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.[1] 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[2]
In 2015, almost two thirds (64%) of Dutch households opted ‘green’ electricity.[3] 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.
[1] 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.
[2] Infographic based on: CBS: Hernieuwbare energie in Nederland 2014, September 2015.
[3] Autoriteit Consument & Markt (Authority for Consumers and Markets): Trendrapportage marktwerking en consumentenvertrouwen in de energiemarkt. Tweede halfjaar 2015, April 2016, p. 18.
[adrotate group=”9″]
Karel Beckman says
I think that to claim that “15 million Europeans are convinced they are supporting renewable energy through their bill when they are not” is going too far. GOs are a legitimate system, in theory at least. The problem is, as the author notes, that many are backed by Norwegian hydropower producers. In effect, customers in the Netherlands who buy green power, buy Norwegian hydropower, but that means Norwegian consumers in effect buy dirty Dutch power. If the Norwegian public realised this, they might be able to do something about it, but of course they don’t. So why not limit the GO system to decentralised solar and wind power? That would drive up the price of GOs and would make it more lucrative for people to produce solar and wind power. That would really stimulate the production of renewable energy.
Are Hansen says
But doesn’t that mean that at least money is going into green investments in Norway? The days of big hydroprojects in Norway are over, because of strong popular resistance to flooding any more valleys or destroying rivers. But there is still additional green power being build, mainly wind power and some small hydro. So it could help the environment if Dutch money goes into Norwegian green power, which is exported back through the NorNed undersea cable.
At least in theory. I don’t know who receive the money payed for those GOs, or how they are spent
Wouter says
I agree with you. Though the price of GOs today is low (30ct/MWh as mentioned), this premium does end up with the generators ‘creating them’ (by generating renewable energy). So in Europe as it is, the renewable generators receive this extra money which makes their operations more interesting. It is therefore a stimulus for renewable energy, and I don’t see the (big) problem. Apparently for most consumers the money paid for the GOs flows out of their country (to Norway) – but why would that matter?
Are Hansen says
Maybe it doesn’t matter very much to the global environment, but it does matter for The Netherlands: if the money was spent building renewable energy there instead of being exported to Norway, they would get cleaner air and more business opportunities. The air in Norway is clean already!
Plus it’s better to produce power closer to where it is consumed, giving less loss from transmission
Tilleul says
GO never pass the additionality criteria.
Fossil fuel powerplants are OPEX driven, they don’t need a lot of investment and won’t cost you a lot of money if they are not operating, however they have a very high volume risk when directly sold to consumers as the high volatility of fossil fuel could lead to bankrupcy if your OPEX exceed by a far amount the revenue of your contracts. That’s why there is a power market which allow fossil fuel powerplants to get access to a variable price by putting every power produced in a common pool.
Wind and solar are CAPEX driven so their cost structure is the exact opposite of fossil fuel powerplants. Main cost of wind and solar is debt, if you sell to a variable price and there is one year when your revenue is not enough to reimburse your annuity you go bankrupt and you lose all your investment. Banks won’t accept to finance a renewable project that don’t have some long term guarantees on its incomes like a feed in tarif, or a long term PPA with a bankable clients. So any support scheme based on a variable income will never help renewables to be built, it will only be an additional incomes for renewables that would have been built anyway, have been already built or for OPEX driven renewable projects like large biomass powerplants importing pellets from the US.
The only support schemes that triggered investment in renewables are feed in tariff or the possibility to market directly their power to clients so that they won’t get exposed to the variable power market.
Quick fix : allow renewable power producers to be able to market directly their power to customers and allow customers to be able to choose their powerplant… That could be easily a service paid to the DSOs and it will decrease all the fees paid by intermediaries…
Peter Niermeijer says
BEUC thinks they are attacking the Guarantee of Origin system but in reality they are attacking “green washing”, and I couldn’t agree more! The real question is, why does BEUC constantly ignore the consumer’s choice and support the subsidization of the production of renewables and not the consumer in their consumption of renewables! Consumption-based subsidy systems allow consumers to see the real price for renewables and have the government support them in their purchase; not supporting electricity companies in their production of renewables. If BEUC is really about helping consumer’s lets get these consumers in the driver’s seat! What are we left with if we support consumers in their consumption of renewables? Less European protectionism, more European cooperation, a more (cost-)efficient market for renewables and a better position for consumers in the electricity market.
