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.
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%. But nowadays, nobody retires any at all.
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. 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.
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.