Ofgem tightens ‘green tariff’ code

Wednesday, July 16, 2008

Power suppliers offering their customers so-called green tariffs will have to spend more on renewable electricity, under rules to be announced by Ofgem.

Such tariffs, under which suppliers contract to derive some or all of their energy from renewable sources, have become popular as environmental awareness has grown among consumers and businesses.

But the standard of such tariffs has varied considerably among suppliers, leading Ofgem, the industry regulator, to close some of the loopholes suppliers used to claim benefits that might not have been all they seemed.

Electricity suppliers must, by law, generate a certain proportion of their power from renewable sources, such as wind turbines. But, as the Financial Times revealed this year, some ­suppliers have charged a premium for such electricity under their green tariffs – meaning many customers were paying companies extra to do what they would have had to do anyway.

The new code, published on Wednesday by Ofgem, prohibits suppliers from offering customers green tariffs based only on their legal obligations to supply renewables and demands that they are able to prove they are taking extra measures that produce environmental benefits.

Customers already pay extra for companies to ­generate renewables, as ­contributing to the renewables obligation subsidy makes up 8-10 per cent of electricity bills.

The code will be voluntary at first and companies have six weeks to sign up. If those offering green tariffs fail to sign up by September, Ofgem said it would move to regulation. In order to qualify as offering a green tariff, companies will now have to show they take extra measures such as investment in research and development relating to renewable power, or setting up projects such as combined heat and power plants, where excess heat from production is used to heat local buildings. Tariffs will be graded bronze, silver or gold depending on the level of investment or the extra measures undertaken.

Alistair Buchanan, chief executive of Ofgem, said: “We intend to shine a light on to suppliers’ green offerings to show the customer why a tariff is green. We want suppliers to stop re-packaging their existing environmental activity as green immediately and to align their marketing with our guidelines.”

Tim Wolfenden, head of home services at Uswitch.com, the price comparison service, said: “This will separate the suppliers that are fully committed to renewables from those that aren’t. It will give consumers confidence that they are having a beneficial effect.”

Ofgem said about 350,000 domestic customers were signed up to green tariffs. It last produced guidelines on how power suppliers should label their green tariffs in 2002 but these were voluntary and some companies ignored them. Ofgem said on Tuesday it would enforce the new code if companies failed to comply, perhaps by inserting new conditions into companies’ licences.

By the end of the year the regulator plans to appoint an independent body to accredit the green tariffs.

This sotry was featured on The Financial Times website.

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