The truth behind 100% Green Energy Tariffs

Choosing your green energy tariff can seem like an arbitrary decision. However, 100% green electricity does not necessarily mean the electricity you consume is green. It doesn’t mean that the supplier purchased purely renewable generation from the wholesale market either. What it does mean is the electricity you use has been backed up by certificates that guarantee the origin of the equivalent electricity needed for the amount you pay for. In other words, a portion of the mix of energy generated for homes, business, and industry across the country, was generated by a renewable source. So far, so good.

The certificate I mentioned is known as a REGO (Renewable Energy Guarantee of Origin), which is administered by OFGEM. One certificate is issued to a generator of renewable electricity per MWh generated. The purpose of this certificate is to prove to the end customer that a given share of their energy was generated by renewable sources such as wind farms, solar PV, or anaerobic digestion plants. So the electricity itself is not actually 100% green?

To understand this we need to break down the many layers of the energy industry. Firstly, we have generation. This is mainly achieved by burning gas and coal, with some nuclear generation, and a bit of wind, sun, and hydro. At any one time, the generation mix in the UK can vary from 25% renewable and 0% coal (the remaining 75% covered by gas plants for simplicity), to 25% coal and 0% renewable depending on how hard the wind blows. Nuclear is stable and accounts for approximately 18% at a constant rate (because it’s hard to turn off, and honestly, it’s best not to mess with it too much). The bottom line is, actual generation fed into the grid can vary. The below chart shows this clearly, and rather promisingly, the generation from wind and solar has almost squeezed out the need for dirty coal.

UK Generation Mix

Then we have transmission and distribution, the wires that actually transport the electricity from power station or solar farm to the plug socket charging your iPhone. Once electricity is fed into the transmission system, supply needs to be balanced to match demand (thanks National Grid), from there it’s virtually impossible to identify which electrons come from which source.

The next layer is formed of the suppliers. These are the companies that buy electricity from generators, pay a fee for the transport of that electricity (thanks National Grid), and finally send a bill to the eventual consumer of that electricity.

Now the customer who chooses their supplier and picks a 100% green tariff has no relation whatsoever to the electricity in the transmission lines that ultimately feed into the local network powering their TV. That’s all happening in the background because, well, electricity isn’t really tangible. If it were, we could go to the supermarket and buy a bucket of electricity for the month, but unfortunately it’s a bit more disconnected than that. It is, in principle, the same concept for the end customer, however. The only difference is that the customer can’t buy a bucket of electricity sourced from renewable generation like they can free range eggs with the absolute certainty that the eggs they eventually cook were in fact free range.

Back to the REGO. Imagine that the egg market takes the place of the energy market for a moment. This would mean that consumers buy eggs with a stamp on it that says ‘free range guarantee’. The specific eggs the consumer purchased would not necessarily be free range, they’d be a mix, but the supplier (in this case a supermarket) can confirm that at least 6 eggs (the amount the consumer bought) were free range out of the total produced. Now they cannot be double counted, and therefore eventually they do all match up to their corresponding certificate. Much the same with REGOs, which correspond with a renewable source generating 1 MWh of electricity, and therefore the certificates are finite. This means that if all consumers suddenly wanted a green tariff, they would start to cost a great deal more. The graph below shows this well.

But beyond price, it would also mean that REGOs will eventually run out. 10.5m MWh of renewable electricity are produced each year (105 TWh). On average each household consumes 3 MWhs per year of electricity. In order for a supplier to claim that household is backed by 100% renewable generation, it must purchase 3 REGO certificates for a little under 50p per household.

Suppliers can do this cheaply, for now. And technically the certificates confirm the generation of the renewable power. If customers continue to demand renewable energy through green tariffs, suppliers will eventually run out of cheap REGOs. The price for a REGO will rise astronomically, unless more renewable generation is put on the grid. It is only at that point when the final REGO is purchased and the next cannot be backed by the generation of electricity through renewable source that suppliers will have to act on direct renewable investment.

Therefore, it is paramount that customers continue to demand 100% green tariffs. It is only when the last REGO is purchased and there is still ample demand that the scheme truly becomes effective in driving renewable investment.

It’s in the hands of the customer to bring that day forward.

Andrew

ABOUT THE AUTHOR

Andrew
Andrew has over 25 years of experience as a consultant in the UK electricity and gas industry.

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