Selling Green Power

Selling Green Power

Under Ofgem's new ‘Green Energy Supply' Guidelines, launched in February, suppliers offering ‘green electricity' to consumers under the voluntary tariff system must demonstrate that their green tariff involves a commitment above and beyond what is required from existing Government targets for sourcing renewable electricity and reducing emissions. In most cases that will involve some sort of fund to support additional projects, which might include community-scaled renewables or energy saving projects, or even carbon offsetting projects.

The rules for domestic tariffs in the new scheme require that offsetting projects save or avoid the emission of at least 1 tonne of carbon a dioxide equivalent annually, and 50kg of CO2 equivalent emissions p.a. for all other environmental activities, such as community-scaled renewable electricity projects, these all having to be additional to that saved from any existing programmes e.g. as counted within the Renewable Obligation (RO). Basically they can't just use power already credited under the RO. To meet the new rules they must do more, and the new scheme provides specifications, which will be accredited by an independent panel, overseen by the National Energy Foundation.

The voluntary green power market has always sat uneasily on the margins of the UK Renewables market- which is driven by the Renewable Obligation. All electricity consumers already pay their suppliers extra for that, so the voluntary green power schemes have to offer something else to give extra value - they just can't charge extra twice for the same electricity used to meet the suppliers RO requirements. Most suppliers have already been offering additional green benefits to justify premium prices- some have set up funds to support green projects. But not all have charged more. For example, npower set up a self -financed fund for its Juice scheme to support new marine renewables projects- it's reached over £2m so far.

Quite a range of schemes have emerged, with there being some confusion and indeed scepticism about the validity of some of the claims to ‘green-ness' being made. The new rules puts these schemes, and the additional elements, on a more formal basis.

All the large main suppliers- British Gas, E.On, EDF Energy, RWE Npower, Scottish and Southern Energy and Scottish Power, and linked groups, have signed up to the new scheme, as well as independent supplier Good Energy.

Unlike the ‘big six' suppliers, who also sell non-green power, Good Energy buys in and sells 100% green power from mostly local independent sources- and retires any Renewable Obligation Certificates (ROCs) it gets, rather than selling them on. So it claims that it will help renewables to expand, since the value of ROCs will rise proportionately. The other main independent, Ecotricity, sells a roughly 50/50 mix of green/conventional power, which it sees as being reasonable since it is still four times as much green power than currently required by the RO targets. It also charges a premium green tariff rate, but says the income helps it to invest in new renewable energy projects- and it certainly has been pushing ahead with major wind projects.

However Ecotricity has been very critical of the new OFGEM scheme and has not joined. It argues that the renewable energy used under the new tariffs will still all come from Britain's same pool of RO linked renewable electricity, which meant that the big energy companies would not be required to build any extra major source of renewable energy. They will simply provide added-on schemes such as carbon offsetting, help with micro-generation or energy efficiency schemes.

When the guidelines were first proposed last year, Ecotricity's CEO Dale Vince said: ‘In these guidelines Ofgem are accrediting everything you can imagine except the thing that really counts- green electricity. Of course we believe in planting trees, protecting wildlife and cutting carbon, all of these things have an important role to play- but not in green tariffs. Green tariffs and consumer choice of green-tariffs- people power- could play a crucial role helping us to reach government renewable energy targets. But Ofgem have sidelined the consumer in one fell swoop by excluding real green electricity from their definition of so-called green-tariffs.'

After the launch earlier this year he reaffirmed his view: ‘Green electricity tariffs should be about more than feel-good charity schemes. If suppliers want to plant trees or even help old ladies across the road, I'm all for that but not under the guise of green electricity. Ofgem's new ‘rules' set an artificial standard of what green electricity really is. This can only result in them becoming an expensive niche product in a charity ghetto, doing more harm than good. Consumers will get poorer, but Britain won't get any greener as a result of this'.

That may be overstated, after all the new scheme does require real carbon emission reductions, but he may be right in principle- while some small community project may get some support, it won't lead to extra capacity in the mainstream renewables sector. Basically the problem is that the government wants the Renwables Obligation to be the main vehicle for supporting renewables and sees the green consumer tariff as additional and voluntary. Certainly, so far, the uptake has been marginal- only about 2% of UK consumers have signed up to such schemes. What's not clear is what will happen when the new Feed-In Tariffs (FiTs) for small projects come on line from April onwards . Since it's outside the RO, will that power, including some from community projects, be available for ‘voluntary' tariff schemes? That might change things, even though the FiT is also only seen as a small, marginal exercise, leading to at most to 2% contribution to UK electricity by 2020.

Elsewhere in the EU, Feed In Tariffs and green energy certificates schemes used by consumers are taken seriously, and have had major impacts. I the UK though they are still seen as marginal- the focus remains on the competitive market orientated RO, despite the fact that, so far, this has been poor at delivering much renewable energy capacity.

Business Energy Prices

15th March, 2010

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