“Green” tariffs in the spotlight as BEIS commences review

With the announcement on 16 August of a call for evidence on Designing a Framework for Transparency of Carbon Content in Energy Products, consultant Josephine Lord looks at the issues being considered and what the future may hold for so-called “green” tariffs.

The call for evidence is the first step in helping to understand the challenges in this area and BEIS is seeking views and supporting evidence on whether a more transparent framework for the carbon content of energy services is needed and how it might be designed.

Green tariffs are now the most common electricity tariff offered to domestic consumers, with non-domestic consumers also increasingly interested in sourcing green electricity to meet the call from stakeholders as part of their corporate social responsibility and as part of their growing commitment to meeting net zero.

They are marketed as being backed by energy produced solely from renewable sources, and work by having a supplier “match” the energy consumed by their customers with energy generated from renewable sources on an average annualised basis. As well as being “100% renewable” these tariffs are typically promoted on the basis of providing some sort of environmental benefit, for example an annual kg CO2e saving compared to a house that is not supplied on a green electricity tariff.

The main concern is that the current framework based on Renewable Energy Guarantees of Origin (REGOs) and the Fuel Mix Disclosure (FMD) arrangements are not a transparent or effective method of enabling consumers to understand the carbon content of their energy, and are even less fit-for-purpose going forwards as the drive towards net zero gathers pace.

REGO certificates are issued by Ofgem to renewable generators for each MWh of electricity produced and these can be traded alongside the relevant electricity trading contracts. Where a supplier owns its own generation assets, or where a supplier has a power purchase agreement with a generator, the supplier would claim the relevant REGO certifications for associated generation and submit this as part of their annual FMD reporting obligation.

If a renewable generator sells its power on the wholesale market, the REGOs are typically not passed on to the purchasing supplier and generators can then trade the unclaimed certifications separately from the electricity. A supplier that bought energy from the wholesale market, could then buy an equivalent volume of unclaimed REGOs to show renewable supply, even if the power it bought was not from a renewable source.

BEIS has highlighted a series of concerns:

  • “Greenwashing” – how a consumer may be misinformed about the environmental benefit of their energy choice, particularly as other policy mechanisms such as the Renewables Obligation have been the primary drivers of increasing renewable energy on the grid.
  • That suppliers can badge a tariff as “100% renewable” without directly procuring renewable power but instead through the purchasing of sufficient REGOs.
  • That REGO certificates are issued against volumes on an annual basis, meaning there are not strong links between the time the renewable power was generated and a customer’s actual power use, which might be when little renewable power is generating.
  • That the lack of understanding of how REGOs work may continue to create confusion and distrust among customers, and so hinder those that want to contribute to helping the environment.

To help guide consumers’ choices, BEIS believes a transparent framework is needed that allows consumers to easily understand the carbon and cost implications different options. Among the future considerations that it thinks may need to be addressed is whether a green tariff framework could be evolved to cover all forms of generation on a half-hourly basis. It also highlighted the potential for renewables-backed time-of-use (ToU) tariffs related to real time carbon intensity on the grid as well as the development of further initiatives related to carbon intensity.

As part of the recent Energy Retail Strategy, BEIS committed to ensuring consumers are accurately informed about their personal contribution to net zero, setting intentions to initially focus on green tariffs. However, the timeline from this strategy suggests that if the need for reform is established then these might not be in place until 2024. Given concerns around the current arrangements are well documented, this may disappoint some stakeholders. It is also possible that industry-led programmes such as the EnergyTag initiative to build a market for hourly electricity certificates to allow real time renewable verification may well end up overtaking government ambitions, although these are likely to appeal more to non-domestic customers.

Nevertheless, the call for evidence, which closes on 6 December, provides an important opportunity for stakeholders to contribute to setting the agenda for the next stage of the review. BEIS plans to issue a summary of responses and an update on the government’s position early in 2022.

To find out more about this and other issues covered through our Regulation and policy service as please contact R.Wetherall@cornwall-insight.com.

You may also be interested in…

Insight Paper | Consolidation in the energy market predicted to continue

This report gives you an up to date overview of the retail energy market. By identifying the active suppliers, new entrants, overall market growth, national and regional changes in electricity, gas and dual fuel accounts.

Related thinking

Home supply and services

Rocketing energy prices and failing suppliers—what is happening?

Sky high gas prices and energy suppliers going out of business have been key headlines in the news over recent weeks, but what is actually happening?  Through the COVID-19 pandemic we saw much lower gas prices, which have been surging upwards since the spring and risen rapidly through the summer, a time...

Home supply and services

The default tariff cap and the law of unintended consequences

With all eyes on the immediate challenges facing the energy supply market and the impact of the default tariff cap as a contributing factor, it is important to note that the cap for the coming winter period should not be considered in isolation and that attention will swiftly turn to...

Commercial and market outlook

Be the change you want to see – my takeaway from this year’s BIEE conference

On 13 September, I spoke at the British Institute of Energy Economics (BIEE) Energy for a net zero society conference. The conference considered the legacy of the Covid pandemic and how the means of recovery will influence the pace and direction of the net zero transition. The timing of the...

Home supply and services

Consolidation in the energy market predicted to continue

It has been a turbulent time for the retail energy market, experiencing a period of consolidation with mergers and supplier exits. This supplier consolidation is expected to continue in the near term. If suppliers fail to shift their business models for the new world it is likely to continue, according...

Commercial and market outlook

Evaluating the benefits of local coordination mechanisms in power supply

In March, Cornwall Insight launched its new Energy Spectrum Europe publication in collaboration with the Institute of Energy Economics at the University of Cologne (EWI). Below is an extract of our Energy Perspective article from our latest issue, written by Konstantin Gruber and Nils Namockel from EWI. Local forms of coordination are...

Low carbon generation

Our Renewables Pipeline Tracker: In with the new – scoping projects and progression through planning stages

Our latest Renewables Pipeline Tracker was published on 11 June, and this blog provides a summary of some of the recent developments in our coverage of the pipeline for new build and repowering renewables assets in GB. What’s new? Seabed leasing rounds, scoping projects and CfD announcements Since our previous...

Regulation and policy

How will consumers take to Market-wide Half Hourly Settlement?

Ofgem published its decision to implement the move to Market-wide Half Hourly Settlement (MHHS) on 20 April. This confirms plans to move to new settlement arrangements over a four and a half year time period, with the Elexon-led Design Working Group’s Target Operating Model to be used as the blueprint. Meters...

Regulation and policy

Ofgem raises modifications ahead of RCC and new switching arrangements

The latest edition of our Faster Switching Service Report due to be issued this week includes the latest developments in Ofgem’s Switching Programme and the associated Retail Energy Code (REC). Launched in November 2019, the Retail Code Consolidation (RCC) Significant Code Review (SCR) set out Ofgem’s intention to amalgamate the...