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Green energy tariffs | A guide

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Switching to green energy is essential if we’re to avoid the worst impacts of climate change, but what exactly are green tariffs? How do they work, and how do you avoid greenwash?

In this guide to green tariffs

What are green tariffs for?
How do green tariffs work?
How do I know that the energy I use is matched by green power?
What about greenwash?
What forms of energy are covered by green tariffs?
Do green tariffs include green gas?

What are green tariffs for?

The science is clear: we’re in a winner-takes-all race with climate change. We have to stop pumping greenhouse gases into the air, or many many people will die, and life for the rest will change beyond all recognition. That means transitioning from dirty fossil fuels – oil, coal and gas – to renewable energy sources. 

When we choose a green tariff, we’re using our buying power as consumers to get to 100% renewable electricity in the shortest possible time

How do green tariffs work?

All green tariffs are underpinned by a simple principle: that every unit of electricity you use is matched by an equivalent unit of green energy going into the Grid. The more of us on green tariffs, the greener the Grid will get. If all of us are on green tariffs, then all of the power supplied to the Grid will have to be green

How do I know that the energy I use is matched by green power? 

Whenever a renewable generator – a wind farm, say – supplies a unit of green electricity to the Grid, the government issues it with a certificate, known as a ‘Renewable Energy Guarantee of Origin’, or REGO. 

Suppliers buy a number of REGOs equivalent to the amount of electricity you use to prove that your energy has been matched by green electricity going into the Grid. To make sure that no-one else can claim this energy, they then ‘retire’ or ‘cancel’ the certificate so it can’t be used again. 

REGOs are listed in a public database, which means that everyone can see which REGOs have been bought by which suppliers, providing a transparent audit trail to ensure their green claims are backed by hard evidence.* Here’s a screenshot showing certificates owned by one of our suppliers, Octopus Energy:

What about greenwash?

The chances are, at some time or another, you’ve seen a media article suggesting that some green tariffs aren’t as environmentally responsible as they claim. Marketing that pretends a product is better for the environment than it really is is called ‘greenwash’. Greenwash is a very bad thing, because we as consumers need to have confidence in green products if we’re to switch to them in the numbers necessary to make a difference, so brands that undermine this have a lot to answer for.

Here are a few examples of critical articles about green energy tariffs, to give you a flavour:

In this section

In this section of our Guide to Green Energy, we look at some of criticisms levelled at green energy tariffs and explain how Big Clean Switch helps you steer clear of the greenwash.

Here are the main issues covered:

The low cost of Renewable Energy Guarantees of Origin (REGOs)

One of the most common criticisms of green tariffs is that the REGOs that underpin all green tariffs don’t cost very much, which is true. Because they don’t cost very much, critics argue that suppliers can match the energy we use in our homes with green energy at very low cost. That is also true. 

But the reason REGOs don’t cost very much is because demand for them has been low – not enough people have been signing up to green tariffs. Almost half of the electricity generated in the UK last year was renewable. Demand for the REGOs associated with that electricity was much smaller than the total supply, so they were cheap to buy.

We don’t think it makes sense to argue that we shouldn’t be buying REGO-backed energy because REGOs are cheap if the only thing that makes them cheap is the fact that no-one is buying them. The more of us who buy them, the greater the demand will be. The greater the demand relative to the available supply, then the higher the price will be. And the higher the price is, the greater an incentive they provide to developers and investors to build more renewables. Or as the Renewable Energy Association put it way back in 2007:

“A shortfall in supply should lead to an increase in price which should stimulate additional investment in renewables.”
REA response to ‘Cutting the green customer confusion – next steps’ (PDF)

Electricity purchased through wholesale markets

The other complaint levelled at REGOs is that they allow suppliers to buy their energy from fossil fuel companies and then ‘greenwash’ it by buying REGOs. To make sense of why anyone would think this, you first need to understand how suppliers acquire the energy that they sell to us as consumers. We like to think of it in terms of fruit and veg.

Your local greengrocer has three options for where they get the produce they sell to you, and the same applies to energy companies when it comes to energy.

  1. Grow your own
    First, your greengrocer could grow all the produce themselves. But growing groceries and selling groceries are two very different businesses, and growing just enough produce to meet demand without wastage would be almost impossible. They’d also need a lot of capital to buy all the necessary land, set up logistics, etc. As a result, they’d have to charge very high prices.

    Exactly the same is true in the energy markets. Some green suppliers DO own renewable generation sites, but it usually makes their tariffs pretty pricey. And they still have to source additional energy from elsewhere to cope with unpredictable demand.

  2. Buy direct
    Second, your greengrocer could buy fruit and veg direct from farmers. They’d get their strawberries from one farm and their cabbages from another. They’d work with a few different orchards to make sure you had a good choice of apples, and so on. Not only is this administratively a nightmare (and therefore costly) but it also makes it very hard for them to manage fluctuations in demand. They either overbuy everything and accept a lot of waste (and therefore have to charge accordingly), or they underbuy and put up with empty shelves (which probably means a rapidly dwindling customer base).

