Green electricity tariffs dissected

Many electricity suppliers in the UK offer green electricity tariffs for power supplied via the grid. The associated claims vary. Do these tariffs lead to any environmental benefits? And do they reduce electricity users’ carbon footprints?

To answer these questions, some background knowledge is necessary. And whilst the picture is more complex than outlined below, the reader should feel confident that the questions above will have been answered accurately.

Let’s consider the claim “We can offer your business a one-year, renewable electricity tariff and match 100% of your estimated annual electricity use with UK-sourced Renewable Energy Guarantee of Origin (REGO) certificates.”

One might infer that the tariff provides renewable electricity, particularly as estimated annual electricity usage is ‘matched’ with Renewable Energy Guarantee of Origin (REGO) certificates. So what are REGOs, how are they used and what else is relevant?

Fuel Mix Disclosure and REGOs

The Electricity (Fuel Mix Disclosure) Regulations 2005 introduced a requirement on all electricity suppliers in Great Britain to disclose to their customers the mix of fuels (e.g. natural gas, coal, nuclear, renewables) used to generate the electricity supplied annually. Suppliers must disclose this information by 1 October annually, based on the Fuel Mix Disclosure year, which runs 1^st April to 31^st March.

The renewable electricity component of suppliers’ fuel mixes is essentially determined by the number of Renewable Energy Guarantees of Origin (REGOs) that they have acquired.

Ofgem issues one REGO certificate per megawatt hour (MWh) of eligible renewable output to generators of renewable electricity. REGOs can be sold with or without the associated renewable electricity. They can also be traded and have a value of about 0.02p per kWh.

There are four stages in the lifecycle of a REGO; issue, transfer, aggregation and redemption.

1. Typically, a wind or solar farm operator applies for and receives REGO certificates (REGOs) issued from Ofgem. The operator receives one REGO certificate per megawatt hour (MWh). The REGOs are held on the operator’s account on the ‘Renewables and CHP Register’, administered by Ofgem.
2. The wind or solar farm operator sells and transfers REGOs to a licenced electricity supplier’s account on the ‘Renewables and CHP Register’.
3. The licenced electricity supplier must comply with the Electricity (Fuel Mix Disclosure) Regulations 2005, which requires all electricity suppliers to disclose to their customers the average mix of fuels used to generate the total electricity that they’ve supplied over the Fuel Mix Disclosure year. So, the electricity supplier acquires REGOs from operators of renewable electricity generation or through trading on a secondary market for REGOs. These REGOs are aggregated in the electricity supplier’s account on the ‘Renewables and CHP Register’.
4. On 1^st July each year Ofgem ‘redeems’ all REGOs relating to the Fuel Mix Disclosure year. These ‘redeemed’ REGOs disappear from the electricity supplier’s account on the ‘Renewables and CHP Register’.

Summary: REGOs are a component of the Fuel Mix Disclosure regulations.

Renewables Obligation and ROCs

In 2018, 33% of the electricity generated in the UK was from renewable sources ¹. Fifteen years ago, it was less than 2%.

Key drivers in this growth have been the fall in capital costs (e.g. the cost of solar panels) and UK and EU legislation that encourages renewables and discourages electricity generation from fossil fuels.

One of the main policies to incentivise renewable generating capacity in the UK is the Renewables Obligation. This came into effect in 2002 and requires UK electricity suppliers to present a certain number of Renewables Obligation Certificates (ROCs) to Ofgem, the administrator of the scheme, in respect of each megawatt hour of electricity they have supplied each year. Ofgem issues ROCs free of charge to qualifying renewable generators. Generators sell those ROCs to electricity suppliers or traders, with or without the associated electricity generated, as tradable commodities. This allows them to receive a premium in addition to the wholesale price of their electricity. Suppliers present ROCs to Ofgem to demonstrate their compliance with the obligation or make a payment into a buy-out fund.

The total obligation for electricity suppliers to present ROCs to Ofgem is calculated in such a way as to exceed the expected amount of qualifying renewable electricity ². This generates the funds to support renewables.

Summary: Electricity suppliers have bought a lot of renewably generated electricity – in 2018 about 1/3^rd of all electricity generated, primarily due to the Renewables Obligation regulations (and not customer demand).

