Why are green energy tariffs soaring alongside electricity and gas prices?

Households that made ethical choice to support renewable power production not necessarily shielded from rising costs this spring

A wind turbine in rural England (Getty)

As of Friday 1 April, a 54 per cent rise in the UK’s energy price cap comes into effect, meaning a steep increase in household bills this spring.

The cap, imposed by the regulator Ofgem, represents the maximum amount a utility company can charge an average customer in Britain per year for the electricity and gas they use, preventing businesses from simply passing on cost increases to the consumer.

The rate is reviewed every six months in response to global market fluctuations and the latest sharp rise means that a typical bill will go up from £1,277 to £1,971, a £693 per year increase for the average customer on a standard energy tariff as the ongoing cost of living crisis bites.

But the UK currently has an estimated nine million households on green energy tariffs, who might expect to be shielded from spiralling wholesale gas prices, given that they have opted for power derived from renewable sources instead. Not so.

The fact is that opting for a green tariff does not mean that the electricity you receive comes exclusively from renewable projects like solar plants and offshore turbines.

Instead, the electricity you are supplied with is precisely the same as that of your neighbour on a standard tariff because all providers rely on the National Grid.

Britain’s delivery infrastructure takes its energy from a range of different sources – coal, gas, wind, solar and nuclear – so household power is always supplied from a blend, regardless of which tariff the owner has opted for.

Currently, around a third of the electricity from the National Grid comes from renewable sources, a third from natural gas and the remainder from other fuels.

“Essentially, you should consider your electricity to have the same carbon footprint as everyone else’s no matter what tariff you are on,” said Josie Wexler, a researcher at Ethical Consumer.

“Ofgem should be forcing companies to be much more honest about what ‘100 per cent renewable’ really means.”

For its part, the regulator states: “As we transition to net zero, it is vital consumers can trust the renewable energy claims made by suppliers and that these are backed up by the appropriate evidence in order for them to make informed choices about their supply.

“We expect all suppliers to comply with the rules on disclosing where they source their electricity from and will continue to monitor compliance, taking appropriate action where this isn’t the case.”

Energy companies are required by law to publish the fuel mix of their electricity supply in the interest of transparency and to explain to consumers how it compares to the national average.

Good Energy, for instance, reports that its “100 per cent renewable fuel mix” is comprised of 49.41 per cent wind power, 32.71 per cent biogeneration, 13.6 per cent solar and 4.28 per cent hydropower, which is commendable.

But, despite the best intentions of some suppliers, if the power consumers receive from the National Grid is not renewable-only, what makes a tariff “green” in the first place?

To be able to offer such a proposition to customers, suppliers are required only to show that they have made direct investments in renewable projects, taken out contracts with clean energy producers or, most controversially, obtained REGO certificates.

These proofs, whose name stands for Renewable Energy Guarantee of Origin, are issued every time one megawatt-hour of sustainable energy is produced and can simply be bought by suppliers seeking to “match” the amount of energy their customers on green tariffs are using.

This gesture means that suppliers can claim to be supporting the renewables industry while still supplying power derived from fossil fuels.

This has led to accusations of corporations engaging in “greenwashing” – promoting their supposed environmental credentials without actually producing any clean power themselves.

While these conditions might be disappointing for customers who had hoped to make an ethical choice and support the environment, what is likely to cause a great deal more chagrin is that green tariffs can prove more expensive than standard tariffs.

This is because Ofgem has granted some providers special dispensation to set prices beyond the national energy price cap, a move to support their direct investment in renewable projects.

Without the protection provided by the cap, those households on green tariffs could potentially face even higher bills than their counterparts on standard packages as prices climb, meaning they are inadvertently being punished rather than rewarded for attempting to do the right thing, no small matter when the rate of inflation is so high and all other living costs are rising, from everyday groceries to petrol.

For all that, the Energy Saving Trust argues that consumers opting for renewable tariffs are marking an important contribution by giving a clear endorsement for clean energy, which suppliers need to heed if the climate crisis is to be addressed.

“Choosing a green tariff shows the demand is there,” the organisation said. “It sends a message to your supplier and the wider industry that you wish to avoid electricity generated from fossil fuels and support renewable energy generation. The increasing numbers of green tariffs available shows the industry is listening. This is a valuable contribution.”