    Again, the parallel applies in the energy market, too. Suppliers can and do buy some of the power they sell to us directly from generators, but with the same administrative burden and lack of flexibility – and therefore higher prices.

  3. Wholesale
    Finally, your greengrocer could use a wholesaler. That means less admin (buying from one business rather than hundreds), and the wholesaler’s ability to aggregate demand means more flexibility and less waste – and therefore lower prices.

    Energy works exactly the same. Most of the power sold to us as end users is bought through wholesale markets, which aggregate supply and demand and so reduce prices. If we’re to help as many people as possible use their purchasing choices to increase demand for green energy, this is really important.

Critics of REGOs argue that electricity purchased on wholesale markets includes electricity from fossil fuels, because it’s impossible to distinguish between the ‘green’ and the ‘brown’ when all the power is sold together. They’re right. That means that some of the money we spend on our green tariffs is ultimately finding its way to companies that are generating electricity from fossil fuels. We know what you’re thinking: ‘That’s terrible, those newspaper stories are right’.

This is where we need to return to two simple truths:

  • Our climate is in turmoil and we’re running out of time. The purpose of green tariffs is to use consumer power to accelerate the transition to 100% green energy as fast as humanly possible.
  • Green tariffs do this by matching every unit of power we use as consumers with green energy supplied to the Grid. If we’re all on green tariffs, the Grid is 100% green. The faster we get everyone on green tariffs, the faster we ditch fossil fuels.

If we’re focused on the big picture, the way suppliers buy the power doesn’t matter, providing it’s matched by green energy supplied to the Grid. The more of us on green tariffs, the greater the contribution green energy will make to wholesale markets. Eventually, fossil fuels won’t make commercial sense, and the wholesale markets will be entirely green: we’ll have achieved our goal. (Hooray!)

So what would happen if we were to insist that green tariffs are backed by energy purchased directly from renewable generators (known as ‘power purchase agreements’ or PPAs) instead of through wholesale markets? There are currently only three domestic suppliers who buy their energy in this way, and their tariffs are all hundreds of pounds a year more expensive than wholesale-backed tariffs for a typical home.  That makes them unaffordable for millions and millions of homes already struggling to pay their energy bills – homes that CAN afford wholesale-backed tariffs that provide the same fundamental benefit in growing demand for renewables.

We need everyone to be on tariffs matched by green energy to create a demand-side driver for more renewables – and that is exactly what wholesale-backed green tariffs are doing. They make that simple choice affordable for the greatest number of people. If we want to get to an affordable, 100% green electricity grid in the shortest possible time, wholesale energy markets and the REGO system are a pretty good solution.

Buying renewables from outside the UK

The UK government isn’t the only one to issue certificates to renewables generators to prove they’ve supplied green power to the grid. Similar schemes exist in much of the rest of the world (see image). Some UK suppliers have in the past purchased certificates from Europe to show the electricity you use as a consumer has been matched by green energy. While this is technically true, it has the effect of diluting the impact of our choices as consumers. Rather than claiming our share of the UK’s renewable electricity mix, we’re claiming our share of the mix for the whole of Europe. That means tens of millions more homes will need to do the same thing all across the continent for our consumption choices to start making a difference.

Energy attribute certificate systems in different parts of the world

We also believe that consumers in the UK expect that their green tariff is matched by power generated in the UK, so it is also misleading to use certificates from other countries.

Double counting of renewable electricity

Another concern we hear regularly is that a supplier might purchase REGOs to match the energy consumed by a customer in order to ‘green’ it, and then sell those REGOs on. But in order to use REGOs and other forms of renewable energy certification in their fuel mix claims submitted to the energy regulator Ofgem every year, suppliers have to have ‘cancelled’ or ‘retired’ them, which means they can’t be used by anyone else.

Large-scale biomass

The UK government issues REGOs for a range of renewable generation methods. Most of these – such as solar and wind – are pretty clear cut in the environmental benefits they bring. But one type of ‘renewable’ generation is less clear-cut.

‘Biomass’ plants burn organic material to generate energy in much the same way as the coal-fired power stations of the past burned fossil fuels. Biomass is viewed differently, however, because as with other biofuels, the organic material used can be rapidly replaced with new crops and forests, which will absorb a similar amount of greenhouse gases from the atmosphere.

The best-known biomass plant in the UK is Drax, a huge power station in North Yorkshire that used to run entirely on coal. Drax is being gradually converted to run on biomass – mainly wood chip imported from overseas – and therefore makes a big contribution to the overall supply of REGOs in the UK.

