Is Your Green Electricity Tariff Just a Con?
By Willis, Rebecca
Rebecca Willis, Vice-Chair of the UK Sustainable Development Commission, suggests ways to end the confusion surrounding green energy tariffs Rebecca Willis is an independent researcher and Vice- Chair of the UK Sustainable Development Commission. Here she explores the confusion surrounding green tariffs offered by energy companies, and reveals why the existing system is complex for consumers to negotiate. She also identifies companies which are achieving genuine change through their green tariffs, and sets out how a system which recognises these positive actions could provide a dearer picture to energy consumers. Developments since the article was written are also noted.
It’s there in every list of ‘top ten things to do to save the planet’: switch to a green electricity tariff. For those of us who might not be able to afford solar panels, it seems that simply signing up to one of the many schemes on offer ensures one’s home is powered by zero-carbon electricity, and that much-needed help goes to the UK’s renewables industry.
Unfortunately all is not quite as it seems and what began as a simple green action has become a legal minefield. In fact it is quite difficult to know exactly what is being purchased in signing up for green electricity. No agreed standard exists, and there is no process of verification: many (but by no means all) green tariffs, include the purchase of fossil fuel generation and nuclear power along with renewables. To add to the confusion, there are no fewer than three different ‘proofs’ that a given unit of renewable electricity in the UK really is renewable. The reasons behind this situation are complex and involve a number of acronyms.
LECs, REGOs and ROCs
Since renewable energy is exempt from the Climate Change Levy (a tax on the industrial use of energy), it is eligible for a Levy Exemption Certificate (LEC).
The energy generator is also entitled to certificates that identify the electricity as renewable – these are Renewable Electricity Guarantees of Origin (REGOs). Under the UK’s Renewables Obligation, energy supply companies must source at least a specified minimum percentage of electricity (currently eight per cent) from renewables, or pay a penalty. The proof comes in the form of Renewables Obligation Certificates (ROCs), which are issued in the first instance to the generators, and passed on to the supply companies for each unit of renewable power they’ve sourced. But ROCs are tradeable, so if a supply company hasn’t bought enough renewables, it can buy in some certificates from anyone who has.
This situation is already confusing, but worse is still to come. Suppliers sell on the renewable electricity they buy to their customers, often as part of a ‘green tariff. But they can sell it more than once. For example, they can sell a business customer a unit of green power backed by a LEC, which means that the business does not need to pay the Climate Change Levy. At the same time, they can sell the same unit of green power to a domestic customer, backed by a REGO or a ROC. So, in the worst case scenario, a consumer could pay extra for a green tariff, but actually find they are buying renewable power that has been sold once already – and which merely helps a supplier meet a requirement (under the Renewables Obligation) which they have to do anyway.
Hidden gems
At present, points out Virginia Graham, sustainable energy expert and author of a 2006 report on green tariffs for the National Consumer Council (NCC), ‘there’s only so much renewable power to go around.’1 Renewable power represents only about four per cent of total UK electricity generated2, and with demand from business and industry outstripping available supply, Graham warns that ‘lots of people think they’re buying it, but they’re probably not.’3
At the time of writing there is no independent accreditation or audit scheme for green energy tariffs.4 Amid so much confusion, less than one per cent of households have made the switch.5 But there is some good news for consumers hunting for green tariffs. Some companies have tried hard to rise above the legal mess and offer customers good green deals. Figure 1 on the following page shows some of the tariffs on offer, both from specialists and from ‘mainstream’ suppliers.
Juliet Davenport, chief executive of Good Energy, says she hopes that her customers ‘sign up to Good Energy for more than just buying green power.’6 The benefits, she explains, are wide-ranging – the company actively lobbies government for better policy on renewables, and supports small-scale generation through buying excess power at an above-market rate. Good Energy also ‘retires’ some ROCs from the market, so it can show that it is exceeding the minimum standards of renewable supply required by law, and it shows that these certificates are not being sold on to other suppliers and double- counted. Retiring ROCs removes some certificates from the market, causing other suppliers to pay more money into the ‘buy-out fund’ to comply with the Renewables Obligation. British Gas, too, offers a tariff which retires ROCs, as well as offsetting the carbon from gas and fossil-fuel-generated electricity.
Ecotricity takes a different approach. It guarantees that it will invest some of its customers’ money in building new renewable energy, and thereby increase the total amount of renewable power generated in the UK. Dale Vince, founder of Ecotricity, argues that what is really needed is greater certainty for renewables investors, and that the best way of doing this is through providing dedicated funds for investment. Controversially, Vince does not believe that retiring ROCs is worthwhile, as it does not send a clear signal to the market: ‘it’s a very poor second-best to actually building something.’7 As these examples show, there are some genuinely green deals around, but cutting through the confusion is difficult to achieve. Even those familiar with energy issues struggle to assess the relative merits of the different tariffs.
The Advertising Standards Agency recently took British Gas to task for claiming that it was selling ‘the greenest energy tariff in the market’, on the grounds that there was no way of verifying the claim. The National Consumer Council blames the confusion, and lack of independent verification, for the less-than-impressive levels of enthusiasm among would-be -greener householders.8 Many businesses, too, are calling for greater clarity. As companies are increasingly being asked to count their carbon, they need to know what sort of electricity they are buying. BT, for example, is working with energy suppliers, the gas and electricity market regulator Ofgem, the Carbon Trust and others to get some basic information about the carbon content of the power that it buys.
