What are renewable energy certificates, and how can they benefit your business?
It's no secret that environmentally friendly practices can result in extra costs. This sometimes leads to energy suppliers and businesses misleading their customers when it comes to their environmental claims.
This is where renewable energy certificates come in. In this Bionic guide, we'll look at how the certificates are used to prove environmental claims, how they can be used to promote renewable energy and the Greenwashing issues that can arise.
30 Second Summary
- Renewable energy certificates (RECs) are electronic certificates issued to energy generators to verify that electricity comes from renewable sources like wind or solar power. They are used by energy suppliers to show their use of renewable energy and validate their Environmental, Social, and Governance (ESG) credentials.
- RECs help businesses make informed decisions about their energy suppliers, report lower emissions, enhance their brand image, attract investors, and achieve green energy targets without the need for on-site renewable energy infrastructure.
- There are concerns that some suppliers may engage in greenwashing by buying RECs without actually using green energy. The price of RECs has significantly increased in recent years due to growing demand, potentially affecting their accessibility and impact on the transition to zero-carbon generation.
What are renewable energy certificates?
Renewable energy certificates (RECs) aim to increase the accountability and transparency of renewable energy production. They are electronic certificates issued to energy generators to prove that electricity has come from a renewable source such as wind or solar power.
Energy suppliers use RECs to demonstrate to their customers how much of the energy they supply is from renewable sources.
RECs can also help to validate a business's ESG — short for Environmental, Social and Governance — credentials and Corporate Social Responsibility policy, which both demonstrate the efforts of an organisation to consider its environmental impact.
Read more on ESG in the Bionic Guide to Sustainable Finance.
How do renewable energy certificates work?
Once electricity enters the National Grid, it’s hard to tell whether it's from a renewable or non-renewable source. This means businesses can't actually buy renewable electricity from suppliers. Instead, the RECs issued to generators by Ofgem — the official energy regulator in the UK — for the green electricity they add to the grid can be sold to suppliers and corporations as proof of renewable energy.
Buying RECs helps to validate suppliers' claims about how much of the energy they supply is green, and organisations can then claim to be sourcing renewable energy. They can then report lower electricity consumption emissions to present themselves as a green company.
What are the different types of renewable energy certificates?
Renewable Energy Guarantees of Origin (REGOs)
A REGO certificate aims to provide consumers and businesses with clarity about how much of the energy they buy is produced from renewable sources. The energy regulator Ofgem generates one REGO certificate per megawatt hour (mWh) of energy produced from an accredited renewable source, such as solar panels and hydroelectric power.
REGO certificates provide evidence for any renewable energy sources included in a supplier's fuel mix disclosure (FMD). An FMD requires all UK suppliers to share with their customers the mix of fuels used to generate the electricity they provide them with every year.
Find out more about the UK's energy sources in our guide to the UK Energy Mix.
Renewables Obligation Certificates (ROCs)
Unlike REGOs, which are set at one certificate per MWh from a renewable source, the number of ROCs issued by Ofgem per MWh depends on the energy generation technology used and how old it is.
For example, offshore wind installations receive two ROCs per MWh. Up-to-date systems tend to receive more ROCs. This is known as ROC banding and acts as an incentive for generators to use newer and more reliable technologies.
The Renewable Obligation Scheme
The ROC scheme was designed to promote the sourcing of renewable energy by the UK's suppliers. The scheme placed an obligation on energy suppliers to present a specified number of Renewables Obligation Certificates per MWh of electricity they supplied to their customers in a year to Ofgem.
If the set number of ROCs isn't met, a buy-out payment must be made. This buy-out fund is then returned to suppliers, depending on how many ROCs they submitted. The scheme commenced in 2002 and was closed to new applicants in April 2017.
What are the benefits of RECs?
- Promotion of renewable energy — As we've looked at above, the ROC scheme was about encouraging energy suppliers to source green energy to help decarbonise energy generation in the UK. This is a vital step to reaching our net zero goals as a nation, one of which is to generate all electricity from clean sources by 2035.
Read more about the UK's net zero goals in the Bionic guide for small businesses here.
- Advancement of the renewable energy market — The fact that RECs can be sold on the market as an energy commodity can reduce demand for fossil-fuel-sourced energy and boost demand for renewable energy.
How can RECs help your business?
