League Table of UK Green Electricity Tariffs


Background document

Friends of the Earth’s green electricity tariff league table provides customers with comparative information about products currently on the market and provides information to aid their choice of electricity tariff. The aim is to help those wishing to use their consumer power to influence the development of the green electricity market to switch tariffs with confidence.

The green electricity market

The market for green electricity is relatively complex - electricity is not a traditional product, delivered to the door from a specific source. Renewably- generated electricity is pooled along with electricity generated from other sources into the national grid, which then supplies everybody via local electricity networks. So it is difficult to work out what it is you are buying.

The voluntary market

Signing up to a green tariff does not guarantee receipt of green electricity to power the home. But somewhere on the grid your demand for electricity is being matched by the equivalent supply of green electricity. Customers choosing to go green in this way, either because they want to off-set the external environmental impacts of traditional electricity generation methods or because they want to help subsidise the renewables industry, are known as the voluntary market.

The new obligatory market

On April 1st 2002 a new law, known as the Renewable Energy Obligation, obliged all suppliers to provide three per cent of their electricity from renewable sources. The level of the obligation will rise each year until it reaches 10 per cent in 2010. Suppliers receive Renewable Obligation Certificates (ROCs) for each unit of renewable electricity they buy. At the end of each year, they must prove they’ve met the “obligation” by submitting the correct number of ROCs (to match three per cent of their supply) to OFGEM.

Suppliers who buy less than three per cent of their electricity from renewable sources can buy additional ROCs from those who are willing to trade. Friends of the Earth is not opposed to trading of green certificates as money raised in this way helps subsidise renewable energy.

Alternatively, if the price of purchasing ROCs becomes too high, or there is simply not enough of them to go round (eligible supply is at around 1.8% at the moment), suppliers who have not met their renewables obligation can pay a buy-out price to OFGEM – essentially a fine, currently set at 3p/kWh. The money raised from this is redistributed to companies that do comply with the obligation.

The role of green tariffs in the new market

In 2001 the voluntary green market accounted for roughly 0.2% of total UK demand for electricity. This was actually less than the amount of green electricity available at the time. With the introduction of the renewable obligation the situation is now reversed and demand exceeds supply. This is the result of government action to stimulate increased prices for green electricity, and encourage increased investment in new renewable capacity.

The effect of this on the voluntary market is to make it a subset of the obligatory market (0.2% voluntary, compared to 3% obligatory). Before the new law the voluntary market had a demand pull (albeit a weak one) on the market, encouraging companies to buy more green electricity. This has now been replaced by a far greater demand pull from the obligation. The impact that the voluntary market and the role domestic customers have in creating additional demand for green electricity is now far from clear.

How to create additionality

The voluntary market for green tariffs will only create extra demand if it is able to create demand for renewables over and above the demand created by the obligatory market – this is described as ‘additionality’.

Matching demand is not enough

At present suppliers promising to match a green tariff customers demand by buying green electricity is not ‘additional’ for the following reasons:

A large utility offering both normal and green tariffs can use the green tariff to help them meet their renewables obligation, as illustrated below. One hundred per cent of customer demand for green tariff electricity is matched by green supply - but this represents less than three per cent of the total of all customer demand. So it is not “additional” to the utility’s legal obligation.

Similarly, small niche supply companies, who may buy 100% green energy to match all their customers’ demand, can sell ROCs to other companies to help them meet their obligation. If they do this there is no “additional” effect on the market because they are simply helping another company to meet their obligation.

Additional energy based tariffs

An energy based tariff is one where the act of selling the customer the green electricity alone has an additional environmental benefit. To achieve this, although FOE is not opposed to the trading of ROCs, we believe that some of the certificates should be removed or ‘retired’ from the market on behalf of domestic customers. This means customers are buying some of the ‘greenness’ and in doing so are further increasing demand for green electricity. For example, while Unit[e] must keep three per cent of the certificates it receives from supplying green energy to present to OFGEM, it has voluntarily agreed to hold on to an additional seven per cent in order to help boost renewable demand.

Fund - based tariffs

As an alternative way of providing environmental benefit, suppliers have developed green electricity tariffs where contributions are made to a green fund. Contributions are deducted from a customer’s bill either at a fixed rate or in the form of a premium. Suppliers can themselves make contributions either by match -funding or as a separate donation. Though not immediately affecting the market, funds can be used to amass capital to build future renewable supply capacity.

Funds can also be used to fund grants for community or other off-grid renewable projects; to fund other environmental projects including energy efficiency, awareness raising and even land acquisition to mitigate the effects of climate change.

Different types of funds are administered differently and we would strongly recommend that customers wanting to know more about the use of funds should contact the company directly.

FOE believes that the most important use of green tariffs is to offset the externalities involved in traditional electricity generation through an increased proportion of renewable electricity in the commercial electricity sector. We have therefore ranked all energy-based tariffs above fund based tariffs. We have also ranked capacity funds ahead of community funds, which are in turn ahead of more general environmental funds.

Combination products

Combination products also exist, where contributions to a fund are made and the supplier matches the customer demand with renewable supply. These are the most common type of green tariff. If the demand matching can be proved to be “additional” (ie it complies with the same criteria set for additional energy based green tariff schemes) then these products are considered to be better than pure fund-based tariffs as they have an additional pull effect on the market.

If they do not, they are still considered to be better than a pure fund because if sufficient numbers of customers are attracted, matching demand alone could lead to direct purchases of more green electricity than is needed to meet the obligation (ie more than three per cent of total demand). That is to say, Britain’s 50,000 green customers would need to increase to more than 675,000 in order for demand to exceed the level of the obligation.

So, how can customers work out what they are buying and how much of a difference it will make? How can they guarantee that by choosing this product they are causing suppliers to do more than they are legally obliged to?

Ranking tariffs

To help consumers answer these questions Friends of the Earth has ranked the different green electricity tariffs according to the following criteria:

Energy based tariffs are generally better than fund based tariffs as they influence the way in which electricity is generated and sold commercially. They are also more transparent.
A portion of the electricity sold through energy-based tariffs should be additional to the Renewables Obligation. The best way to achieve this is by “retiring” the Renewable Obligation Certificates that denote greenness.
Fund-based tariffs that match customers’ demand with renewable electricity (but do so using electricity bought as part of the Obligation) are theoretically better than offering normal electricity, as, in principle, they could lead to additional renewable electricity being bought, if a very large number of customers were to sign up to the tariff.
Fund-based tariffs are ranked according to the size of the contribution made to the fund and according to what the fund is spent on. Unless specifically stated otherwise, the fund should be spent exclusively on renewable capacity – not energy efficiency, information and awareness or any other charitable activities. Increased commercial capacity is considered more effective than community capacity.
Portfolio of the supplier – only those purchasing electricity from 100% green sources can guarantee not to be purchasing electricity from nuclear power stations and traditional fossil fuel generators.
Buy-back – though not affecting the rank awarded, FOE welcomes products that enable customers to sell back to the supplier any excess renewable electricity they may generate themselves from, for example, solar photovoltaic cells, combined heat and power boilers or micro wind turbines.

Note:
According to OFGEM guidelines, following the introduction of the legal obligation, almost all suppliers will need to change their marketing material to make it clear to customers how the tariff relates to their legal requirements and what additional environmental benefit the green tariff offers. The only exceptions to this are Northern Ireland Electricity, because the Obligation does not apply in Northern Ireland, and Seeboard as it is solely a fund-based tariff, which does not present the matching of a customers energy demand with renewables as a green benefit. In our assessment we have assumed that these changes will be made in due course.

Powergen and Servista have not been ranked as insufficient information was available at the time of going to print.