Why are customers waiting longer for Feed-in Tariff payments?
Designed to encourage new renewable generation by paying a fixed rate per kilowatt hour generated, the Feed-in Tariff (FiT) has been hugely successful in creating new, clean generation. New clean power capacity created by the scheme totals more than our single largest power station. More than one million solar-powered sites.
Good Energy pioneered the scheme with the creation of HomeGen back in 2004. The UK’s first payment scheme for households generating their own clean power, it formed the blueprint for FiT.
This led to Good Energy becoming the leading independent FiT administrator, with over 150,000 renewable sites registered today. Small generators are paid every three months through the regulator Ofgem and it’s our job to ensure this happens smoothly and accurately.
However, more recently, the time it takes generators to receive their payments has noticeably increased. What has caused this change? To answer this question we need to step back and look at the current energy market as a whole, and the role of the regulator, Ofgem.
What is the levelisation fund?
Small generators are paid for their renewable power through the ‘levelisation fund’, run by Ofgem. Every three months, suppliers calculate what a generator is owed based on their tariff and meter reading. Each supplier then sends this information to Ofgem to claim the right amount of payment from the fund. The total amount then comes from the UK supply market.
Electricity suppliers must pay into the fund based on their share of the market. The process of making up this fund is known as levelisation. Larger energy suppliers often have a large market share, but fewer customers on the Feed-in Tariff. Good Energy has a small supply market share, but a large FiT customer base, due to the scheme’s alignment with our values to grow renewable energy. This seems, in principle, to favour suppliers committed to supporting the Feed-In Tariff, so why the recent payment issues?
With a large amount of money to be paid to our generators, we are dependent on every electricity supplier paying their fair share into the fund. But this system has become increasingly unreliable, with many suppliers paying late, or not at all. When this happens, Ofgem cannot supply us with the full amount owed to our customers, or at least not on time. For example, last year, the fund was short over £4 million during one quarter. Suppliers not paying their fair share mean generators’ money is being unfairly withheld.
Small generators are paid every three months and it’s our job to ensure this happens smoothly and accurately
This issue has recently been exacerbated by the high number of suppliers going out of business. 14 have exited the market since the end of 2016. This means they do not make their payment for that quarter, resulting in a greater shortfall.
Under the current system, Ofgem makes up the missing fund by redistributing the owed money based on market share. But this process takes time, can delay payments to generators, and strains a supplier’s cash flow.
What can be done?
Ofgem is changing its rules to ensure new suppliers face tougher tests before entering the market. This will hopefully mean small generators will go back to being paid fairly and on time.
While we push for this, you can also help. The FiT scheme may have closed, but you can still choose well run, renewably focused suppliers for your energy. Good Energy has been operating sustainably for 20 years.
Suppliers not paying their fair share mean generators’ money is being unfairly withheld
We are committed to informing our customers quickly where there is a risk of a delay in payments. We recognise this can cause problems and we are working hard to prevent it from happening.
We will continue to work with the regulator to make sure your voice is heard. You can contact them directly (consumeraffairs@ofgem.gov.uk) to convey your questions, or concerns, about the process.
