As concerns around greenwashing build, a growing number of leading companies and suppliers realise that buying power from the grid, and ‘greening’ that power with annually issued renewable energy guarantees of origin (REGOs) can leave them open to greenwashing accusations.
As we have discussed, leading standard setters are moving towards requiring that corporate clean energy claims be backed up with evidence that consumption is matched with local supply, generated at the time of use.
In the UK, BT – a leader in the use of renewable energy and in setting climate targets – has become the latest firm to question its use of renewable energy certificates to demonstrate progress towards its climate goals. In a report authored for the telecoms firm by consultancy Cornwall Insights, BT notes that “there is little evidence pointing towards the environmental and financial benefit that REGOs play in both corporate and grid decarbonisation.” As a result, the company plans to scale back on the purchase of REGOs.
While most companies aren’t explicitly giving up on REGOs like BT, some are exploring alternatives – due in large part to rising prices. When REGOs were less than £1/MWh – which was the case for many years – the additional costs to companies of buying them to green their power consumption were inconsequential. But as the price of REGOs shot up to over £20/MWh last year, this added a considerable additional cost to many companies’ energy bills. For example, BT uses 2.5TWh of electricity, so paying £20 per REGO would cost it £50m annually. This would come straight off the bottom line and, based on its five-year historic price-to-earnings ratio of just over 10x, would wipe £500m off the company’s market cap.
This rethink on buying REGOs comes as business lobby The Climate Group calls on the new UK government to “accelerate reform” of the REGO scheme to, among other things, shift towards time-stamped “24/7 REGOs whereby the production and consumption of renewable electricity is better matched locally and in real-time”.
Matching supply and consumption
We believe that it is a matter of when, rather than if, the REGO market is reformed. It will move from the current position, where REGOs are issued to generators annually, with no indication of when during the year they were produced, to a system of half-hourly time-stamped and location specific REGOs.
Given that some corporate buyers will want to demonstrate that they are matching consumption of power with clean energy generation around the clock, this should push up the prices of REGOs issued during periods of the greatest mismatches: at night, or during windless periods. This in turn will help to incentivise solutions such as energy storage.
But in the meantime, what should a climate-forward company do?
Supplier matching
A number of suppliers have recently launched granular matching services to take advantage of concerns about REGOs and their cost. This isn’t a particularly new idea; Good Energy first offered such a service in 2016, when it unveiled its Selectricity service. This matched buyers with local renewable energy generators, at certain points of the day, if that generation was available.
It, too, has criticised the REGO system and, since October 2023, has offered its customers free hourly renewable energy matching. It says that, in addition to matching its customers’ usage to renewable generation “100% on an annual basis”, it says that it “consistently achiev[es] matching of over 90% in 30-minute intervals across the year”.
But does this “reporting service” have any more impact on driving the adoption of renewables than REGOs, given that REGO payments do go back to developers and have become a significant source of additional income for projects? To take this concept of matching further, utility SSE, with its massive portfolio of UK renewables, would likely be the “greenest supplier”, yet it also owns 6,200MW of thermal capacity!
Going direct
If corporates want to match their electricity consumption to timestamped clean energy and send signals into the market to drive more investment in clean generation, then a reporting service won’t do this: no one is taking any risk or getting any reward. Worse still, while a supplier might have sufficient power purchase agreements (PPAs) in place to match a buyer’s consumption when it signs the contract, what guarantees does it have that the supplier will be able to roll over those PPAs? Conversely, the supplier might find itself with a growing number of customers demanding time-matched green power – who gets that last unit of power on a still night? This feels like replacing one greenwashing risk with another.
If companies want to adopt the time-matching approach to buying energy, they will need to enter into direct arrangements that enable them to make claims that can be substantiated and, most importantly, are contractual, something I wrote about earlier this year.
This approach enables greater transparency, auditability, improved carbon reporting and, crucially, reassurance that the buyer has control over its time-matched consumption.
While these benefits are significant, it's worth noting that, compared with buying through suppliers, directly purchasing timestamped energy requires more resources and expertise, which may be challenging for smaller companies. However, the risks inherent in outsourcing this crucial function should make those companies that are able to handle their energy procurement seriously consider directly purchasing timestamped energy. And, as the market develops, more accessible solutions are emerging to enable a wider range of companies to participate in direct arrangements and granular energy matching.