Help on the horizon
Everyone involved wants the current confusing situation resolved, and so it may be over the course of the coming year. Ofgem’s Martin Crouch says his organisation is consulting on a set of guidelines which will address ‘how best to give customers confidence that there are environmental benefits when they choose a green tariff.’9 And it’s not only Ofgem which realises that the current system is unsustainable, in more ways than one. Government, suppliers, generators, business customers and consumer groups all seem keen to chart a way forward. If agreement can be reached, new guidelines and anaccreditation system should follow later this year – though there have already been several delays in the process. Given the current confusion, this way forward probably needs to be done as a two-step process.
Transparency on tariffs
First, there needs to be a simple, transparent way of setting out the actual renewable and carbon content of each tariff. Virginia Graham suggests that this could be done through the ‘fuel mix disclosure’ process.10 Supply companies are already required to state where their electricity supply comes from, setting out how much overall is from renewables, nuclear, and fossil fuels. If this information were supplied for each tariff, rather than each company, it would provide a much clearer picture of where the renewable energy is going. It would effectively prevent companies double counting, and would make it clear whether the company was meeting or exceeding its legal obligations.
Standard definitions
Second, there should be an agreed standard or definition of a ‘green tariff’. There is no need to impose a single blueprint. Some tariffs may retire ROCs, others may specialise in supporting home generators, others will invest in new wind farms. But, as a minimum, such tariffs should exceed legal requirements. They will probably need to be accredited by an independent body, rather than by the suppliers themselves. Given the different approaches, it is unlikely to be possible to rank tariffs in order of green merit, but a simple pass or fail would be a good step forward. NGOs and others could then make recommendations or even devise their own ranking process, based on the information provided.
In the meantime, though, if any consumer wishes to buy green power for their home or business, they will need to ask some very tricky questions of their electricity supplier. They should be prepared for a lengthy phone call while they ask whether the electricity is backed by both REGOs and LECs, so these can’t be counted more than once. They should also ask whether the company is exceeding the legal requirements of the Renewables Obligation, and find out what else they are doing to support renewable generation. At this point, the customer service agent will probably glaze over and then hang up. If conducting this kind of interrogation is too much it is always possible to look into generating electricity at home. That way one can be sure of where one’s power is coming from. Since this article was written Defra has recognised the problems relating to double counting and a lack of clarity in the green tariffs market.
As a result they have asked Ofgem to provide guidelines to green energy suppliers and aim to introduce a ratings system to help consumers to differentiate between the competing green tariffs on offer. Ofgem will publish this accreditation scheme in July.
Defra’s voluntary reporting guidelines for companies will also change. From the financial year 2008-9 best practice will require that companies state their emissions using a grid average rate, which means reporting their average rate of carbon emissions associated with electricity transmitted on the national grid.
For those suppliers who can prove that their carbon benefits are addtional to those already required under the Renewables Obligation Defra will consult on an appropriate reporting method.
This article first appeared in the April 2008 issue of Green Futures magazine, and can be read online at: www.greenfutures.org.uk/ articles/howgreenismylecky Research by Nick Hunt.
Figure 1 : Green electricity tariffs from specialist and ‘mainstream’ suppliers (April 2008)
The specialists – in tariffs
Good Energy
100 per cent Renewable Electricity
Renewable content: 7 00 per cent
Green Energy
GE+10
Provides customers with 10 per cent more renewable energy than required by the Renewables Obligation
Renewable content: 20 per cent
GE 100
Power comes from small-scale generators – including wind, solar, hydroelectric, organic waste material, and biomass from chicken slurry, surplus straw and willow.
Renewable content: 100 per cent
Ecotricity
New Energy Plus
For every customer pound spent, Ecotricity puts a pound into developing its own sources of renewable power.
Renewable content: 100 per cent
New Energy
A cheaper option, this isn’t a 100 per cent renewable tariff. Ecotricity is increasing the green proportion by constructing wind parks.
Renewable content: 30.7 per cent
Best of the rest – percentage by company
British Gas (Renewable content 4 per cent)
Future Energy
Also contributes to the development of new renewable technologies and helps schools reduce energy consumption.
Zero Carbon Tariff
Emissions from electricity and gas are offset through UN- approved projects.
Npower (Renewable content: 3 per cent)
Juice
Pounds 10 a year per customer goes towards the development of marine energy projects.
E.ON (Renewable content: 3.6 per cent)
Go Green
Customers can offset carbon emissions for the gas they consume.
Scottish and Southern (Renewable content: 10.2 per cent)
Better Plan
Matches electricity used with power from the company’s hydro- electric plants; offers a real-time energy display.
RSPB Energy
Donates to the RSPB to buy and preserve areas of special interest to birds.
REFERENCES
[1] Interview with author, February 2008
[2] Department for Business, Enterprise and Regulatory Reform (DBERR), ‘Renewable energy’,
[3] Interview with author. February 2008
[4] Energywatch, ‘Green tariffs – tariff types’,
[5] National Consumer Council, Reality or rhetoric? Green tariffs for domestic consumers, p3 [6] Interview with author, February 2008 [7] Interview with author, February 2008 [8] National Consumer Council, Reality or rhetoric? Green tariffs for domestic consumers, p8 [9] Interview with author, February 2008 [10] Interview with author, February 2008 Rebecca Willis is an independent researcher and vice-chair of the Sustainable Development Commission. Her work focuses on environmental politics and policymaking at both a national and regional level. She has researched and written on issues such as climate change, energy policy, public attitudes to the environment, government spending and taxation, and the environmental and social impact of new technologies. Contact: becky@rebeccawillis.co.uk Copyright Association for Consumers Research Jul/Aug 2008 (c) 2008 Consumer Policy Review. Provided by ProQuest LLC. All rights Reserved.