- Make informed decisions about your supplier — If businesses have more visibility over the source of their electricity, they can make informed decisions when it comes to switching supplier that fit their business requirements and goals, such as reducing environmental impact.
- Report lower emissions — For every MWh of electricity matched by a REC, a company can report zero emissions, bringing down the reported emissions and carbon footprint of your business.
- Boost brand image — Reporting low emissions and buying from a green supplier can improve brand image and customer loyalty. At the end of each financial year, Ofgem releases its Renewables and CHP Register to the public, which lists all the RECs allocated to each energy supplier. This means it's easier for customers to see how environmentally friendly your energy supplier really is- which will then have a knock-on effect on how they view your business's sustainability efforts.
- Attract investors — Becoming a net zero business is enticing for investors looking to put money into companies with long-term sustainable goals. Being less dependent on fossil fuels and less likely to be disrupted by global supply chain issues is also attractive to potential shareholders.
- Lower maintenance green energy — RECs are a way for businesses to prove their renewable energy usage without having to shoulder the costs associated with installing and maintaining renewable energy infrastructure in-house, like solar panels.
How does buying Renewable Energy Certificates work?
The fact that RECs are available to buy can be an issue. Generators can "unbundle" the energy they produce from the certificates and sell them on the open market. This is designed to help organisations unable to buy or produce renewable energy due to their location or on-site facilities compensate for their non-renewable energy consumption.
But this ultimately means that suppliers can buy fossil-fuel-produced energy along with a REC and act like they are buying green energy when they actually aren't. They could then sell this to businesses in green energy deals, or corporations can purchase unbundled RECs directly to help reach their environmental goals.
This makes it hard to accurately assess an organisation's environmental impact, and it seems that this front of buying renewable energy is only getting more common. By the beginning of 2022, the price of REGOs had skyrocketed due to purchasing demand from large energy suppliers. Not only is this damaging efforts to reach net zero by 2050 by transitioning the UK's energy mix to zero-carbon generation, but it also raises transparency issues with customers and corporate greenwashing.
How much do RECs cost?
The price of RECs has risen exponentially over the past few years from 0.42p per REGO in 2021 to around £4 per REGO in 2022. This is a huge increase of over 800% in 1 year.
This price increase can be attributed to multiple factors, including surging demand from suppliers and an upward trend of businesses pursuing a green brand image which renewable generation capacity can't keep up with.
Is buying RECs greenwashing?
Greenwashing is where a business promotes fake or dishonest information about its green business practices. Businesses greenwash in an attempt to boost their brand image without having to foot the costs and responsibilities of sustainable practices.
This is a dangerous game, though, as greenwashing has the potential to really damage customer perception and company reputation if green practices are revealed to be deceptive.
Energy suppliers buying renewable energy certificates could be seen as greenwashing as the suppliers are actively presenting a false front that they are buying green energy. This year, supplier OVO announced it would stop investing in RECs because of greenwashing concerns.
But businesses also need to be careful as well — buying energy from a greenwashing supplier won't do your company any favours.
How do you check your business electricity is definitely green?
Because more and more suppliers are choosing to buy REGOs, it's sometimes not enough to trust a supplier's fuel mix disclosure at face value. As well as checking the information in Ofgem's Renewables and CHP Register for your supplier, there are some other ways to check the green power you're supplied with is definitely green:
- Double-check your contract — Although some suppliers promote their renewable sources in their advertising, it's best to check the fine print of your contract, as some might still be selling you a high portion of non-renewable power. Make sure to specify exactly what you want in your Green Energy Deal.
- Check for independent accreditations — Third Parties can award accreditations for renewable products against international standards. You could check to see if your supplier has any of these independent accreditations which prove their renewable energy claims.
Get your business set with Bionic
Although we've highlighted the debate around renewable energy certificates, it's still worth exploring options to help your business electricity become greener for less, whether switching to a green energy deal or investing in renewable energy technology. It's worth researching all available grants and environmental taxes for green energy production.
This is where Bionic comes in. Our tech-enabled experts will help you to compare quotes from our trusted panel of suppliers. And because business energy is more complex than domestic energy, we'll talk you through the results to ensure you get the right deal for your business.
If you need more help understanding how to reduce your business's carbon footprint, take a look at our energy guide pages for more information. Or, reach out to the Bionic team to discuss and compare business energy deals.