Ofgem has published these new guidelines in order to encourage greater uptake of green tariffs from consumers after many questioned the environmental benefits that green tariffs provide. The guidelines will be used to inform an independent accreditation scheme, which will rate the environmental credentials of competing tariffs.
It has been argued that in the past many unscrupulous energy retailers simply repackaged electricity which they were legally obliged to source or produce under the government’s Renewable Obligation. In other words they were charging consumers a premium tariff for electricity, which had already been paid for through increased prices in standard tariff bills. In other cases, suppliers have taken advantage of the market structure to “double count”, or sell the same unit of renewable electricity two to three times due to the certificates awarded for renewable energy generation.
For every MW of renewable electricity produced, the generator is awarded three certificates: a REGO (Renewable Energy Guarantee of Origin), a ROC (Renewable Obligation Certificate), and a LEC (Levy Exemption Certificate).
However, this allows the more underhand operators to abuse the incentive structure by, for example, selling once to a domestic customer using the REGO as proof of a green tariff; and the same unit again to a business customer using the LEC as proof. Businesses pay a high price for the LECs as this exempts them from the Climate Change Levy. The suppliers come out on trumps as both customers think they are getting a green tariff and suppliers make hefty profits by deceiving the market.
At the foundation of the new scheme will be a stipulation that only those tariffs that go beyond a company’s legal obligations will be allowed to make claims to be environmentally friendly. The REGOs will be the only measure of “green-ness”, and suppliers will be obligated to hold on to their LECs. Changes will be introduced to the ROCs which will mean that selling them on will not allow others to craim green tarriffs. This will return the ROCs to being a financial support mechanism and immediately eliminate the market for double counting.
The big six energy suppliers and Good Energy have signed up to the voluntary guidelines. Ofgem has now asked them to start work immediately on setting up an accreditation scheme that will enable householders and small business customers to easily compare green offerings based on the carbon emissions they reduce. The scheme should be up and running by the summer.
Juliet Davenport of Good Energy explains that from now on green tariffs will need to be transparent to the public in 3 ways:
1. Each supplier signed up to the guidelines must provide customers with a fuel-mix disclosure chart displaying the percentage of each energy source used to give an idea of their environmental credentials. Whilst this information is already available for free online, providing it directly to customers will reduce confusion for customers.
2. Secondly, suppliers will be required to describe the additional measures they are taking beyond their legal obligations. This may include supporting community-based renewable projects or installing energy efficiency measures.
3. Finally, they must carry a quality mark to certifies that the extra environmental activity will abate a minimum level of carbon dioxide equivalent emissions.
She adds that
“The idea behind this is to provide reassurance to the public and encourage greater uptake of green tariffs in order for improved energy efficiency and greater amounts of renewable energy to be developed. The more there is, the cheaper it will become and the greater the impact on greenhouse gas emissions.”
Good Energy is an independent renewable energy company based in the UK. They support independent developers of renewable energy, providing them with the power purchase agreements so that others can set up their own projects. This is providing income and power for individual energy entrepreneurs across the UK, and changes the nature of the relationship between utility and the customer. As a result, they are required to be far more responsive in their dealings with customers – you’d have to be if a customer is also a supplier and, in Good Energy’s case, a shareholder too.
In the current global situation where we face a triple problem of energy security, climate change and a massive recession, this support of individual project developers can spur on local business activity across the UK. The fact that it is clean renewable development is a double blessing.
Image and quote source: http://www.guardian.co.uk/environment/2009/feb/09/renewableenergy-utilities