Green Tariffs


 

Last updated: June 2017

 

 

 

Do Green Tariffs Make a Difference? 

 

 

It is incredibly complex to understand what green tariffs do, and what they don’t do.

In purely physical terms, if your electricity comes from the national grid, it comes from the same electricity pool as everyone else’s. That shouldn’t itself be a problem – if you are on a 100% renewable tariff, your supplier will add sufficient renewable energy to the pool to match what you are taking out.

 

Image: renewable energy

 

The causes of the complexity, however, are the laws that the government has been using to promote renewables. The key one is called the Renewables Obligation (RO). Basically, it requires all suppliers to do one of two things. They can either source a certain amount of electricity from renewables themselves, or – crucially – they can pay someone else to do it for them.

It works like this: each megawatt hour of renewable electricity that is generated creates a Renewable Obligation Certificate (ROC) which can then be bought and sold on its own. All suppliers must regularly present a certain number of ROCs to Ofgem, or pay a fine. They can get the ROCs either directly, or by buying them from another supplier which has an excess.

 

The effect of the Renewables Obligation
 

The main effect of the RO is to raise the price that suppliers are prepared to pay for renewable electricity. As they ultimately pass the cost onto consumers, the RO creates a subsidy for renewables that is paid for (roughly equally) through the electricity bills of everyone in the country.

Green power companies source exclusively renewable energy and so they end up with a huge wad of excess ROCs. If they then sell them on to other companies, they encourage those companies to source less renewable energy themselves, and the effect that they have on renewable generation (in addition to what the government has already mandated) is approximately zero.

A couple of companies used to retire a few of their excess ROCs rather than selling them all on. Good Energy used to retire slightly less than 5%, and when British Gas had a green tariff it used to retire 12%.[2] But nowadays, nobody retires any at all.[3]

 

Between a ROC and a hard place
 

To an extent, the companies have been caught in a situation which isn’t their fault. Because the RO is based on the government mandating a certain amount of electricity that must come from renewables, it puts a ceiling on the total number of subsidies that renewables can get, meaning that you cannot get a subsidy in one place without reducing it somewhere else. Companies could refuse to take the subsidy (in other words, retire ROCs), but then the extra cost of the electricity would then have to be paid by consumers in full.

Another feature of the system is that if enough people signed up for green tariffs the demand for renewable electricity would rise above the government-mandated level. At that point, green tariffs would start making a real difference. However, if this ever happened, green tariffs would become more expensive to reflect the real cost of renewable electricity, which, in the UK, is still more than fossil fuel electricity (this may be a consequence of when the infrastructure was built. Until recently, renewables were much more expensive than fossil fuels).

The reason that green tariffs are currently so cheap is precisely because only 0.5% of the population are signed up.[4] As nearly a quarter of our grid is powered by renewables, it is easy to funnel electricity to supply the 0.5% through a few specialist green suppliers. But, as it comes from capacity that was built almost entirely as a result of the RO, if the specialist green suppliers all disappeared tomorrow, pretty much the exact same electricity would be sold on standard tariffs instead.

 

Building renewables
 

There is, however, one very positive thing that some green tariff companies do. A few suppliers are also generators, and build their own capacity – Ecotricity and Good Energy are the main ones, but Octopus Energy also build some solar farms.

 

image: Good Energy

Good Energy wind farm

 

Even better, all of these companies claim that they use some of their customers’ money to invest in their building activities (so they are investing more than the government requires), although it is not possible to get reliable figures from any of them on how much.

Although the lack of reliable figures on investment is a shame, even if they invested none of their customers’ money at all, the fact that these companies are actually building would still be a good reason to support them.

Financial issues are not the only barrier to building new renewables. In the case of onshore wind, the main barrier is the planning process, and in terms of other renewable technologies, many of the barriers are simply technical problems. Dragging wind farms kicking and screaming through the planning process is not for everyone. If you are one of those choosing to do it, you are doing valuable work.

 

Regulation
 

Green tariffs have been controversial for a long time, and various attempts to regulate them have been made in the last decade.

The latest is a rule created by Ofgem in 2015. Ofgem ruled that green tariffs must either have some ‘additionality’ (must be adding something additional to the world on top of what would exist without them, and companies must publish information on what it is), or companies must print a disclaimer in their publications explaining that the tariff does not necessarily produce any environmental benefit. 

However, two years down the line, something is rather amiss. We found that the only company that prints the disclaimer is ENGIE, and yet only one company – Ovo Energy – publishes clear public information on its additionality. It is not clear whether the other companies are breaking the law as the rules are rather ambiguous on how public the information must be.[5]

Furthermore, our conversations with companies suggested that they may be quite confused about the whole system themselves, and they may not understand what it is that they are supposed to publish.

However, the fact that nobody is demanding that the information is made public makes Ofgem’s rule pretty useless. There is no restriction on what form the ‘additionality’ can take, and without knowing what companies are doing, consumers can hardly know whether it is meaningful or not.

 

 

The ‘additionality’ of the green tariffs
 

The box above shows the information that we have obtained on the ‘additionality’ of the green tariffs supplied by the companies in the product guide.[7] Companies that do not appear in the box do not sell green tariffs.

 

Table: green tariff

 

We have given the companies which are building renewables an extra Product Sustainability mark in our rating system, as they seemed to be doing something genuinely meaningful that is directly related to the reason that people buy the tariff – to support renewable energy development. The others (apart from ENGIE, which prints a disclaimer) were marked down for making misleading environmental claims.

 

 

Misleading messaging

 

Even when green tariffs are doing something, it is disturbing to think that they may encourage consumers to be less bothered about reducing their electricity use because they believe it to have come from renewables.

You could argue that companies cannot be expected to explain something so mind-bogglingly complex as all of this.

However, some of the companies do seem to go out of their way to mislead. Good Energy says on its website that simply switching to its tariff will cut your carbon footprint in half. Considering the way that the RO works, there is a strong argument that to the extent that this is true, you only do it by adding the other half onto someone else’s footprint. For anyone serious about tackling climate change, that is surely not what cutting your carbon footprint means.

 

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 References: 
1 Competition and Markets Authority, 2016, Energy market investigation Summary of final report. 
2 Tim Laing and Michael Grubb, 2010, Low Carbon Electricity Investment: The Limitations of Traditional Approaches and a Radical Alternative. 
3 This is referring to retiring ROCs to prevent them being used to fulfil RO requirements. Once the ROCs have been used to fulfil RO requirements they are then automatically retired – that is just how the system works. 
4 Bureau Européen Des Unions De Consommateurs Aisbl, 2016, Current practices in consumer-driven renewable electricity markets. 
5 Personal Communication with academic researcher who requested that their identity be protected, 4/5/2017. 
7 The information in this table comes primarily from company websites: bulb.co.uk, www.ecotricity.co.uk, www.cooperativeenergy.coop, www.engie.co.uk , www.goodenergy.co.uk, www.greenenergyuk.com, www.mygreenstarenergy.com, https://octopus.energy, www.ovoenergy.com, www.solarplicity.com. Further information was obtained from questionnaire responses received from Good Energy on 15/5/2017, Co-op Energy on 15/5/2017, Green Energy UK on 11/5/2017, Bulb Energy on 8/5/2017, and from personal communication on 4/5/2017 with an academic researcher who requested that their identity be protected.