A Guide to Electricity Arbitrage

Buy low, sell high. It’s one of the oldest maxims in business, but how can this apply to you and your electricity supply? In short, the answer is energy arbitrage, a technique by which power is bought during off-peak hours, when grid prices are cheapest. It is then stored and used during peak hours when grid electricity prices are highest). And it could revolutionise your energy use.

Understanding Electricity Arbitrage

There are many moving parts to electricity arbitrage, so it’s important to be clear on what we’re talking about when it comes to this relatively recent off-shoot of domestic and business energy use. 

What is Electricity Arbitrage?

Energy arbitrage is the practice of buying during off-peak hours, when grid prices are at their lowest, which is then stored and used during peak hours, when grid electricity prices are at their highest. 

It is possible to go further. combining careful power management, selling electricity to the grid, and providing load services to the grid in order to offset your bills and perhaps even have a chance of turning a profit on them. 

The Smart Export Guarantee

The Smart Export Guarantee (SEG) enables small-scale low-carbon generators to receive payments from electricity suppliers for electricity exported to the National Grid, providing certain criteria are met. 

The Role of the Smart Export Guarantee

The SEG was introduced to promote the growth of solar technology through assuring that those who generated more electricity than they used through their solar arrays could sell the excess for a fixed price. The scheme has now been in place for four years. 

Benefits of Selling Electricity Back to the Grid

There are three main benefits to selling electricity back to the grid: 

It earns you money and can enhance your reputation

Through the SEG, homeowners and businesses can earn money by selling back electricity to the grid, and your involvement in it clearly signals your commitment to responsible and sustainable practices. 

Reduced carbon emissions

This is energy that would be wasted otherwise, and battery storage–more on which below–can only provide a partial solution. Selling excess solar energy back to the grid can help reduce our collective need for fossil fuels and decrease carbon emissions.

Increased grid stability

Selling solar energy back to the grid can help stabilise the national grid by providing additional sources of electricity during peak demand.

How to Sell Electricity to the Grid

There are certain eligibility criteria that you have to meet in order to qualify for the Smart Export Guarantee. Firstly, there are five eligible low-carbon technology types for the SEG: Solar photovoltaic (solar PV), Wind, Micro combined heat and power (micro-CHP), Hydro (water), and Anaerobic digestion (AD).

In addition to this, you’ll need to: 

• Be located in Great Britain.

• Have a total installed capacity of no more than 5MW, or no more than 50kW for micro-CHP.

• Have a system installed by a company that is certified through the microgeneration certification scheme (MCS) or equivalent.

• Attached to a meter capable of providing half-hourly (HH) export readings (typically a smart meter).

• Not be receiving export payments under the Feed-in Tariff scheme, an older incentive scheme which the SEG was introduced to replace.

Providing you meet these criteria–and it should be added that these are all fairly typical usage and installation circumstances–you can start to look at how to make this happen: 

1. Research suppliers

   • Ofgem lists all the energy suppliers that provide these tariffs. You don’t have to choose the same supplier as that which already provides your energy.

2. Understand your energy usage

   • Before you start investigating further, you need to know  your current usage. How much do you use and when? Do you cease or slow operations at weekends or carry out more business out of hours? Is your work seasonal? You may wish to carry out a full energy audit before starting.  

3. Compare tariffs

   • You should consider factors such as fixed or variable tariffs, length of contract, and the price paid rate per kWh of electricity. Compare suppliers: Bear in mind that some may offer specifics that others may not. For example, not all tariffs will pay for electricity stored in a battery and then exported to the grid, which is sometimes known as ‘brown electricity’.

4. Pay attention to the specifics

   • The only requirement for electricity suppliers is that any SEG tariff offered must always remain above zero. They have to offer payments based on actual meter readings should you choose that option.

5. Begin your application process

   • Each energy supplier will have details of their specific application process on their website. 

Energy Arbitrage Strategies for Maximising Profits

There are further steps that you can take into the world of energy arbitrage. Arbitrage is essentially profiting or even profiteering from price differences between markets. For example, 1kw of electricity is the same wherever you go, but the time of day isn’t, and electricity is usually cheaper at night. Energy arbitrage takes advantage of this by buying and selling around in deregulated energy markets–of which the UK is one–to maximise profit.

What is the Role of Energy Storage in Arbitrage?

Renewable energy can be stored in batteries, and this can significantly boost the benefits of energy arbitrage. In fact, a strategy that relies solely on a battery may be even more effective than with a power generation unit, if you can continuously charge it at off-peak hours and sell any excess during peak hours. 

Before going this far, you should carry out your due diligence. Batteries aren’t a panacea. They cost money, and they’re an imperfect solution to the issue of energy storage in their current form. However, this technology will improve; this is still a maturing industry. 

Energy arbitrage may not be around forever. Such good deals for consumers and users often aren’t. But such is the urgency of the climate crisis and such is the need to move wholesale towards renewable energy that these incentives remain and can be taken advantage of to benefit your bottom line while enhancing your green credentials. There really is no time like the present to take advantage of this.

With so many tariffs and suppliers available, it’s understandable if it all looks somewhat daunting. But by starting to investigate whether this is a leap that your business could take, you could end up enhancing your bottom line and reputation, while making a worthwhile contribution to the fight against climate change.