Here we look at two UK Government policies: consultation on the removal of cost exemptions of green imported electricity; and the recognition of EU Guarantees of Origin (GoOs).
It is our view that both policies will reduce the amount of green energy certificates in the UK market and almost certainly, in the short term, decrease renewable energy availability and increase prices. We’ve taken a more in-depth look below.
1: Consultation on the removal of cost exemptions of green
Background: Payments to electricity generators supported by the Contracts for Difference (CfD) scheme are funded through a compulsory levy on electricity suppliers in Great Britain, known as the Supplier Obligation. Also levied on GB suppliers are Feed-in Tariffs (FIT) scheme costs. In each case, individual suppliers contribute to the costs of these schemes in proportion to their share of the GB electricity sales market.
Electricity suppliers can seek exemption from these costs regarding renewable electricity generated in an EU member state and supplied to customers in GB. Eligible imported electricity is not included in a supplier’s market share of supply to calculate their obligations to pay CfD and FIT scheme costs. This means that suppliers supplying electricity in GB, generated via renewable sources in an EU member state, can reduce their liability to pay towards the costs of these domestic support schemes, with those costs being absorbed by other suppliers.
In the UK Government’s view: The green imported electricity for both CfD and FIT schemes offers suppliers a way to avoid paying the otherwise fixed policy costs on a portion of their purchased electricity. Market distortion has been created, allowing suppliers to reduce their contribution to policy costs for no benefit to the UK renewables market.
The Government is minded to repeal exemptions and restore a level playing between all GB suppliers so that each supplier’s contribution to CfD and FIT costs would closely match their market share of GB electricity sales.
What does this policy mean for you?
The impact on suppliers that buy large amounts of green energy certificates from the EU would almost certainly be increased costs. We would certainly expect the costs of renewables for those suppliers to rise.
The Government’s assertion is that the impact on customers would be neutral, as the costs for those suppliers that do not currently benefit from EU green energy exemptions would fall, which they could pass on in terms of lower renewable premiums for their customers.
2: Recognition of EU Guarantees of Origin
Background: As of 1 January 2021, the EU no longer recognised UK Renewable Energy Guarantees of Origin (REGO) certificates, creating an asymmetry in the market. The UK recognises EU Guarantees of Origin (GoO) certificates issued in the EU, while the EU no longer recognises REGOs issued in the UK.
In the UK Government’s view: To remedy the lack of reciprocity, the Government intends to cease the recognition of EU GoOs through legislation. Longer-term, domestic recognition of GoOs issued in EU countries will take place only on a reciprocal basis. The date for implementation is either October 2022 or April 2023.
What does this policy mean for you?
For customers with long-term renewable energy backed by EU GoO certificates, the new policy could become quite disruptive. Some UK suppliers heavily rely on EU GoOs to offer renewable energy contracts to their customers.
In a worst-case scenario, some suppliers may seek to enforce change of law provisions in their T&Cs to either discontinue the provision of renewable energy under existing supply contracts or seek renegotiation of the agreed cost premiums.
With the current insatiable demand from consumers in the UK for renewable energy, this policy intervention should encourage customers to seek direct Power Purchase Agreements rather than buying REGOs and encourage suppliers to invest quickly and more in renewable power.
If you would like to discuss any of the points raised above, please get in touch via our website contact page.