In the UK, REGOs certify that the power a consumer buys is renewable. As REGOs can be traded that means one supplier, sourcing 100% of their energy from renewables, and another simply buying enough REGOs to cover 100% of their output can both say they are 100% renewable. Is there a difference? Yes, says Thomas Harrison at supplier Good Energy. Trading REGOs takes the pressure off suppliers to use all their buying power to expand the supply of renewables. If everyone had to source it themselves directly, renewables supply would grow much faster.
In the words of the UK’s energy regulator Ofgem, the ‘Renewable Energy Guarantee of Origin’ (REGO) scheme is designed to “provide transparency to consumers about the proportion of electricity that suppliers source from renewable generation.” It states that “the purpose of the certificate is to prove to the final customer that a given share of energy was produced from renewable sources.”
As originally designed, REGOs were an effective simplification; when a renewable generator produces one megawatt hour (MWh) of electricity (about a third of the electricity an average household will use over a year), Ofgem electronically produce one REGO to prove its source. Meaning that instead of reviewing the provenance of all of their supply contracts to check their sources, all energy suppliers have to do is count up how many REGOs they have to calculate how green their electricity supply is.
The REGO loophole
So far so good. But unfortunately, it is possible for a supplier to source REGOs without also purchasing the electricity they relate to.
This wasn’t a major issue in the early days of the scheme as there was only a small amount of trading in REGOs without their power. However, now this loophole is increasingly being taken advantage of at significant scale, with more suppliers claiming to offer ‘100% renewable’ tariffs, despite holding little or no contracts with renewable generators.
News in the industry has highlighted this this week. Shell Energy is the new name for First Utility, who in the same breath now suddenly claim to supply their 700,000 customers with ‘100% renewable’ electricity. Making it seem awfully easy to switch a big customer base to renewable sourced power.
If we look at First Utility’s last published energy mix (below) they sourced just 3.7% of their supply from renewables. But — as if by magic — post takeover from the oil and gas giant Shell they are now ‘100% renewable’. And all of this without a single article showing partnerships or contracts with a renewable provider.
As we trade with renewable generators every day, if any of this power were truly renewable, we would expect to have come up against Shell in contract discussions. But we have seen no sign of competition from Shell to sign up these assets in what is a highly liquid and competitive market which we’re proud to have taken a major stake in creating.
REGOs are very cheap to buy
The reason for this is that Shell do not have to contract or even contact any renewable generator to claim that the electricity they supply is ‘renewable’. All they have to do is buy surplus REGOs from suppliers who have already used this power to supply their customers. It’s little more than an accounting trick and, hidden somewhere amongst the smoke and mirrors, is the reality that some customers aren’t getting what they think they’re paying for. It’s a loophole, and an incredibly cheap one at that — the current price for a REGO is ~£0.35/MWh, or £1 per customer per year; to put this into context this is 0.1% of an annual bill.
Or, in order to ‘green’ all 700,000 of Shell Energy’s customers’ electricity bills, about 0.005% of Shell’s 2018 £16bn profits.
You get what you pay for. Shell’s ‘100% renewable’ offering is just the same old brown First Utility power plus some very cheap REGOs. A prime example of ‘if something sounds too good to be true, it probably is’.
We see the REGO loophole being exploited more and more. Instead of “providing transparency to customers” REGO trading is actually hiding the difference between fossil fuel based suppliers like Shell Energy and suppliers who go to the extra effort and expense to contract directly with renewable generators and buy real green power.
There is a simple solution: REGOs should be traded with the power they relate to, like they are at Good Energy.
Thomas Harrison is a Senior Forecasting Analyst at Good Energy.
This article is published with permission.