Renewable Energy Certificates – ‘greenwashing’ or a valuable contribution to carbon reduction?
One of the challenges levelled at market-based greenhouse gas accounting schemes using certificates such as Renewable Energy Guarantees of Origin (REGOs) and Renewable Gas Guarantees of Origin (RGGOs), is that they enable ‘greenwashing’. The criticism is that they allow companies to appear environmentally conscious whilst continuing to source power generated from fossil fuels, by matching it against an equivalent number of green energy certificates.
The problem is that it is not possible to differentiate ‘green’ energy from ‘brown’ energy from non-renewable sources. Once electricity or gas is exported to the grid or pipeline network, it is all mixed together. Unless there is a direct connection between the generator and consumer, which is often not possible, a consumer cannot tell if the physical unit they are using is green or not. Green energy certificates solve this problem by ‘tagging’ each MWh of energy from a renewable source at the point of generation. This tag can then be assigned to an equivalent MWh that is consumed to demonstrate its green credentials.
Greenwashing claims started when the energy certificate market was immature. On the demand side, green tariffs were initially slow to take off, therefore the price of energy certificates was incredibly low, enabling organisations to substantiate green claims at very little cost. An abundance of generator subsidies and incentives also meant that generators didn’t see certificates as an important component of their income stream.
As the market has matured and interest in renewable energy has grown, this is no longer the case. Corporates and suppliers must compete to purchase certificates, prices have significantly increased, and substantial sums are now being spent which then flow back to renewable generators. This can be seen both through rising market prices and in the REGO prices being offered to generators by energy suppliers buying their certificates alongside their power. Whilst it was common for these to previously be valued at 50 pence or a pound, the prices now being offered are substantially more.
Ultimately the iron test for any scheme should be whether it encourages investment in new renewable generation projects. As REGO and RGGO pricing has matured, income from certificate sales is becoming a decision factor in whether to invest. This is particularly true now that many subsidies and incentives for renewable generators have been withdrawn or reduced – making certificate revenue more important than ever before. The increased value of REGO certificates contributes to closing the subsidy gap left by the removal of the Feed-in-Tariff (FIT) and has gone some way to helping fill the hole left in generators’ pockets.
Whilst spot certificate pricing can be volatile, the reliability of income associated with long-term certificate offtake agreements gives more cautious generators the confidence to invest. The bottom line is that by assigning value to green energy production, the market mechanism is beginning to work as intended to encourage new renewable energy projects.
Market-based schemes also offer some key benefits over alternative approaches. One of the most crucial is that it encourages the most cost-effective schemes to be developed first. It is tempting to say that any new renewable generation should be undertaken regardless of its cost or difficulty. However, targeting the most efficient new schemes at the start of the journey and leaving the more difficult projects to later will accelerate us along the path to completely green energy. It focusses finite investment into the projects that will deliver the greatest benefit most quickly.
Green certificates also bring transparency to the market. Rather than needing to evaluate each consumer’s green claims against the specific green energy projects they are linked to on a case-by-case basis, using standardised energy certificate schemes enables stakeholders to see very simply and transparently what type of green energy is being used. This comes with the assurance that the certificate claims have been robustly checked and audited by the schemes of which they are a part.
Finally, it is becoming more common for energy certificate purchasers to specify in greater detail what type of energy certificates they want to buy – and therefore what type of energy projects are being encouraged. Directly sourced ‘green’ energy may be coming from renewable generation that was set-up decades ago, which does little to kick-start new investment. In some case buyers of energy certificates are starting to specify that they want certificates from projects that were recently commissioned, ensuring that new renewable generation is being supported. Alternatively, they may wish to support renewables of a certain technology type, or where there are particular co-benefits, and can select certificates to achieve this. Corporates may even source certificates from a specific project to establish a more direct link to that generator, enabling them to tell their story as part of their environmental messaging.
When market-based instruments are chosen carefully and used correctly, green certificate buyers can have complete confidence in their green energy consumption claims – knowing that they are making a valuable contribution to the growth of renewable power and gas generation.
