Utility Week

14 | 6TH - 12TH APRIL 2018 | UTILITY WEEK Policy & Regulation Analysis I t's widely seen as the big success story of recent energy policy: the dramatic jump in the proportion of the UK's electric- ity needs supplied from increasingly cheap renewable sources. Yet recent weeks have seen a cross-party backlash growing in the Commons against the government's moves to exclude green tariffs from the energy bill price cap legisla- tion currently being fast-tracked through parliament. The BEIS (business, energy and industrial strategy) select committee recommended in February that the wording of the bill should be tightened to make it harder for so-called greenwash tariffs to evade the cap. Then during detailed scrutiny of the legis- lation a couple of weeks ago, energy minister Claire Perry responded to these concerns by promising she would get her officials to con- duct research into the green tariffs currently on the market. So, is the government set to backtrack on its moves to protect green tariffs? The case for a rethink Among those pressing MPs to tighten the exemption are Greg Jackson, chief executive of challenger supplier Octopus Energy. Branding the green tariff exemption a potential "loophole to continue to charge customers too much", he says: "You can imagine suppliers introducing default tariffs that are green solely to evade the cap, which would deliberately run against the spirit and letter of the legislation. "Using it [the exemption] as a way of try- ing to avoid a cap should not be allowed." While no fan of price caps per se, Richard Howard, head of research at Aurora Energy, does not believe green suppliers should be allowed to play by different rules. He says: "If you are going to start making exemptions, it's going to make it even worse." Ecotricity, the green energy pioneer run by Dale Vince, says in its submission to the BEIS committee inquiry that the exemption recognises the "additional costs" incurred by green electricity tariffs. Co-op Energy told the committee the wording of the bill could be tightened up to specify that the exemption should apply only if the wholesale energy purchased is backed by Renewable Energy Guarantee Origin (REGO) certificates. However, Good Energy suggested in its submission that the way REGO certificates can be traded means the legislation should be further tightened. Companies should hold a contract, such as a power purchasing agreement, with a specific generation site relating to the certificates they present. Aurora's Howard distinguishes, though, between the tariffs on offer from specialist providers such as Good Energy and Ecotric- ity and those available from bigger players. "You have providers like Good Energy who only do green energy and have their own fleet of renewable generation. Their custom- ers only want green energy," he says. "If there is no exemption, their entire business has to fall within that cap, whereas for a larger sup- plier with diverse tariffs and customers, there is probably more potential for gaming. "They are not doing anything different as a result of having some customers on a green tariff because they are already buying a mix of green and non-green energy." Octopus's Jackson agrees there is case for protecting the niche green operators. "The question is how you allow companies like Good Energy, which has a 20 to 30-year track record pioneering green energy and finding the people who want the very green- est energy, to carry on a business that their customers clearly buy into while at the same time ensuring there isn't a loophole." Jackson believes one way around this could be to narrow any exemption to cus- tomers who have explicitly opted for a green tariff, who he likens to Body Shop custom- ers prepared to pay a premium for ethically sourced cosmetics. "Any exemption should only apply to customers who have chosen an explicitly green product," he says. But Bulb, which says it derives all its elec- tricity from renewable sources, has broken ranks with the green camp by calling for no exemptions from the cap. The company's co-founder, Hayden Wood, says: "We think it's really important consum- ers are protected with the cap. Introducing a loophole reduces that protection. I don't think we should be exempt from the cap. He adds that it should be possible to find the extra costs of sourcing renewable energy within the cap's likely envelope. He says the additional costs of supplying green gas should be £25 to £50 per household per year. Labour has proposed an amendment to the price cap bill so that only tariffs that draw their energy from wholly renewable sources qualify for an exemption. That would still allow companies to game the exemption, says Wood: "The idea of a 100 per cent tariff is not enough: the impor- tant measure is the supplier's (overall) fuel mix." Renewables investment Good Energy has raised concerns that remov- ing the exemption for green tariffs threat- ens to undermine investment in renewable energy. It warns about the risk of a "hiatus" in investment in renewables, which could "negatively impact the country's transition to lower carbon energy systems". The firm's chief executive, Juliet Daven- port, told MPs, when presenting evidence that initiatives like her company's joint ini- tiative with Cornwall's Eden Centre entailed set-up costs that would be hard to afford within the constraints of a cap. However, pointing to research published by his own company last week, Aurora's Howard suggests that this case for subsidis- ing renewable project is being overtaken by the market. He says: "It's getting to the point where they don't need support. We are seeing the entry of projects on an unsubsidised basis." Liing the exemption provides a tricky dilemma for Perry, who has been tasked by Theresa May with piloting the price cap leg- islation through parliament. The self-confessed eco-warrior may have to spend some of the political capital she has built up since last summer in environmental circles in order to meet the prime minister's goal of lower energy bills. Green tariffs and price caps The government's price cap bill proposes exempting green tariffs, which legitimately cost more to provide, but will this simply allow suppliers to game the system? David Blackman reports.

• Cover