Are REGOs a good thing?
There has been some negative press recently about green tariffs that are backed by ‘REGOs’. Here’s our take…
First, the basics
A REGO, or ‘Renewable Energy Guarantee of Origin’ to use its full title, is a certificate issued to an energy generator – a wind or solar farm for instance – when it generates a unit of green power. They allow generators to prove that a certain amount of green electricity has gone into the Grid.
Here’s why we like them…
1. Our starting point: we need to get to 100% renewable energy as fast as possible
We have to keep a hold of this, because everything else falls into line behind it.
2. If every unit of power used by every household and business is matched by a unit of green energy going into the Grid, the Grid will be 100% renewable.
REGOs guarantee that this has happened – they show that the supplier has ringfenced an equivalent amount of the UK’s renewable supply for that household.
3. The ‘problem’ with REGOs is that not enough people are buying them
One of the main criticisms of REGOs is that, because supply of renewable power in the UK has historically outstripped demand, there is a ‘surplus’ of renewable power in the Grid. As a result, REGOs are cheap. This is simple law of supply and demand. For REGOs to operate as a market driver, we need to increase demand for them. The price is already beginning to rise. Arguing that we should avoid them because they are cheap is self-defeating.
4. Suppliers generally aren’t the best people to generate renewable energy.
We often get asked whether our energy suppliers are generating their own renewable electricity. In truth, very few suppliers own generation capacity, and there is a good reason for this: selling power and generating it are very different businesses. Building utility-scale generation capacity is enormously capital-intensive, so beyond the reach of most renewable suppliers. It also takes time, so suppliers would need to know possibly a decade in advance how much power they were going to need at a given point. To use a grocery parallel, we would not expect every green grocer to be growing their own produce – we trust them to sell us organic veg providing they can guarantee its provenance.
5. Wholesale markets provide flexibility and keep prices down
The other criticism of REGOs is that suppliers are buying electricity on wholesale markets and then matching it with REGOs, rather than buying electricity direct from generators and getting their REGOs ‘bundled’ with the power. But direct buying arrangements, known as power purchase agreements, or PPAs, generally result in more expensive energy and offer less flexibility in terms of balancing supply and demand (because it is harder for generators or suppliers to buy and sell surplus energy if demand is higher or lower than anticipated). To go back to the grocery store parallel: If we insisted that every shop bought every product direct from the farmer or manufacturer, we’d get horrendous wastage (because every shop would overbuy) and higher prices. Wholesalers aggregate demand, reducing waste and costs: the same thing happens in the energy market.
6. If we want to get to 100% as fast as possible, low prices and flexibility are essential
This is where point 1 comes in. If we want to use the market as a driver to accelerate the shift to 100% renewable, we have to make it accessible to everyone. If we insist that every renewable energy tariff has to be backed by a PPA rather than wholesale electricity matched by renewables, we’re not going to make it – and worse than that, we are going to keep action on the environment the preserve of the well off, which we believe is wrong. Now, this does mean that in the intervening period, because the UK Grid as a whole is still reliant on fossil fuels, some of the wholesale power purchased and REGO-matched by suppliers is going to come from fossil fuels (and nuclear). But the fastest way to reduce the proportion coming from fossil fuels is to drive up demand for REGOs, because our simple truth from point 2 above remains: If everyone is on a REGO-backed tariff, then 100% of the Grid has to be renewable, and therefore 100% of the wholesale market too.
7. Switching to PPA-backed power is still an option for people if they want it
When we set up Big Clean Switch, we found that one of the key barriers to people switching to renewable tariffs was uncertainty over levels of ‘greenness’. So, we focused on the outcome we need (100% renewable energy as fast as possible) and opted for a binary vetting process which treats all tariffs that meet our criteria as equal – they are either in or they’re out. We have, however, recently had some demand to differentiate between wholesale and PPA tariffs, to allow those households that want to ensure none of their spend finds its way back to fossil fuel generators in any way to make a clear choice. We’re in the process of looking at how we can best do this, without implying that wholesale-backed tariffs are somehow inferior (when we believe they are essential), and we’re hoping to roll out a change to our results listings in the next few months.
8. A P.S. > Things can change
All of the above reflects our understanding of the energy market right now. It’s worth stressing that we have always set out to be collaborative and transparent in how we work, so if we hear a compelling argument to change things, we will!