Energy Market Concerns 

A report published by the Climate Change Committee (CCC, 2020) illustrates there is concern in the industry that most procurement of renewable electricity in the UK has no or extremely limited impact on emissions reductions, both at a corporate and country level. This has clear impacts on the UK’s ability to decarbonise the grid and ultimately reach net zero emissions by 2050. 

The CCC (2020) go on to say that most forms of renewable energy procurement do not lead to the installation of new renewable energy systems (known as additionality), instead, existing renewable capacity is redirected. For example, if demand for a green tariff rises, a supplier can redirect renewable energy that is supplied in their standard tariff, to their green tariff. This means that the supplier doesn’t necessarily have to increase the amount of renewable energy they procure (and in turn create demand for new renewable capacity), therefore there is no net impact on emissions or renewable generation, even though the demand for renewable energy has increased.   

Furthermore, the CCC (2020) claim that most forms of renewable energy procurement do not result in the customer consuming renewable energy, instead, the electricity flowing to the customer is derived from a combination of fossil fuels, nuclear and renewables that are representative of the grid where the electricity is being consumed.   

Renewable energy procurement routes for suppliers 

An electricity supplier’s product may consist of electricity obtained through one or more of the following routes: 

• Self-generation  

The supplier invests in and builds their own renewable energy assets. The energy generated from these assets is then supplied to their customers, and the associated Renewable Energy Guarantees of Origin (REGOs) are held for Fuel Mix Discourse. 

• Power Purchase Agreements (PPAs) 

The supplier holds direct PPAs with renewable generators, where there is a long-term agreement between the two parties for the purchase of both the power and the REGOs. The electricity secured through these agreements is delivered to the suppliers’ customers, and the associated REGOs are held for Fuel Mix Discourse. 

• Wholesale market with unbundled REGOs 

The supplier purchases electricity from renewable sources at the wholesale level and purchases an equivalent amount of unbundled REGOs. The electricity procured through the wholesale market is delivered to the supplier’s customers but can still be marketed as “green power” due to the equivalent amount of REGOs being held.  

If an electricity supplier provides a “green tariff”, the electricity supplied must be backed with REGOs (bundled or not) as a minimum (UKGBC, Report 2). 

What are Renewable Energy Guarantees of Origin (REGOs)? 

The REGO scheme was launched in Great Britian to provide transparency to consumers about the proportion of electricity that suppliers source form renewable generation (Ofgem, 2024). A REGO certificate demonstrates that electricity has been generated from renewable sources (Ofgem, 2024). Any renewable energy generator that produces one megawatt hour of eligible output, can receive a REGO for that unit of power (Ofgem, 2024).  

The primary use of REGOs is for Fuel Mix Disclosure (FMD), which requires licensed electricity suppliers to disclose the mix of fuels (coal, gas, nuclear, renewable and other) used to generate the electricity supplied (Ofgem, 2024). 

REGOs can be sold together with the electricity, known as bundled REGOs. However, they can also be sold separately from the electricity, known as unbundled REGOs. 

What is the challenge with REGOs? 

There is concern that unbundled REGOs can lead to transparency issues between customers and suppliers, they do not provide real value to generators, and are slowing down the transition to a greener grid.  

• REGOs can be used to market brown power as green

As discussed already, suppliers can source all their power from fossil fuels, then purchase unbundled REGOs to market/sell the power as a green tariff. In this scenario, none of the energy delivered under the “green tariff” is from renewable sources, which could be misleading to customers. The CCC (2020) state that “decoupling (of REGOs and electricity) is leading to companies and consumers sometimes believing that they are supporting decarbonisation by purchasing renewable electricity, when they are not”. 

• REGOs may only provide limited financial support to generators 

It is important that the value of REGOs is returned to the generators so that they can reinvest and further increase the capacity of renewable generation, however with unbundled REGOs, this is not always the case.

A few years ago, REGOs could be purchased for around 20 pence, meaning that the revenue generators earned from them was minimal and likely did very little to support the development of new renewable energy projects (Good Energy, 2023). Since then, the price of REGOs has seen a 100x increase due to growing demand and shrinking supply, primarily because post Brexit, the UK rendered the European “Guarantee of Origin Certificates” invalid for verifying renewable supply in the UK (Energy Advice Hub, 2024). These price hikes should in theory mean that more money is being passed through to the generator, however the CCC (2020) state that “it is widely understood that even with the increasing value of REGOs, the structure of the system will never provide prices high enough that will act as a support mechanism for new generation on its own”. Nonetheless, Manfredi (2021) concluded that the REGO markets very existence provides some incentive for renewable energy generators.

• • REGOs could hinder grid decarbonisation

As discussed, unbundled REGOs may only provide limited finance to generators, don’t necessarily create demand for new renewable capacity, and may create transparency issues between customers and suppliers, all of which could hinder grid decarbonisation.  