But, for some years now, concerns have been growing that large-scale biomass plants may not be as good for the environment as first thought. Concerns include the emissions from transporting biomass fuels (known as feedstocks) to power plants; worries that virgin forests are not being replaced with trees that are as effective in absorbing and storing greenhouse gases (known as a ‘carbon sink’); and statistics suggesting some biomass emits more greenhouse gases when burned than comparable fossil fuels.

This is why our Big Clean Switch tariff selection policy excludes use of large-scale biomass.

What is ‘additionality’ and should I be worried about it?

The short answer is ‘no’. Because all of the suppliers on Big Clean Switch match 100% of the electricity the sell with renewable energy, ‘additionality’ is not an issue if you switch through us. If you’d like to know why that is, read on…

In order to drive the expansion of renewable energy generation in the UK, the government created a system of certification that sat alongside the ‘REGO’ system. This second system was called the ‘Renewables Obligation’. As with REGOs, generators of renewable energy were issued with Renewables Obligation Certificates (ROCs). Unlike with REGOs, which are voluntary, suppliers were required to buy a certain amount of ROCs each year, or pay what amounted to a fine. By increasing the percentage of the electricity sold by suppliers that had to be matched by renewable energy each year, the government created a market for ROCs that drove investment in renewables.

The challenge for consumers of electricity was that some suppliers chose to only match a small part of their overall electricity mix with REGOs in order to market ‘green’ tariffs – often at a big premium. They could do this even if they were at the same time failing to buy enough ROCs to meet the Renewables Obligation. As a result, a supplier that actually failing to pull its weight in supporting renewables in the UK was able to benefit from marketing green products.

To overcome this, Ofgem added a requirement that suppliers must be able to demonstrate ‘additionality’ in order to market green products. This essentially meant that they needed to do more than they were already required to do by regulation in order to market a tariff as green. We translated this into a materiality requirement of our own in our supplier selection criteria.

Since the additionality requirement was added, the market for green energy has evolved, and suppliers offering a mix of green and non-green tariffs are less and less common. All of the suppliers on Big Clean Switch match 100% of their electricity with green energy.

How Big Clean Switch helps navigate greenwash

We created Big Clean Switch to make it easy for UK homes to navigate some of the issues covered above. You shouldn’t need to be an expert on renewable energy certificates to make a positive choice to help the environment. So, before we bring a new supplier onto our panel, we check them against out tariff selection criteria. That means all their green tariffs must be backed by renewable energy generated in the UK, they can’t include large-scale biomass, and they have to ensure certificates relate to the same period the energy was used. All of which means you can use Big Clean Switch confident that your green tariff does what it says on the tin, and ensures all the electricity you use is matched by green electricity generated here in the UK.

Which forms of energy are covered by green energy tariffs?

The UK government currently issues REGOs for the following types of electricity generation:

  • Biofuels (broken down into ‘biodegradable’, ‘biogas’, ‘biomass’ and ‘sewage gas’)
  • Hydro (broken down into plain old ‘hydro’ – harnessing the power of rivers – and ‘filled storage hydro’ (holding water behind a damn and then releasing it downhill to produce power)
  • Landfill gas
  • Ocean energy (the power of the tides and waves)
  • Wind (offshore and onshore)
  • Photovoltaic (more popularly known as solar power)

However, we exclude large-scale biomass from our own definition, as described in the green gas section of this Guide to Green Energy Tariffs.

Do green tariffs include green gas?

Our supplier selection criteria only require tariffs to be matched by renewable electricity. If you also use gas in your home, in most cases your gas supply will reflect the overall gas grid mix. Although there is some ‘green gas’ within this mix, we don’t require suppliers to go over and above this in order to list them. That’s because green electricity, green gas poses challenges if used at scale.

Green gas, or ‘biogas’ is generated when organic material breaks down. It can then either be burned to power turbines that generate electricity, or added to the natural gas grid. As with other biofuels, green gas is considered low carbon because the materials used to generate the gas are normally replaced with new crops that absorb a similar amount of greenhouse gases from the atmosphere.

A lot of green gas in the UK is currently generated by using waste such as farm and food waste, or even sewage. Although reducing waste will always be preferable to using it to generate energy, some waste is unavoidable, and using it to generate green gas makes sense. If we wanted to replace all of the UK’s gas use with green gas, however, we’d have to look beyond waste materials, and grow additional crops, known as ‘energy crops’, to generate enough gas. If we did this in the UK, it would be at the expense of much of our current agricultural land, so instead, the chances are we would end up importing energy crops from overseas. That in turn would be likely to lead to significant impacts – including rainforest destruction – in other parts of the world, just as our demand for palm oil has.

We’ve gone into more detail on the issues around green gas here.

Some of the suppliers on Big Clean Switch do choose to purchase or generate green gas – where this is the case it will be indicated in the ‘more info’ section alongside each tariff. Others, such as Octopus, will also buy carbon offsets to cover your gas use, helping to fund projects in other parts of the world that will result in greenhouse gases being absorbed from the atmosphere. In both cases, these options tend to result in higher prices.