Electricity flow

Electricity that is drawn from the grid comprises of electrons. These are individually-unidentifiable and indistinguishable sub-atomic particles. Their flow is dictated by the laws of physics. In the real world it’s not possible to determine the destination of electrons from renewable electricity sources once they’re on the grid. If we were to apply a mathematical model, we might say that for electricity supplied from the grid in 2018, there was a 33% probability that each electron originated from a renewable source. But to infer or conclude that electricity received under a grid-supplied tariff is renewable electricity is to apply a flawed logic.

Summary: Electricity taken from the grid will come from a range of generation sources. On average 33% (based on 2018 data) will be from renewable generation.

Validity of the claim

Relevant points:

• The electricity that a customer on the tariff described above would receive, is not 100% renewable electricity.
• The electricity company making the claim is seeking to use the REGOs that they already hold (or can acquire very cheaply) for a secondary purpose in addition to meeting their Fuel Mix Disclosure requirements. The term Renewable Electricity Guarantees of Origin is not fully explained and nor is the usage of REGOs. The person reading the tariff description is left to draw conclusions based on a paucity of accurate information.
• Buying electricity on this tariff would not lead to any new or additional renewable electricity generation.

Tellingly, the electricity company which made the claim above has a footnote on their website; “Buying this electricity does not create any environmental benefits as we already produce this renewable energy.” This is a disclaimer.

Summary: This tariff is greenwash.

Are all green tariffs the same?

If electricity is being supplied from the grid, then all tariffs will effectively be composed of around 33% renewable electricity (based on the 2018 UK fuel mix).

However, as it’s crucial that UK consumers use renewable electricity wherever possible, the focus needs to be on creating much more renewable generating capacity, so that the UK fuel mix has an increasing proportion of non-fossil fuel generation. All companies whose activities genuinely lead to new and additional renewable generation should be supported. Some electricity suppliers fall into this category. So it’s really a question of making sure that as much money as possible that’s paid to these companies ends up as additional renewable energy capacity.

Summary: Some tariffs lead to environmental benefits, but perhaps not as much as some people think.

Do any green tariffs reduce the electricity user’s carbon footprint?

The greenhouse gas (GHG) emissions that are associated with electricity usage are normally calculated by multiplying the number of kilowatt hours of electricity used, by an emissions factor. Each year the Government publishes an emissions factor for UK grid-supplied electricity that’s based on the UK GHG emissions from power stations and other electricity generators that export electricity to the grid, divided by the UK electricity consumption. This is known as the grid average emissions factor.

This emissions factor changes each year as there are changes in the proportion of the electricity generation sources (i.e. natural gas, coal, renewables, nuclear and others). The emissions factor has been decreasing over the years, partly due to the increase in renewables and the decrease in coal, the highest carbon dioxide emitting fuel.

If a company or individual is using grid-supplied electricity (whatever tariff they’re on), the grid average emissions factor should be used to calculate the GHG emissions associated with the electricity. This approach more accurately reflects the true GHG emissions and the parties responsible. To do otherwise would mean the double counting of the renewable electricity and the evasion of responsibility.

Those electricity suppliers that state or imply that their grid-supplied tariffs are 100% renewable electricity are mis-leading their customers. Some customers may erroneously think that these tariffs mean that there are no GHG emissions associated with their electricity usage. Consequently, they may feel that they do not need to take any further action to reduce their electricity-related carbon emissions. Worse, they may feel that they can use as much grid electricity as they like without contributing to climate change.

For companies reporting their GHG emissions, there are additional risks in equating a ‘100% renewable electricity’ tariff with zero emissions. Enlightened stakeholders, journalists and pressure groups will view this as at best naïve, and at worst dishonest.

Summary: For grid-supplied electricity, green tariffs have no direct effect on an organisation’s or individual’s carbon footprint.

References
1. DIGEST OF UNITED KINGDOM ENERGY STATISTICS 2019 (BEIS 2019)
2. THE RENEWABLES OBLIGATION FOR 2020-21, Calculating the level of the Renewables Obligation for 2020/21 (BEIS September 2019)

JON MALCOLM
Director, Sustainability Vision Limited
Email: jonmalcolm@ghginsight.com

29th January 2020

Further Information
If you’d like further information on Greenhouse Gas reporting, Streamlined Energy and Carbon Reporting (SECR), CDP, supplier environmental questionnaires, or how to achieve zero carbon emissions, then please contact Jon Malcolm at jonmalcolm@ghginsight.com. or follow this link…

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