arrays, to ensure the vast majority of the power generated is used a site. It’s a calculation that will only be strengthened as solar and storage costs continue to fall.

Chris Hewett, CEO at the Solar Trade Association, said the group gave the proposals “a cautious welcome”.

“We are very pleased the government is unequivocal; small generators will be compensated for the power they contribute to the system, but the issue remains providing remuneration at a fair market rate,” he said.

He said it was encouraging that only installations that meet independent industry standards would qualify for SEGs and that the proposals identify the System Sell Price as accurately reflecting the market value of power spilled to the grid.

“However, the consultation acknowledges many of the market barriers we have raised with government and the associated costs,” he added. “Our worry is that these may impede the ability of suppliers to offer fair and meaningful rates, even though they may wish to. Customers are freely able to switch suppliers in a competitive market so where these costs fall remains vital to developing meaningful offers.”