Carl Hirst breaks down the nitty gritty of renewable electricity tariffs, including what to look out for, the right questions to ask your supplier and how to report it in your carbon footprint.
One of the simplest ways for you to reduce your impact on the climate is to switch your energy supply to renewable electricity. There is now a plethora of options available on the market for ‘renewable’ or ‘green’ tariffs, but what exactly do those terms mean? The answer is a little more complex than many energy suppliers would like to admit.
Here is our guide to what you need to know about renewable electricity tariffs.
Before we get into the detail of how renewable tariffs work, note that switching to renewable electricity shouldn’t necessarily be at the top of your carbon reduction to-do list.
The cleanest form of power isn’t wind or solar power; it’s the power you don’t use in the first place. Prioritising energy efficiency measures that minimise your base demand will result in lower bills and resilience to rising energy prices, while making sure the electricity you’re supplied with isn’t going to waste.
The UK’s electricity grid is supplied with power from a range of sources. Until relatively recently, most of our electricity was generated by coal and gas, but today coal has almost disappeared entirely. Filling this gap is a growing share of renewables – chiefly wind power, followed by solar and a small amount of hydroelectricity. These are called ‘renewable’ because the power comes from natural sources that are unlimited in supply. Renewables are the cleanest way to produce electricity.
In reality, nothing changes to your actual electricity supply when you switch to a ‘renewable’ tariff. Everyone on the grid receives the same electricity mix, regardless of the tariff they are on. Suppliers are able to offer these tariffs by making sure they purchase enough power from renewable sources to match the electricity their customers use. Unfortunately, some suppliers do this more honestly than others.
In the UK, a renewable electricity generator (such as a wind farm operator), is eligible to receive a special certificate called a Renewable Energy Guarantee of Origin (or REGO) for every megawatt hour of power it produces. This certificate is proof that the power generated comes from a renewable source. When a supplier purchases this power directly, they also obtain the certificate. At the end of the year, the supplier then ‘retires’ these certificates to Ofgem as proof that they have bought enough renewable electricity to cover their customers’ needs.
The not so good
However, because of the way the market works, the electricity and the REGO certificate that comes with it can in fact be sold separately. And as there is far more renewable power being generated than customers on renewable tariffs, and some buyers of renewable power have no need for the certificates, there is a big surplus of certificates in the market. This means that suppliers can buy up certificates very cheaply (at a cost of about 50p each in 2020) to cover their obligations, without needing to purchase any renewable power at all.
In other words, they can have all the right paperwork to say their tariff is ‘100 per cent renewable’, all the while buying electricity from the wholesale market that includes fossil fuels, nuclear and other power sources.
In theory, this type of tariff could still provide a valuable source of revenue for renewable electricity generators, but the extremely low cost of certificates on the market is preventing this from happening.
Suppliers can also cover their renewable tariff obligations by purchasing the equivalent of REGO certificates from elsewhere in Europe. Because of the way the market works, there is a serious risk these can be double counted, and even if not, they mean less support for renewables here in the UK.
There is a strong argument that ‘green’ tariffs backed by certificates alone, whether from the UK or elsewhere, is greenwashing – customers are potentially being misled into believing they are directly supporting renewable electricity, when in fact their supplier is doing nothing of the sort.
The most transparent way for a supplier to guarantee the provenance of their electricity is to purchase renewable power directly from generators through a contract known as a Power Purchase Agreement (PPA). PPAs gives the generator the long-term certainty they need to invest in their wind turbines or solar panels, while giving the end customer (you) certainty of where the electricity came from.
To understand how ‘green’ a tariff really is, ask the supplier to provide:
- An annual breakdown of the electricity mix they purchase (some suppliers provide this on their website)
- Disclosure of how much of the power they supply is backed by PPAs (and the associated certificates), and how much by just certificates alone.
The more detail the supplier provides, the better. Ultimately, if a tariff looks too good to be true, it probably is.
There are of course other ways to obtain a genuine renewable electricity supply. For example, there is nothing stopping businesses from arranging their own PPA with a power generator, just like energy suppliers do. One way to do this is to allow a renewable energy company to install solar PV on your rooftop, under a contract to sell the electricity back to you. It may even be possible to arrange a PPA with a local renewable energy project.
Alternatively, you could install solar PV yourself, in which case you own the asset itself and have full control over the power you generate, as well as benefit from selling any excess electricity back into the grid.
If you are formally calculating and reporting your organisation’s carbon footprint, you may understandably want it to reflect the fact that you source your electricity from renewables. Again, things can get complicated here! I suggest you skip this section if you are completely new to this.
If you’ve read our beginner’s guide to calculating your carbon footprint, you’ll know that electricity from the grid comes under the Scope 2 category of greenhouse gas emissions. Typically, your Scope 2 is calculated based on the average carbon footprint of the UK’s electricity mix for the reporting year, regardless of the type of tariff you have. This is called the ‘location-based’ method of measuring Scope 2.
There is a second method of measuring your Scope 2 emissions called the ‘market-based’ method. This allows you to report emissions based on the specific source(s) of your electricity. In the case of a 100 per cent renewable tariff, providing it meets Scope 2 quality criteria (check with your supplier), this means you can technically report ‘zero’ emissions, because renewables do not generate greenhouse gas emissions.
However, while the market-based method allows you to demonstrate a positive impact to your carbon footprint, it could be misleading. The reduction in emissions you report should only be a direct result of your own actions; in other words, the reduction would not have occurred without you (this is called ‘additionality’). This may be the case if your electricity is procured via PPAs with generators that do not rely on any other form of financial support (such as government subsidy). But it is almost certainly not the case if your electricity is just backed by certificates.
In the spirit of transparency, there are good reasons to report your Scope 2 emissions using both the location-based method and the market-based method if you have a 100 per cent renewable tariff:
- It provides full disclosure of the actual electricity mix you use, while also showing that you have taken measures to support renewables
- It ensures you still have an incentive to reduce your energy consumption.
Overall, renewable electricity tariffs are a valuable tool in your arsenal to cutting emissions. But keep an eye out for greenwashing and remember – reducing your energy usage should always come first.
If you’re confused by any of the above, our Resource Efficiency team is here to help. Contact us for one-to-one support and consider joining our next Journey to Net Zero course to build your own strategic plan to make progress towards net zero emissions.
Carl Hirst, Environmental Business Advisor
Carl has 40 years' energy industry experience in: energy efficiency, supply contracts, networks & connections, metering and data management, energy strategy and project management. He has worked with industrial, commercial and public sector clients, both large and small, to understand their businesses and help them to develop energy plans and implement efficiency projects, to reduce energy use and carbon emissions and improve business productivity.