100% Renewable Energy - Cutting through the bull…

What is 'Greenwashing', and how much or little of it is your energy supplier doing?

Dec, 2019

With so many energy suppliers claiming to offer customers 100% renewable energy, we wanted to shine the light on the differences between "renewable" and renewable.

You'd be forgiven for thinking they mean the same thing, but as is so often the case in opaque markets like insurance and energy, firms bend the rules to generate increased profits, all at your expense.

Now before we dive right in we must mention that we are using Octopus Energy as an example because someone recently asked us about an article Octopus Energy wrote regarding their stance on renewable energy. We would like to start by saying we are not dissuading nor recommending their services, the article just works as a handy reference to some of the issues consumers currently face when assessing how environmentally friendly their energy supplier is. There is a lot that Octopus Energy do right, and they are well regarded by their customers. That being said there are areas where we think people are being misled, not just by Octopus Energy but by energy suppliers in general because of the way the market is structured, and regulated.

The article that we are referencing can be found here, it helps to read it first before reading our comments below.

Welcome back, to start we will ignore the reference to an award earned by Octopus mentioned at the beginning of their article. We've not done a sufficient amount of work on how various suppliers are compared by the Renewable Energy Association to comment on whether it is deserved or not.

Octopus briefly reference the term 'greenwashing', which has been used to describe how some energy suppliers use REGO certificates (more on these in a moment), to enable them to sell the energy they supply as being sourced from renewable suppliers. They then go on to claim they play "no part in that". As we expand on the topic we will leave it up to you to decide if you agree with that statement, or not.

Octopus Energy proudly touts the generation of 4.1TWh of renewable electricity generation (enough to power the homes of Manchester), by Octopus Renewables as an example of their green credentials. Octopus Renewables is part of Octopus Group, the holding company that owns them both, and Octopus Energy feel this 'link' is sufficient evidence that they don't partake in 'greenwashing'. We're not so sure that holds much water.

Octopus Renewables is an investment vehicle which operates to generate a profit for its shareholders like any other pure investment company. Customers who purchase energy via Octopus Energy have zero impact on the renewable investments the Renewables firm makes, and there is no obvious partnership between the two. We couldn't find any information that suggests that Octopus Renewables sells energy from the renewable assets they manage to Octopus Energy via PPA's (Power Purchase Agreements), these are direct agreements with renewable energy generators that help encourage investment into the sector (and increase renewable energy generation outside of government directives).

To understand this better we must explain why the UK currently generates almost 40% of its electrical energy from renewable sources. In the early '90s only 2% of electrical energy generated came from renewable sources, but a drive by the government to increase this proportion (in a bid to reduce greenhouse gases and reduce our dependence on fossil fuels), has helped us get to where we are today. Levies applied to energy bills paid by us all encourage firms like Octopus Renewables to build renewable energy generators by promising them a rate that is guaranteed by the government, regardless of what the wholesale price of electricity is.

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Renewable energy assets make money, a lot of money for some firms who have managed to secure lucrative subsidies. As with most things privately funded, companies have to be confident they are going to make a profit if they are going to invest billions of pounds building expensive wind farms or solar panels, but it can be argued renewable energy investments come with less risk than many other investments. Without these generous subsidies it's unlikely renewable energy generation would be as prolific as it is today, and firms like Octopus Renewables probably wouldn't be investing as much as they do, in fact the main driver for increased investment into the renewable energy assets would be "increased government support." according to the latest report by Octopus Renewables themselves. The government are almost single-handedly responsible for the promising growth in renewable energy generation (through the environmental levy on energy bills and proactive policy measures). Part of the reason this is true is because energy suppliers are able to take credit for renewable energy generation they had no part in encouraging.

The chart above shows how the amount raised for renewable energy grants and subsidies by the government heavily correlates with renewable energy generation here in the UK. The blue line shows public sector receipts from Environmental levies (Renewables Obligation & Carbon Reduction Commitment), the red line shows the oil equivalent output of electricity generated from renewable assets in the UK over the same period.

So now we know WHY so much renewable energy is generated in the UK (or more than would otherwise be the case at least), let's now look at how we determine whether the energy we buy as consumers comes from those renewable energy assets or coal, gas or nuclear power stations.

When a renewable electricity generator sells energy into the wholesale market the buyer benefits from an additional certificate with its purchase called a 'REGO' (Renewable Energy Guarantee of Origin). This certificate enables the purchaser to demonstrate the energy it has bought has come from a renewable energy source, but if the buyer isn't overly concerned about the 'greenness' of the energy source they can earn additional income by selling the REGO certificate to someone else which would allow that buyer to make an otherwise 'dirty' unit of energy appear 'green'.

