Brussels is on course to deliver a big shake-up of the EU’s energy markets this December by trying to put consumers in the driving seat of the energy transition. Millions of consumers have already made the switch to ‘green’ electricity tariffs. Or so they think. But these tariffs are misleading and consumers are, in many cases, actually supporting fossil fuels or nuclear plants which are hidden behind a green façade, writes Jörg Mühlenhoff, Renewable Energy Project Coordinator of BEUC, the European Consumer Organisation. According to Mühlenhoff, the EU should urgently correct this system in its review of energy markets legislation.
According to a European Commission study, 42% of consumers are ready to spend €4 extra every month to purchase renewable electricity. And already now at least 15 million European households have opted to buy ‘green’ electricity. Consumers believe that by buying green electricity, for which they often pay a surcharge, they are helping to build more wind turbines or solar panels.
Actually, this system has barely led to additional investment in renewable energy capacity. In other words, the market logic that consumers are driving or supporting renewable energy by buying ‘green’ electricity, as some energy companies are claiming (see this recent article on Energy Post), is fiction. 15 million Europeans are convinced that they are supporting renewable energy through their bill when they are not.
A green façade
This market failure has a name: Guarantees of Origin (GOs).
In principle, GOs are necessary to statistically track the share of renewable energy in the fuel mix of an electricity supplier. A GO can be issued for every megawatt-hour of renewable electricity produced. But GOs do not really help consumers to know the environmental footprint of the electricity they buy. This is because they can be traded separately from the megawatt-hours produced in a renewable power plant, which allows other suppliers to buy them and market their electricity as ‘green’ without having anything to do with a single renewable power plant.
The masking of a household’s annual average electricity consumption (3 MWh) with renewable GOs only costs €0.30. A cheap trick indeed
Suppliers can thus build up a green façade for the fuel mix they are legally bound to disclose and can continue producing and selling conventional electricity as usual. Consumers think they buy 100% renewable electricity while not necessarily financing renewable power plants at all. This is common practice across Europe as described in a BEUC report earlier this year.
Effects of GOs are barely measurable
Since the introduction of GOs, Europe has had an oversupply of them, to a large extent because lots of them are bought from Norwegian hydropower plant operators. As a consequence, prices have always been low (ca. €0.10/MWh). That means that the masking of a household’s annual average electricity consumption (3 MWh) with renewable GOs only costs €0.30. A cheap trick, indeed.
The problem becomes clear when we look at Luxembourg and the Netherlands. These countries have the highest share of consumers opting for ‘green’ tariffs, but are bottom of the list when it comes to meeting their national renewable energy targets. Although suppliers in these countries sell a lot of ‘green’ electricity backed by GOs to their customers, this does not lead to an increase in domestic renewable electricity generation.
Graph: rising use of GOs in the Netherlands without any measurable impact on national renewable electricity production
In 2015, almost two thirds (64%) of Dutch households opted ‘green’ electricity. However, the increase in consumer demand for ‘green’ electricity did not have any measurable impact on domestic renewable electricity generation which has stagnated since 2010. Dutch electricity suppliers have simply imported cheap GOs from Norwegian hydropower plants in order to make their electricity look green.
It is now up to the EU to come up with general rules and correct the market distortion caused by GOs
Real ‘green’ electricity would have stimulated the investments necessary in additional renewable generation capacity in the Netherlands, helping the Netherlands meet its renewable energy target. That would have been an example of putting consumers in the driving seat and driving an energy transition to renewables.
Consumer organisations can provide guidance, EU should tackle market distortions
To prevent consumers from losing trust in ‘green’ tariffs, consumer choice must be respected and delivered. GOs cannot provide an answer.
Several European consumer organisations run quality labels to advise households on what consumers’ money is being spent on and to certify trustworthy tariffs. They provide guidance through rankings, online comparison tools and collective switching campaigns. The UK national energy market regulator Ofgem just established binding rules for suppliers that market electricity with any ‘green’ claim. In Denmark, the Danish Consumer Council helped establish clear rules for market participants. Suppliers have an obligation to substantiate the benefits generated thanks to consumers’ money.
It is now up to the EU to come up with general rules and correct the market distortion caused by GOs. We e expect the EU to make the market work for consumers. The upcoming legislative winter package would be an opportunity to rebuild consumers’ trust in it.
 The European Commission’s Energy Consumer Trends 2010 – 2015, SWD(2015) 249 final, November 2015. The study covered the Czech Republic, Germany, Spain, France, UK, Italy, Lithuania, Poland, Sweden and Slovenia. 42% of consumers were willing to pay 4 euro, 37% were willing to pay 10 euro more per month.
 Infographic based on: CBS: Hernieuwbare energie in Nederland 2014, September 2015.
 Autoriteit Consument & Markt (Authority for Consumers and Markets): Trendrapportage marktwerking en consumentenvertrouwen in de energiemarkt. Tweede halfjaar 2015, April 2016, p. 18.