Is the corporate green tariff dead?

UK corporate green tariffs may be 100 percent renewable, but they offer no additional environmental benefit beyond the Renewable Obligation and they don’t count under the Carbon Reduction Commitment. So why are companies still buying them?

When electricity suppliers began bundling renewable energy into their electricity offering it was a PR dream come true. Green tariffs were a silver bullet for downsizing carbon footprints while simultaneously buffing the corporate responsibility brand image. And for a while, it looked as though large companies purchasing green would be further rewarded by not having to count their green tariff consumption under the UK’s Carbon Reduction Commitment, a mandatory cap and trade scheme targeting electricity usage by large UK firms.

However, when the UK energy regulator, Ofgem, announced last year that green tariffs simply “repackage activities that customers are already funding,” green tariffs lost some of their shine. Ofgem’s formal position on corporate green tariffs is that they “will not necessarily reduce greenhouse gas emissions or lead to more renewables being developed.”

Of the UK’s 5% of renewable energy, 4.9% is accounted for under the UK’s Renewables Obligation (RO), a mandatory scheme that obliges electricity suppliers to source an increasing amount of electricity from renewable sources. Given that suppliers pass on the cost of RO compliance to domestic and businesses customers, green tariffs often provide nothing above and beyond what has already been produced and paid for.

Green tariffs further lost their allure last June when many carbon reporting guidelines, including the Carbon Reduction Commitment’s (CRC), advised businesses to rate green tariff energy as grid average rather than zero carbon. The Department of Energy and Climate Change’s (DECC – previously Defra) reasons for the downgrade included the double counting of carbon benefits, once by the consumer sold a renewable tariff, and separately by all electricity users in general who were calculating emissions based on the grid emissions factor.

According to the Carbon Trust, renewable electricity was also being double allocated due to the existence of three separate certificates, the LEC, ROC and REGO that are issued for each megawatt hour of renewable electricity, and opacity surrounding their use as proof of renewable supply.

Where is the value?

If green tariffs provide no additional environmental benefit - which suggests they no longer hold any reputation value - and if there is no additional financial incentive under the CRC, why are companies still buying them?

British Telecom’s director for sustainability Chris Tuppen concedes: “The reputation benefit of purchasing green tariffs is limited, given that carbon benefits from green tariffs have been called into question.” He adds: “The business rationale for purchasing green tariffs is eroded by the increasing number of carbon reporting systems that do not recognise them as ‘zero carbon.’”

Yet BT still purchases them. In fact, 48 percent of the electricity used by BT is from renewable sources. According to a BT spokesperson, BT is still purchasing green tariffs because it is locked into its current supply contract until 2010 and because purchase of renewable electricity forms a key part of the company’s carbon emission reduction strategy. The spokesperson says: “If Ofgem is right - and that's debatable - why does it support, or at least not stop, green tariffs being sold?”

Ofgem’s response is “caveat emptor”. “Industrial and commercial green tariffs are generally based on Levy Exempt Certificates [which make renewable energy exempt from the levy on commercial sales of electricity], therefore customers should realise that it is highly likely the supplier won't be going any further than its current [RO] obligations,” says Ofgem spokesperson Chris Lock.

UK retailer Marks & Spencer, which opted for green tariffs as part of its £500bn ‘Plan A’ strategy to become carbon neutral by 2012, still perceives green tariffs as having intrinsic value, despite the fact that they deliver little or no net carbon benefit. M&S spokesperson Clare Wilkes says: “The business rationale for encouraging renewable generation still remains, even if these can no longer be accounted for as a carbon benefit.”

Declining to expand on the so-called business rationale, she added: “We still believe that consumers of green electricity send a powerful message of support to generators.” While M&S is already dual reporting its carbon emissions (with and without green tariffs) in line with DECC and Ofgem guidelines, Wilkes notes there is a need to improve accounting methods concerning green tariffs.

