Understanding Renewable Energy and Tariffs

Renewable energy is simply energy that is created from renewable resources, such as sunlight, wind, and water.   In the UK, the renewable energy industry is regulated by the Office of Gas and Electricity Markets (Ofgem).  Ofgem is a non-ministerial government department and an independent National Regulatory Authority, recognised by EU Directives, whose role is to protect consumers now and in the future by working to deliver a greener, fairer energy system. 

In 2014, following concern that consumers were confused about whether or not green tariffs actually benefitted the environment, Ofgem proposed changes to the green tariffs market. 

The three key principles which Ofgem recommended green tariffs needed to follow were: 

Transparency - To help consumers understand the market better, we are asking suppliers to clearly say if a green tariff does not offer any environmental benefit other than those that consumers already pay for through costs embedded in their energy bill or through taxation. This includes publishing an annual report on how they are providing environmental benefits or being clear to consumers if it doesn’t.” 

Environmental benefits – Suppliers will need to show that environmental benefits happen because consumers chose a tariff and not solely due to subsidies or supplier obligations. This requirement will protect consumers but will also allow suppliers flexibility and opportunities to innovate.” 

Evidence of Supply - Suppliers must have evidence that verifies where the electricity supplied in a tariff comes from. This means that they must show they have enough Renewable Energy Guarantees of Origin certificates and have retired any other certificates for the same products.” 

What followed was the development of the Renewable Energy Guarantees of Origin (REGO) scheme.  The REGO scheme’s aim was to provide transparency to consumers about how much electricity suppliers sourced from renewable sources.  Development of the programme also met an EU requirement that all member states must be able to record and report what proportion of electricity consumption was from renewable sources1

Ofgem regulates the scheme on behalf of the Department for Business, Energy & Industrial Strategy (BEIS), and in Northern Ireland on behalf of the Northern Ireland Authority for Utility Regulation (NIAUR). 

One REGO certificate is issued per megawatt hour (MWh) of eligible renewable output to generators of renewable electricity. 

The problem with the REGO scheme 

Unfortunately, there is a significant flaw in the REGO scheme.  Suppliers can purchase REGO certificates and go on to claim that their electricity tariffs are 100% renewable, even though the supplier does not directly generate any renewable energy or purchase any directly.  Critics argue that the REGO scheme provides a loophole which allows suppliers to claim they supply ‘green’ energy, at a low price, without ever having a relationship with renewable energy generators.  Furthermore, simple accounting tricks allow power companies to buy surplus REGOs from suppliers who have already used the power attached to the REGO to supply their customers.  And given that the price of a REGO is £0.35/MWh, the loophole provides a cheap way to access the advantages of claiming to provide green energy.  Worse still, they can then sell their energy at a higher price, and consumers, not knowing any better, happily pay, believing they are contributing to reducing carbon emissions. 

Johnny Gowdy, of energy expert Regen, told This Is Money:  

“Some of the marketing that accompanies green energy tariffs is misleading. 

Companies selling green energy make the claim they are supplying 100 per cent green energy when in reality they are still mainly buying and selling carbon-emitting fossil fuel energy. 

‘There ought to be a clear distinction made to consumers between the energy that is directly sourced from renewable generation and energy labelled green through the purchase of renewable energy certificates.’  

Choosing a genuine green energy tariff 

Although prices vary between suppliers, at present, the greener the energy, the more it will cost.  So if you are being offered a rock-bottom price for a ‘100% green’ energy solution, the old adage “if it’s too good to be true….” probably applies. 

Some electricity suppliers will own or have partnerships with a mixture of green (renewable) and non-renewable generators. Their standard tariff will deliver power from multiple sources, while the green tariff will be backed up by the REGOs from their low carbon electricity sources.  Do not be confused by sales consultants telling you that growing numbers of consumers are switching to the green tariff.  What that often means is the supplier drives a higher percentage of sourced green energy to the green tariff, which leaves their standard tariff dirtier.  This practice does nothing to help the overall environment. 

When selecting a supplier, it is essential to examine where the company obtains its energy from independently.  The supplier’s website should list their sources of renewable energy and its environmental policy.   

In summary 

Choosing a green energy supplier requires careful consideration and being prepared to do a little research into suppliers’ claims.  Until the REGO scheme is reformed, it is up to consumers to adhere to the ‘buyer beware’ principle and exercise due diligence to ensure their investment in renewable energy is, in fact, helping reduce damage to the environment. 


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