This issue is exacerbated by the fact that large scale renewable energy generators have agreements that guarantee the price of the energy they sell into the wholesale market, the agreements limit the generators downside AND upside risk to price movements. When a renewable energy supplier has no exposure to the wholesale price of electricity the effective price of the electricity sold into the market becomes the wholesale price of coal, gas or nuclear energy. These two factors mean REGO certificates are very cheap (~£1/MWh), so energy suppliers can buy these certificates and turn 'dirty' energy into green energy for a less than the cost of a EuroMillions ticket per household.

So what does all this mean? Well, Octopus Energy source a small amount of their energy via PPA's and the rest via REGO's like most other renewable energy suppliers in the country. If we assume an average household consumes 3,200 kWh of electricity and Octopus Energy has 1.2 million customers then less than 3% of the electric energy supplied to customers is 'deep green' energy. This doesn't take into account the partnership with Co-Operative Energy which no doubt will claim some of that 110 GWh of 'truly renewable' energy is supplied to their customers.

Octopus Energy then goes on to explain how these REGO certificates they purchase plough £3m back into the renewable energy market which supports the renewables industry. The environmental levy their 1.2m customers pay through their energy bills is a whopping £280m in comparison. Whilst we cannot deny there is some benefit by purchasing REGO's, compared to the £7bn we all put into the sector via the environmental levy on our bills it's hardly worth making a noise about, especially as REGO's are so commonplace amongst energy suppliers nowadays.

As for the tree planting programme, again we can't deny the intent, but the cost of planting a tree through these CSR (corporate social responsibility) programmes can be as little as £2/tree, and the CO2 benefit, insignificant once again (at least on the scale of the 10,000 trees planted in 2018).

Most concerning though is the attempt to belittle the efforts of energy suppliers like 'Good Energy' who have partnerships with over 1,400 renewable energy generators to ensure 100% of the energy they supply to customers is sourced from renewable sources via PPA's (remember we have ZERO ties or partnerships with any energy or insurance firm, we are merely making this comparison for you). Trying to discredit the difference between PPA sourced energy and green energy certified by REGO's by making a weak inference to the transmission of electricity is hugely unfair in our opinion, they are chalk and cheese. Transmission losses in the UK are approximately 8% of electrical energy generated so if we produced 108.5% more energy than we consumed, all from renewable sources, then once these losses have been accounted for we could have entirely 'green' energy for everyone.

The point we are trying to make is that PPA's encourage the development of renewable energy generation outside of the government's plans, whilst REGO's allow suppliers to merely apportion part of the current renewable energy capacity to you (even though it has little to no impact on renewable energy generation projects). If we want to speed up the shift to a zero-carbon future then we need to either lobby governments to bring forward their targets or purchase energy from suppliers who make a proactive effort to source energy through PPA schemes. "What if we all purchase renewable energy surely that would push up the price of REGO's," I hear you say. Maybe, but the vast majority of businesses aren't under enough public scrutiny to demand renewable energy, so as domestic consumers purchase more 'green energy' the allocation of renewable energy shifts more towards domestic consumers whilst having little to no effect on overall renewable energy output.

We do however approve of Octopus's efforts in improving the availability of technology and tariffs that improve the economic feasibility of being a green household. Much of the research in this area is also supported by grants you and I pay for with our taxes as the government remains committed to a zero-carbon future, but it's good to see Octopus taking the initiative and rolling these features out before some of their competitors.

We wish suppliers would just be more honest about the situation. The reality is true renewable energy is likely to be more expensive than fossil fuel-based generation, so when the cheapest suppliers on the market are also 'renewable' you know something doesn't add up. Octopus isn't the 'cheapest' provider out there, and that's because it has some environmental projects that prevent it from offering energy as cheaply as some other suppliers, but the reality is the environmental difference between Shell Energy and Octopus, for example, is marginal, so as a consumer you have to figure out how much you can 'afford' to spend on energy and where on the supplier-environmental spectrum you choose to put your custom.

We believe it makes more sense to scrap REGO's altogether, that way energy suppliers are only allowed to make representations they can backup with PPA agreements, otherwise they are just benefiting from the proactiveness of governments to tackle the climate crisis whilst adversely affecting our ability to influence a quicker adoption of renewable energy by choosing a 'green supplier'.

WeSwitch4u is committed to being truly impartial and working for YOU, the consumer, by helping you navigate some of the most opaque and predatory markets out there. We would appreciate your support in sharing what we do with friends and family so we can try and help more people get a fair deal on their insurance and energy whilst simultaneously disrupting the market for benefit of everyone. Thank you for your support.

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