If all green tariffs were established using direct PPAs with renewable generators, and supplier-owned renewable energy assets, the suppliers’ green credentials would be more transparent. This would provide consumers with more confidence in opting for a green tariff, knowing that they are supporting grid decarbonisation. Greater demand for such tariffs would send a stronger signal to investors and generators, thereby strengthening the business case for building additional renewable capacity (Good Energy, 2021).  

What can suppliers do? 

• Procurement  

Best practise guidance provided by the UKGBC (Report 2) state that suppliers can provide deep green tariffs (also known as high quality tariffs) if the tariff: 

• bundles the REGOs from any self-owned or PPA contracted generation with the supplier power; and 

• does not include power from self-owned or PPA contracted fossil fuel generation. 

In addition to this, the UKGBC (Report 2) lists further criteria that the supplier must meet, relating to their overall supply volume. This is to ensure that renewable energy procurement Is a key part of the suppliers overall supplied energy, not just for their green tariffs. 

• Additionality  

The UKGBC (Report 3) state that procurement should lead to the creation of new additional renewable capacity to drive net change in emissions. They go on to say that additionality is typically hard to strongly determine, but both the UKGBC (Report 3) and CCC (2020) say that suppliers could achieve this if they commit to purchasing the renewable electricity and the certificates from the generator and typically commit through PPAs with generators that this purchase of renewables will lead to investment in new renewable generation.  

Procuring bundled REGOs via PPAs can support with additionality because they give generators long-term revenue certainty, which is needed to invest in additional renewable assets (CCC, 2020), but the generators must demonstrate they are investing in the construction of new renewable generation. The UKGBC (Report 2) also say that in their experience, most PPAs are for new assets, meaning that they demonstrate additionality.  Unbundled REGOs do not provide this level of price certainty and do not typically include commitments from generators to provide new renewable generation, and as a result do not provide additionality. 

• Time-matching  

A new product entering the energy market is time-matching. This is where a supplier provides a tariff where their customers demand is matched with renewable supply at a sub-hourly level. This is important because currently most suppliers match demand with supply on an annual basis, meaning consumers may be consuming fossil fuel derived electricity during times of high demand or low renewable output. The UKGBC (Report 2 and Report 3) provide more information on this.  

What can consumers do? 

• Explore investing in your own self-generation assets. 

• Explore a direct PPA either via a supplier or other provider where the REGOs are bundled with the supplied power. 

• Explore a high quality ‘green tariff’ where a supplier bundles the REGOs from any self-owned or PPA contracted generation with the supplier power; and does not include power from self-owned or PPA contracted fossil fuel generation. Other criteria are required to be met by the Supplier so these should also be checked before progressing with any contract. 

These routes offer consumers the highest degree of transparency, and can support wider grid decarbonisation through additionality.

Sources and further reading

Carbon Trust, 2019. Energy procurement and green tariffs. Available at: Energy procurement and green tariffs | The Carbon Trust 

Climate Change Committee, 2020. Corporate Procurement of Renewable Energy: Implications and Considerations. Available at:  Corporate Procurement of Renewable Energy – Implications and Considerations – Climate Change Committee 

Energy Advice Hub, 2024. Why have REGOs got so expensive? Available at: Why have REGOs got so expensive? 

Good Energy, 2021. REGOs: sorting fact from fiction. Available at: Renewable energy certificates: sorting fact from fiction | Good Energy for Business 

Good Energy, 2023. What the soaring costs of REGOs means for renewable energy in the UK. Available at:  What the soaring costs of REGOs means for renewable energy in the UK | Good Energy for Business 

Manfredi, G., 2021. A review of green tariffs and renewable energy guarantees of origin (REGOs)–do they bring about genuine emissions reductions for individuals and organisations?. Available at: manfredi_2021_green_tariff_review.pdf 

Ofgem, 2023. REGOs: Guidance for generators, agents and suppliers. Available at: REGO Guidance for generators, agents and suppliers 

Ofgem, 2024. Renewable Energy Guarantees of Origin (REGO). Available at: Renewable Energy Guarantees of Origin (REGO) | Ofgem 

UKGBC, 2023. Renewable Energy Procurement, Options available in the market, Report 2. Available at: Renewable-Energy-Procurement-Report-2.pdf 

UKGBC, 2023. Renewable Energy Procurement, Determining the performance of your electricity strategy, Report 3. Available at: Renewable-Energy-Procurement-Report-3.pdf 

Disclaimer

This article is for informational purposes only and does not constitute professional advice. While we strive for accuracy, we make no guarantees regarding completeness or applicability. Readers are encouraged to conduct their own research and seek professional advice before making any decisions related to renewable energy procurement, sustainability claims, or regulatory compliance. The authors and publishers disclaim any liability for any direct, indirect, or consequential loss or damage arising from the use of, or reliance on, the information contained in this article.