One of the UK government’s priorities in 2022 will be to improve the way that energy is sold to UK customers. In 2021, it carried out a Call for Evidence to ask some of the big questions about the way the market currently works and whether it is structured to support UK renewable energy generation. ENTRNCE is proud to have been one of the expert contributors to that government research. So what questions has the government been asking about the UK energy market – and what are the answers?
Do green electricity tariffs match customer expectations?
Over three-fifths of UK energy consumers say that they are more likely to purchase a product or service that is sustainable. But when it comes to energy, many people choosing a “green” or “renewable” tariff may not be aware of exactly how the energy is sourced. The consultation is part of an attempt to address growing concern over greenwashing.
Is market intervention necessary to decarbonise our energy market?
The UK’s electricity supply industry was privatised in 1990, and since then the government has used various policy mechanisms to encourage UK renewable energy generation, starting with the Non-Fossil Fuel Obligation. Now it is asking whether market intervention is necessary to provide energy customers with the information they need to make truly sustainable choices about their energy supply.
UK renewable energy production has changed: are REGOs still fit for purpose?
REGOs were introduced by legislation in 2003 as a way of accounting for renewables in the system. It was a solution for a very different world.
| Then | Now |
| In 2003, when REGOs were introduced, renewables made up less than 3% of total UK energy production. | UK renewable energy generation has greatly increased since 2003. In 2021, renewables made up around 38% of UK energy production – and in 2020 it was 43.1%. |
| Green energy was a niche product only offered by a handful of retailers | Well over half of energy products sold in the UK are branded as “green” or “renewable” in some way. |
| Green energy products were expensive and marketed at the minority of consumers who cared enough about the environment to pay over the odds for their energy. | Green energy products compete on price so that customers no longer have to choose between the climate and their wallets. |
So, although REGOs might have been a positive addition to the energy market in 2002, are they still beneficial to today’s very different market?
Is retrospective annualised matching good enough?
Green electricity tariffs work by having a supplier ‘match’ the energy consumed by their customers with energy generated from renewable sources on an average annualised basis. The government is concerned that this current system of annual reconciliation, using REGO certificates, may not offer sufficient transparency to customers.
How do we create stronger customer incentives to do the right thing?
The government wants a smarter energy system where customers are incentivised to manage their electricity consumption better, being rewarded for using more at times of low demand.
And our answer…
The current system is no longer fit for purpose. A majority of UK customers are actively choosing green energy tariffs, but without understanding that their choice of supply may be making no difference to overall UK renewable energy generation. We desperately need more transparency about the true carbon content of energy products, so that customers can make more informed choices.
The wholesale energy market trades in half-hourly units and many high-volume customers are used to smart meters with half-hourly measurements. In this context, the system of annualised matching is hopelessly out of date. Customers need and deserve access to up-to-date information on the energy they are sourcing. Without this, they can’t make choices that send meaningful market signals, and they also can’t manage their electricity consumption to take advantage of peaks and troughs in supply.
We can expect to hear more about the government’s plans in the spring, but it has already committed (in December 2020’s Energy White Paper) to providing customers with more transparency on the carbon content of energy products. Suppliers who want to stay competitive will need to offer a more granular approach to energy sourcing.
If you want to learn more about how to manage the energy transition and even take advantage of the opportunities it presents: download this on-demand webinar for energy suppliers about how hourly matching facilitates transparency. You can watch it at your convenience.
