REGO prices are rising, and system reform is on the way. It all points to a more transparent way of sourcing clean energy, says Jaron Reddy, UK & Ireland Manager at ENTRNCE.
The cost of Renewable Energy Guarantee of Origin (REGO) certificates hit a record high of £20 in October 2023. This represents a doubling in price since less than a year ago – in November 2022 REGOs were going for an average of £8.75. But the hike in price is even more startling when seen in a longer-term context. When analysts Cornwall Insight began their quarterly REGO pricing survey in December 2019, prices were comfortably below a pound per REGO. Going even further back, suppliers could snap them up for about 20p.
Businesses are taking control
There have long been reputational risks for businesses using REGO-backed tariffs to meet their climate targets (they make it too easy to accidentally overstate emissions reductions, jeopardising regulatory compliance). Now, with prices still rising, there is a huge financial risk, too.
On the other hand, organisations are finding that the business case for taking control of their energy supply is more attractive than ever. Investing in on-site assets means that they are visibly supporting the generation of new renewable infrastructure. Securing a Corporate Power Purchase Agreement (CPPA) also offers a layer of additionality. Using our data platform, the Matcher, we’re working with businesses to simulate which clean energy options best suit their half hourly consumption profile, so that they can take data-driven decisions on these big investments.
Amidst the price rises, we are still waiting to hear the Government’s next move on REGOs. This summer, it finally published the responses to its 2021 Call for Evidence on the energy retail market. The upshot was a clear consensus in favour of REGOs reform.
It asked if the system of retrospective annualised matching, where a unit of consumption could be matched to any unit of renewable energy generated in the past 12 months, is working. We have long argued that REGOs and the current system are not fit for purpose. And the majority of respondents agree with us. Most people said that the system is not clear enough to consumers, many of whom wrongly believe that choosing a “green” tariff means supporting the build-out of new renewable energy projects.
The most common suggestions for reforming the energy retail market in the UK focused on the need for additionality. We need a way for consumer choices to send a clear market signal that leads to more renewable energy being produced. REGOs are currently not achieving this; there is little connection between consumption of REGO-backed “100% renewable” energy and the development of renewable assets.
Suggestions included introducing a ranking system for “green” tariffs, reflecting how much new generation they actually support. Many respondents emphasised the importance of data: better real-time information on the grid mix and half-hourly matching of consumption and generation. This is in line with what ENTRNCE has been calling for.
Can price rises drive change?
Respondents to the Call for Evidence felt that REGOs have historically been “too cheap to influence long-term investment decisions”. Some respondents felt that rising prices could turn REGOs into a more effective tool to drive investment – but only if the structure of the scheme changed to make them less of a blunt instrument. Supplying the evidence of energy sourcing on an annual basis is unlikely to drive change whatever the cost, but switching to a half-hourly basis could be a complete game-changer, in tandem with rising prices.
With prices set to rise even further (some industry experts expect prices to hit £30/MWh by Christmas) then perhaps REGOs could be part of a more effective energy market, if they can achieve this level of granularity and begin to offer the transparency of sourcing that customers need.
The Government says it is “now undertaking a broader review of the REGO scheme”. ENTRNCE will continue to call for an energy retail market that offers real transparency for consumers. We support a data-driven approach that gives energy users the chance to make genuinely informed choices on their consumption.