“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.

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