Green Electricity Tariffs

Almost every electricity supplier has a ‘green’ tariff aimed at customers who want to buy renewable energy.

These tariffs are labelled as green if some or all of the units of electricity that the customer buys are ‘matched’ by units of energy that have been generated from a verified renewable energy source, like a wind farm, solar array or hydroelectric power station.

But how green are they?  The answer is they vary. Some are genuinely all-renewable, others are something of a half-way house, and others aren’t really green at all; and to appreciate the difference, you have to understand two things about renewable energy and how it’s sold.

The first is that over a quarter (26.5%) of Britain’s electricity is generated by wind, solar or hydro, so regardless of which tariff you’re on, at least some renewable energy is part of the mix.

And the second is that for every mega-watt hour (MWh) of renewable electricity generated a Renewable Energy Guarantee of Origin certificate, known as a REGO, is assigned to it. But crucially, the certificate and the electricity don’t have to be sold together – and this allows some electricity retailers to claim they’re selling renewable energy, when really they’re doing nothing of the kind.

The opportunity arises because some energy companies are not interested in buying green energy per se, merely in buying the cheapest units of electricity and selling it on. At certain times – e.g. midday when it’s very windy – renewable energy can be the cheapest on the market. So they may buy the electricity, but decline to purchase the REGOs that come with it, because those certificates each carry an additional small cost.

This means that these REGOs are now available to be sold separately to other energy suppliers, who then ‘match’ them to units of energy that they sell to the public. They can then claim to have a ‘100% renewable’ tariff when it is in fact no different from the general energy mix supplied by the grid. And it costs them very little; a supplier can buy REGOs equivalent to a year’s supply to a typical house for just a couple of quid.

Critics refer to this practise as ‘greenwash’; the end-customer believes they are supporting renewable energy generation, but in reality their supplier has merely bought up unwanted REGO certificates and is using a market mechanism to undercut genuinely green suppliers and hasn’t invested in any new renewable capacity at all.

Mixed supply 

Some of the larger electricity suppliers are also electricity generators; they own and manage wind and solar farms but also gas or coal-powered power stations. Their standard tariff will provide customers with electricity from this mix of sources, while their green tariff will be backed up by the REGOs from their renewable electricity generation.

But unless this company has a business plan that commits to expanding their renewable generation portfolio and winding down their non-renewables, their green tariffs are unlikely to stimulate the development of new renewables. That’s because if more of their customers sign up to their green tariff, instead of buying or generating more renewable energy the company can simply divert more of their existing green energy supply to the green tariff and make their standard tariffs ‘dirtier’, in carbon accounting terms. The mix of fossil fuels and renewables hasn’t changed, merely assigned to different customers.

Greenest tariffs 

The greenest tariffs come from suppliers that buy renewable electricity and its accompanying REGO certificates directly from renewable generators, such as UK wind or solar farms, via a mechanism called a Power Purchase Agreement (PPA), and which never separate the REGO from the original units of generation.

Energy suppliers that offer these genuinely green tariffs generally carry higher costs of operating than greenwashed or mixed-tariff providers. This is because they must invest in detailed forecasting and demand management processes to ensure that the renewable energy generation is matched as closely as possible to actual customer demand. They tend also to include smaller and community-owned generators within their generation portfolio, giving them higher administrative overheads compared with other suppliers.

These additional costs are recognised by Ofgem, who provide a certificate of exemption from the energy price cap to three companies whose operating models provide significantly greater support for the development of the renewables industry.

For this reason, along with research by Which? and the Energy Saving Trust, we consider those three companies – Good EnergyGEUK and Ecotricity – to have the greenest tariff (as of September 2020) and are the ones to chose if supporting renewable energy is important to you. However, we are not endorsing these companies, and recognise that for some households a cheaper non-green tariff may be more appropriate.

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