New green tariff rules run straight into criticism

Ofgem issued new rules for green tariffs in February. They have improved on past drafts, but could see green tariffs become only another way to buy carbon offsets.

Consumers who sign up to green tariffs expecting them to lead to the development of new renewables are likely to be misled under new Ofgem rules, according to the Energy Savings Trust.

In February, Ofgem issued a new version of its green electricity supply guidelines.1 Ofgem has been trying to revise the guidelines, first issued in 2002, for over 18 months (ENDS Report 395, pp 45-46 ; 391, p 47 ). Some 319,000 households have green tariffs and Ofgem is concerned that they do not lead to any "additional" environmental benefit beyond suppliers’ legal obligations.

Under the Renewables Obligation, suppliers must get a portion of their electricity from renewable sources. Some suppliers repackage this requirement for sale as green tariffs, or repackage their obligations under the carbon emissions reduction target (CERT). Suppliers must improve the energy efficiency of their customers’ homes, and several tariffs offer households free energy-efficient light bulbs or discounts on energy efficient products.

From next summer, green tariffs will have to produce a benefit beyond a company’s legal obligations and this must lead to a reduction in carbon dioxide emissions, Ofgem says. If suppliers do this by buying carbon offsets, the tariff must save at least 1 tonne of CO2 per customer per year. All offsets must comply with the government’s quality assurance scheme (see pp 13-14 ).

Other measures can be used - such as installing energy efficiency equipment - but these must also produce a minimum greenhouse gas saving that will be agreed by energy firms before the scheme is launched. Suppliers will be allowed to invest in renewables - but only projects that would not have been developed under the Renewables Obligation. Community projects below 1MW capacity are likely to fall into this category, Ofgem says. It is looking into a ranking system for tariffs based on how much CO2 they save.

When firms sell green tariffs, they must provide consumers with details of the environmental benefit and how much carbon it saves. They must also display a fuel mix disclosure chart to show how much of their energy comes from renewables.

The guidelines have been welcomed by suppliers - all of the big six have signed up, as has green tariff specialist Good Energy.

However, the Energy Saving Trust has struck a note of caution. "The guidelines do not go far enough in promoting additional renewables," said Rob Lewis, its renewables strategy manager in a statement. "We believe this should be the main focus for green tariffs, rather than offsetting or other ‘additional activities’. These may provide environmental benefits, [but] they do not meet the expectations of consumers." The EST has long said consumers expect green tariffs to lead to new renewables development. Last year, research for Ofgem appeared to agree (ENDS Report 403, p 14 ).

Only some electricity firms are likely to use community renewables as their environmental benefit. For example, Eon will develop a product based on carbon offsetting, a spokesman said. It will also continue its popular Juice tariff. This invests £10 into research in marine renewables for every customer that signs up.

EDF said its green tariffs will continue to be based on a "green fund" that invests in community renewables. Good Energy said it would also continue its current tariffs, which pay homes and firms for any electricity they export to the grid. It will focus on schemes of 5-75kW capacity that currently struggle to find a buyer for their output. Electricity suppliers incur high costs ‘balancing’ the output from such units with the demand from their customers.

But it is questionable whether these projects will count as additional from April 2010 when the government introduces a feed-in tariff for microrenewables up to 50kW in size (ENDS Report 407, pp 52-53 ). This will pay a guaranteed price for any electricity exported to the grid. Juliet Davenport, Good Energy’s CEO, said firms would "have to innovate" in the face of such changes if they still wanted to be classed as "additional". Its new renewable heat tariff is a good example of this, she added (see below).

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