Winds of change

Energy suppliers say the negative fallout from Ofgem’s position on green tariffs and the CRC downgrading has not yet been felt. Nor is it likely to, according to Toby Allen, a director at electricity supplier, EDF. “The CRC won’t provide additional incentive, but it hasn’t detracted from what was already there,” says Allen.

Dale Vince, managing director of Ecotricity, the only energy provider in the UK that exceeds its RO obligation, takes a more conservative view, saying: “While the CRC is unlikely to influence companies’ decision to purchase green tariffs, it is not particularly helpful in driving demand.”

But market rival E.ON says differently. “An overall lack of demand has prompted E.ON to revise its green tariff offering,” says spokesperson Jonathan Smith. Putting it down to timing, he adds: “The current economic climate is doing little to stimulate demand for premium green tariffs. Customers are opting for the cheaper tariffs during the recession.”

Energy traders also say demand has fallen over the last twelve months. The reason, according to Chris Harcomb, a director at UK energy broker Catalyst, is because green tariffs are too expensive.

The future for green tariffs may not be any brighter once the truth about their lack of credibility becomes more widely understood. According to Harcomb, there is a lot of confusion among firms about who is implicated in the CRC and how it rates renewable energy. He also says there is confusion surrounding the RO and the implications for green tariffs. “But when firms become clearer about the schemes, it stands to reason that there will be a negative impact on demand for green tariffs,” he says.

No real impact on renewables

Either way, suppliers like EDF and E.ON say the investment incentive created by green tariffs is negligible compared to that of the Renewable Obligation (RO). Only 2% of EDF’s larger customers specify that a portion of their electricity consumption should comprise green electricity.

A DECC spokesperson similarly noted: “Compared to the RO, the potential demand-pull of green tariffs for investment into renewables is insignificant.”

But builders of renewables, like Ecotricity, say Ofgem is choking demand. Vince argues: “Ofgem’s fixation with additionality is undermining a potential investment stream into renewable builds ... Given that the RO target is always set long [to avoid a collapse in ROC prices] suppliers should have every means available to garner investment”.

Last year’s spend on renewables by UK electricity companies averaged a mere £26.51 per customer, according to research carried out by Ecotricity. Ecotricity, which reinvests 100% of its profits into new builds, estimates that at this rate Britain will fail to meet even half its EU renewable energy target of 20% by 2020.

Worrying as this may be, Ofgem spokesperson Chris Lock says finding willing investors is only half the problem. “The significant barriers to renewables are, most notably, planning and grid access,” he concluded.


FACTS: Companies sourcing – and building – green

British Telecom

By the end of the 2009 financial year, BT claims to have reduced its CO₂ emissions by 58% compared to 1997, with 41% of its energy sourced from renewable sources and 58% from combined heat and power plants. BT has set a target of reducing its worldwide CO₂e (CO₂ equivalent) emissions per unit of BT’s contribution to GDP by 80% from 1997 levels by 2020.

BT is now working with its partners to develop wind farms that are expected to produce up to 25% of BT’s UK electricity consumption by 2016. BT has identified 20 prospective sites and expects to start generating energy by 2012.

Marks & Spencer

M&S has achieved most of its emissions reductions in stores and offices by increasing its purchase of renewable electricity sources to 23% of its total electricity purchase. Over 60% of the electricity supply for its distribution centres is from renewable sources.

To address the limited amount of renewable electricity in the UK, M&S is funding educations schemes for local farmers to encourage the build of small-scale anaerobic digestors and wind turbines for future electricity supply to M&S.

ASDA

Walmart subsidiary, ASDA, aims for its entire estate of stores and depots to be supplied by 100% renewable energy. The UK retailer is currently seeking planning permission to build wind turbines at six of its distribution centres around the UK. It is also testing the benefits of combined heat and power systems at two stores in Northern Ireland.

Dell

Dell now powers nine of its facilities in the United States and Europe with 100 percent renewable energy through partnerships with local renewable energy suppliers. Two of these facilities are located in the UK (Bracknell and Glasgow). Globally, Dell sources 26 percent of its global electricity needs from renewable energy sources, up from 20 percent in 2008.