Industry backs green tariff reform

A majority of industry stakeholders say they back reform to the way green energy tariffs are regulated.

The Department for Energy Security and Net Zero (DESNZ) has published a summary of responses to its 2021 call for evidence on Designing a Framework for Transparency of Carbon Content in Energy Products.

A total of 37 responses were received from a number of industry stakeholders including suppliers, generators, trade associations and consumer groups.

Asked whether the current approach of retrospective annualised matching, using Renewable Energy Guarantees of Origin (REGO) certificates, provide a sufficient level of consumer transparency, the majority said the current approach does not.

DESNZ said: “Many respondents argued that it was unclear to consumers whether their choice of a green tariff led to there being ‘additional’ renewable generation, and that this led to consumer misunderstanding.

“Other respondents argued that the process by which REGO certificates could be ‘unbundled’ and traded separately to the trading of electricity was itself unclear to consumers.

“Respondents also argued that the current system was not sufficiently transparent because the annualised matching of certificates with consumption did not provide enough real-time information to consumers about when renewable electricity was produced.”

It added, however, that the minority who said they believed the current approach is sufficiently transparent “emphasised the simplicity of the current system” and warned that more granular certificates which identified when the renewable power was generated would be confusing and complex to deliver.

The call for evidence also asked how green tariffs can be regulated to enable consumer choice to drive additional investment in low carbon electricity generation.

Just two respondents argued that no significant reform was required, with the remaining 24 who answered the question directly offering a variety of suggestions.

These included a clearer definition of additionality, allowing consumers to understand if their green tariff contributed to the production of more renewable energy.

There was also a suggestion to clearly distinguish different types of REGOs, with six respondents arguing that REGOs which have been ‘bundled’ with physical power should be distinguished from those which have been ‘unbundled’.

Additionally, three respondents argued that a distinction should be drawn between REGOs from subsidised and those from unsubsidised renewable generators.

The respondents also highlighted challenges which may materially limit a supplier’s ability to offer Power Purchase Agreement (PPA) backed green electricity tariffs.

The intermittency of renewable generation was highlighted as one factor which would make it challenging to ensure the supply of renewable electricity backed by PPAs on a half-hourly basis.

“Attempting to do so would require significant over-procurement of renewable generation and would lead to price volatility. Such tariffs would also need to be accompanied by penalties for suppliers who failed to procure only renewable electricity for their customers when they had promised to do so.”

Furthermore the limited pool of available PPAs was seen as an obstacle to retailers, particularly smaller suppliers, seeking to offer PPA-backed green tariffs. It was highlighted how smaller suppliers may not be regarded as sufficiently creditworthy or may lack the resources to bear significant financial risk.

The use of REGO certificates has been the subject of much debate in recent years, with questions surrounding the use of REGOs in renewable tariffs. Specifically, there are concerns about whether they are misleading to energy customers.

DESNZ said that almost all of the respondents provided evidence of messaging surrounding green electricity tariffs which they believe to be misleading to consumers.

It said: “The most common example cited were messages which created the expectation that electricity had been directly sourced from renewable generators. Respondents also noted messages which encouraged consumers to believe that they were increasing the amount of renewable energy being generated by purchasing a green tariff. Respondents also identified that some terms, such as ‘green’, ‘renewable’, or ‘clean’, can be used in an ambiguous or ill-defined way which can be misleading.

“A handful of respondents did not identify any misleading messages, instead noting that where suppliers have acquired enough REGOs to evidence their claims, their ‘green tariff’ claims are often not misleading.”

There appears to be no imminent changes to the green tariffs framework, with the government suggesting that if changes are taken forward, they will be aligned to “appropriate future policy work streams”.

Responding to the summary Good Energy regulatory affairs lead Simon Shaw said: “There is no question that UK consumers want to play a part in cutting the country’s carbon.

“Green tariffs should be a powerful way for consumers to contribute to renewable investment, but the current system is too confusing for the vast majority to understand how to do so.

“We now know that there is consensus across the industry that the energy retail market is rife with greenwashing, so it is disappointing that having kicked off this review nearly two years ago the government’s next step is another delay.”

Earlier this year Ovo Energy chief Raman Bhatia announced his company will end the use of REGO certificates as part of a drive to end industry greenwashing.

Ovo said it commissioned Cornwall Insight to investigate the role of REGOs in the renewable energy system.

“The findings were clear. REGOs provide little to no benefit to renewable energy generation, and will instead soon become a drain on customer finances if their use is continued,” the company said.

It added that the cost of the certificates is starting to rise and “nearly £10 billion” could be spent on them by the end of the decade.

As such the company has said it will “immediately end the use of REGOs” and will instead focus on decarbonisation of homes.