The author is looking at the market for renewables and the position of consumers in that market from the complete wrong perspective. It looks like BEUC is the association of producers protecting the interest of producers! In Europe we are spending billions of euros supporting the production of renewables, a recent article on Energy Post was even titled, “The Energiewende is running up against its limits”. Production based subsidy systems have collapsed as well due to costs, leaving producers in Spain out to dry. This is not good for producers or the energy transition. It is true that production based subsidy systems have worked very well in their creation of renewable volumes (very effective) but they are not at good at controlling costs (not efficient) or in supporting consumers and their choice for products.
Jan van der Lee says
It is encouraging to read that consumers value renewable energy. And that they are willing to pay a price for that. Then the question is: how do you know you can believe your supplier on his “green” eyes? Reliability is a great good. And that requires proper transparent information that is independently checked. That is what consumers want. When they buy food or clothes. And also when they buy energy. Energy is not just a commodity, origin matters.
The writer however is mistaken when he believes consumers expect that this directly leads to investments for more production of the power of his choice. That the system imposes additional capacity producing renewable power. That’s like insisting your local supermarket to invest in new eco-coffee farms when you by your fair-trade coffee there. That’s not how it works with coffee nor does it work like that with green energy. You just want to be certain that it is fair-trade coffee or that it is green energy. The beauty of the Guarantee of Origin system for green energy is that although it does not impose additional conditions, it does make them possible. Consumers nowadays are articulate and they express to their supplier their wish to buy Guarantees from a certain source like e.g. wind or solar. There are households that want to contribute locally and ask for Guarantees from a renewable plant in their village. Companies are making power deals for the coming years with a supplier where they commit to buying Guarantees that come from new wind farms yet to be build. It is already possible and consumers are already doing it. Just some facts: Dutch rail (http://www.ns.nl/en/about-ns/energy/sustainable-energy.html) will consume in 2017 more than 800 GWh of renewable plants that are currently under construction or recently commisioned. Just last week, a consortium of Philips, DSM, AkzoNobel and Google joined forces to buy the green power from a 102 MW wind farm that is being build by a citizens’ initiative of 4000 participants. So, citizens are taking the driver’s seat already.
Of course, it is not possible to physically tag a green electron with a label. So yes, importing green certificates means that the consumption of others becomes more grey. That’s is why the Association of Issuing Bodies argues that it is wise not only to issue Guarantees for green energy, but also for the grey part. People should know what they consume, and that is now less clear when it comes to fossil and nuclear energy. But you can’t blame that on green power.
Producers, suppliers and consumers together are crucial to build a future-proof European market field for renewable energy. Why? Because the renewable energy transition is not feasible when countries soldier on alone. We need an integral approach. The market is already international and the sources for tomorrow’s energy are not always next to the consumers. So if a consumer in the Netherlands wants to pay extra for green energy, he can make that choice. If that leads to green power produced somewhere out of the Netherlands, it that bad or is it efficient? Is it a disadvantage that more than one third of Dutch consumption is green? Of course not. So before everyone starts to donate rocks to the Netherlands so they can build their own mountains with reservoirs for hydropower, let’s first empower our consumers so that they can make a reliable choice. And contribute to a sustainable energy future.
Tilleul says
BEUC is the umbrella organisation for 42 consumer associations in Europe, so I guess there is a slight chance the writer know a bit about the consumers expectations. Anyway, if you look at the advertisements from so-called green offers they will always show wind turbines or PV powerplants in the local environment and talk about increasing energy independence, adding renewable capacity, fighting against climate change… They will never talk about century old hydro powerplant in the other part of Europe… So if the consumer doesn’t subscribe to a green offer because he wants his electricity bill to finance local and additional renewable energy, why is the communication on these offers only about local and additional renewable energy ? And don’t pretend you can’t build additional renewable in the Netherlands they have the cheapest offshore wind power in the world…
It’s also unfortunate to use Google as an example. The company is known for refusing to buy renewable energy certificates as they are looking for additionality, proximity and physical sales criteria that a GO can’t guarantee.
Renewables corporate buyers are not buying GOs, they are buying physical electricity which produce GO that they will destroy. You might as well not have GOs as it would spare the cost of destroying them.
https://blog.google/topics/energy-environment/google-green-blog-what-it-means-to-be_8/
Hans says
A proper price on carbon pollution would make all these complicated support systems superfluous. So let’s start by not giving carbon certificates for free anymore and by giving them a do-not-use-after date.