Energy company OVO hit the headlines in April 2023 by announcing that it will stop investing in Renewable Energy Guarantee of Origin (REGO) certificates. It means the supplier will no longer be selling tariffs badged as “100% renewable” as standard – yet this could be the greenest thing they’ve ever done. We asked Kim van Lieshout, OVO’s senior sustainability manager, about why they made this decision.
First, the big question: why are you moving away from REGOs?
The intention behind the creation of the REGO scheme was great; it was an easy way to track the total amount of renewable energy generated on the grid by giving generators a certificate for each MWH of renewable power generated. These certificates could then be used to certify electricity tariffs as “renewable”, seemingly allowing energy consumers to support green generation by signalling a preference for renewables. The problem with REGOs in practice is that they don’t actually incentivise the building of new renewable capacity. The reality is that whatever tariff customers opt for, households still receive their electricity from the grid, which comes from a mixture of different energy sources. A supplier doesn’t have to get all its energy from renewable generators to market it as “100% renewable”- in fact, it’s very common for suppliers to get most of their energy from the wholesale electricity market (which comes from a range of energy sources including fossil fuels) but then buy REGOs to match these volumes, which can then be labelled as green. Customers choosing “green” tariffs quite reasonably think that they are sending a market signal to support renewables, but in their current form, REGOs don’t actually do anything to actively decarbonise the grid. We want to move away from this broken system towards solutions that actually works for customers and decarbonisation.
Some will argue that REGO-backed tariffs still promote renewables. How do you respond to that?
On the face of it, it does seem logical that choosing a REGO-backed “renewable” tariff drives an increase of renewables because generators get money from selling the REGOs and a demand signal is created, which should in turn drive up supply. There is a very strong belief among consumers opting for renewable tariffs that their choices are having a positive impact on the amount of renewable electricity entering the UK grid. We were sceptical of that narrative, so we commissioned research with Cornwall Insight to test whether REGOs support the buildout of new renewable generation capacity.
The answer? They don’t.
The research found that investors do not consider REGO prices a secure enough revenue stream to support the business case for a new generation asset. The preferred source of revenue for investors is actually subsidy revenue. Over 95% of the existing renewable generation assets in the UK exist because they were funded by government subsidy schemes such as the Renewables Obligation, the Feed-in Tariff or the Contracts for Difference scheme.
Interestingly, the funding of these schemes is already paid for by energy customers via their energy bills. It makes no difference whether you’re on a “green” tariff or not – you are subsidising these schemes either way. But most customers believe that they are helping to support additional renewable generation by choosing a “renewable” tariff . We feel this is deeply misleading because REGO-backed tariffs do nothing to drive the build-out of new renewable generation infrastructure.
For your customers that are already on “renewable” tariffs, how will you persuade them that staying with OVO is still the green choice even without the green label?
We need to change the conversation around energy. A staggering 89% of customers on “100% renewable” tariffs believe that their homes are physically powered by renewable energy. 81% believe that their choices are making a wider difference to the amount of green energy being supplied to the UK grid. These illusions are harmful because customers genuinely believe that they are already making a difference, but we urgently need to refocus on solutions that actually drive down emissions.
The UK has the leakiest housing stock in Europe and we also have a high dependence on gas for our heating. We need a holistic approach to decarbonisation, which means tackling the problem on multiple fronts.
So, instead of selling REGO-backed “100% renewable” energy, we’ve announced a more radical approach to decarbonisation: Path to Zero. This is a toolkit of offerings across three decarbonisation categories: save, shift and transition. This means helping customers to reduce their energy consumption, supporting the uptake of technologies like heat pumps and EVs and also of course supporting the creation of new, truly additional renewable energy assets. It’s about using less energy overall, optimising the timing of when we use energy to maximise renewable consumption and ultimately ending our reliance on fossil fuels for heating and transport. None of this is as easy or as cheap as buying REGOs and branding our energy supply as “renewable”. But it’s time to get serious about climate change and do the hard yards.
Do you expect to get new customers as a result of this move?
That is not our motivation for the change, but yes. We want to encourage as many households as possible to take their next step on the Path to Zero. Many customers feel helpless in the face of their soaring bills and even more helpless to tackle climate change. We believe that supporting customers in energy-efficiency measures or electrifying their homes is the kind of practical help people desperately need. It’s a lot more empowering than just buying a tariff with a “renewable” badge. It’s also a much more honest, transparent approach, being clear with customers on what they are getting and giving them the options to genuinely support decarbonisation. Crucially at this time, we will also help a lot of people who are struggling with the cost-of-living crisis.
What practical support are you giving customers to help them decarbonise?
This is really important to us - so this winter, we’re providing our vulnerable customers with an extensive package of support. It includes immediate financial assistance such as payment support measures, and a suspension of pre-payment meter warrant activity until March 2024. But crucially, it also includes measures to help them reduce consumption in the long term - £1 million worth of free, energy saving products, such as electric blankets and mattress toppers, boiler services, LED bulbs and SMART sockets.
We’re also providing £500k in funding to support key charities on the frontline of the cost of living crisis, including StepChange and Trussell Trust. This fund will also go towards trialling community energy hubs that provide local communities with education and direct support with understanding how to manage their energy consumption.
You are the first big energy supplier in the UK to ditch REGOs. Do you expect others to follow?
We hope so. The REGO market is currently estimated at £1.4bn a year. That money could make a huge difference if it was redirected towards projects and initiatives that actually drive decarbonisation. The public conversation is changing and people are getting impatient with greenwashing, so other suppliers may soon find they have to answer tough questions about why they are still using REGOs.
Would you like to see REGOs scrapped?
We would like to see the system reformed. If REGOs were only issued for new renewable generation assets that haven’t already received government subsidy support, then choosing a REGO-backed tariff would mean supporting truly additional renewable generation. Rather than being a source of confusion and misinformation, we believe that REGOs can be reformed to become a genuine way of supporting additional renewable generation.
Several energy industry voices (including ENTRNCE) are calling for a much more granular system for tracking the source of consumers’ electricity in real time. What is OVO’s stance on this?
Accurate, granular data on energy sourcing is absolutely crucial. For an energy-intensive business, this information can shape a strategy for drastically reducing your use of fossil fuels: when to do energy-intensive activities, when to power up your batteries or fleet of EVs, and so on. So, like ENTRNCE, we are a member of EnergyTag, which supports hourly tracking of energy sourcing. The data already exists – we just need a way to make it more accessible to users and build the case for why it is so useful. But tracking is just one of the things we should be doing. We also need to focus on building new renewable assets, electrifying the heating systems in our homes and reducing overall energy demand through efficiency measures.
If you could change one thing about the way green tariffs are marketed, what would it be?
It would be great to see the introduction of a kitemark scheme that incorporates all the ways customer choices can make a difference on decarbonisation. This goes back to the principles in our Path to Zero project: save, shift and transition. Suppliers should be recognised for helping their customers to reduce their energy consumption, use energy at greener times of the day and ultimately reduce their reliance on fossil fuels for their heating and transport systems and the power system. Such a scheme would offer transparency on a broader range of actions from the supplier and would restore the link between customer choices and meaningful emissions reductions.
Our thinking in this space is constantly evolving and progressing. We’re keen to continue the conversation and engage with as many stakeholders as possible on these topics and challenges, so that together we can drive progress towards an energy system that works better for customers, their wallet and the planet. If anybody reading this has any follow up questions, please feel free to reach out to me at sustainability@ovo.com.
