What the soaring costs of REGOs means for renewable energy in the UK
This article was written by our Sales and Origination Director, Tom Parsons
Renewable Energy Guarantees of Origin, or REGOs, are the certificates used to certify renewable electricity in the UK. For each MWh a renewable generator produces, they can claim a REGO. And recently, they have been rising in price astronomically.
Understanding REGOs and their pricing is crucial for anyone purchasing renewable (green) energy in the UK. In this article, we will look at some of the drivers behind the rising REGO prices and what customers can do about it.
What’s happened to REGO prices?
REGO prices have risen astronomically from about 20p per certificate just a few years ago to £25 per REGO last week. That’s a 125x increase. For context, oil prices have only seen a 2x increase over the same period.
*Source: Good Energy internal analysis of REGO pricing for the current REGO compliance period
Why are REGO prices so high?
There are two main factors driving REGO pricing in the UK.
- Supply has been significantly cut. In previous years, suppliers have been able to buy GoOs (Guarantees of Origin) from elsewhere in Europe and use them to verify renewable supply in the UK, a practice which also allowed suppliers to avoid paying their contributions to support schemes for renewables. This is something Good Energy has always been vocally against as not only was it a form of greenwashing, it actively hampered growth of new UK renewable generation. Ofgem put a stop to this earlier this year, which means that all the suppliers that relied on European GoOs now need to buy REGOs to continue claiming they offer renewable electricity.
- Demand for renewables is steady. UK consumers, both domestic and business, have increasingly been sold renewable tariffs in the UK, even though many weren’t truly renewable. These consumers are likely to continue to expect renewable electricity. This means suppliers have no choice but to go out to market and pay for REGOs, otherwise they lose customers or are in breach of existing contracts. They are bidding for these REGOs against other suppliers in the marketplace so the price gets pushed up.
Will REGO prices continue to rise?
REGO prices are likely to continue to rise – some industry experts expect prices to hit £30/MWh by Christmas. At the very least, they will stay high, and will not fall back to the levels we saw in 2020 and 2021.
On the demand side, there are no signs that suppliers that don’t have enough REGOs have now met their needs. They are likely to keep coming to market to buy more REGOs over the coming months. There is also no indication that consumers are switching away from renewable power. For many businesses, renewable power has become a crucial part of evidencing how they are decarbonising.
On supply of certificates, if we have a windy winter, more REGOs will be generated, which could reduce pressure on prices. But if we have a still winter, with lower than usual levels of wind, this will create even more shortness in the market, pushing prices up higher.
There is no market cap on the price that REGOs could reach. The only cap is a commercial one, when suppliers decide they can’t afford to buy them anymore.
This isn’t just a UK trend. We are seeing certificate prices in Europe increasing significantly as well, suggesting the underlying dynamics of increased demand and not enough supply are playing out across the continent.
Is the rising cost of REGOs good news for renewables?
The rising cost of REGOs is good news for renewables – or at least it should be. One of the criticisms levelled at the REGO system was that cheap certificates didn’t contribute to financing new build renewable projects.
But now prices are at £25 per REGO and rising, the issues of transparency and provenance take on even greater importance. Certificate value should be being passed through to generators and contributing materially to the business cases of building new renewables. However, because many suppliers buy their REGOs separately from third party traders, intermediaries can buy low from uninformed generators, and sell high to suppliers – taking the profit for themselves.
We must make sure that that value is going where it is needed to grow renewable generation: back to the generators who will reinvest it.
What does the cost of REGOs mean for Good Energy?
It’s always been our view that what makes a tariff green is where the power comes from: your supplier should be buying it directly from renewable generators. At Good Energy, we’ve always purchased REGOs alongside the power from UK based independent renewable generators.
Our 2000 strong generator community get the full value of their certificates in addition to a fair price for their power. This model makes more renewable projects financially viable, ultimately putting more renewable power on the UK grid.
Another criticism of REGOs is that they are retired on an annual basis, which does not reflect when the related power was generated or tally with when it was used. This disconnect means they are unhelpful in incentivising an increasingly renewable power system with variable weather-based sources of generation like wind and solar.
Good Energy has long strived to match our customer demand with our renewable generators’ output on an hourly basis. Now, we are the first supplier in the UK to move all of our larger business customers onto a transparent hourly matching service. This means for every hour in the day, customers can see what type of renewable power they are using and where it has come from. We hope this is the first step towards a certification system which better reflects when and where renewable power is coming from, enabling more flexible demand and filling the gaps in generation.
What does the cost of REGOs mean for customers?
If you’re on a renewable contract in the UK, then your supplier has to buy enough REGOs to cover your consumption. This means you will likely be paying more for your renewable power than you have previously. For a medium sized business customer consuming 100MWh, this might equate to a £2,500 increase in costs annually. For a large business consuming 10,000MWh per annum this is a £250k increase. And it’s possible that this increase in cost is only partially going back to renewable generators, if at all.
A 2021 report suggests that most suppliers can’t evidence where all of their renewable power is coming from, and are passing off dirty power as renewable. You wouldn’t buy champagne if a shop couldn’t prove it came from France’s Champagne region – so if your supplier can’t tell you where your renewable power is coming from every day then it may be time to find a new supplier.
Transparency from suppliers is the only way to justify these higher costs, and we will continue to push for changes to the way renewable power is accredited to provide that greater transparency for consumers.
Our takeaways on what high REGO prices means for renewables
The surge in REGO prices reflects a new consideration for customers using renewable energy, signalling both challenges and opportunities. While the sharp increase will impose additional costs, it also underscores the growing importance of supporting genuine renewable energy projects. This shift in pricing dynamics should drive the development of new renewable energy initiatives, fostering a greener and more sustainable future.
As customers navigate these changes, it’s imperative to prioritise transparency and accountability from energy suppliers. By demanding clarity on the sources of their renewable energy, consumers can play an active role in promoting a more accountable and sustainable energy market.
For our part, Good Energy’s commitment to transparency remains unwavering, as exemplified by providing hourly matching for all larger business customers. We believe that by empowering customers with the knowledge of their energy sources, we can guide them to making better use of their time, energy and money, while trying to decarbonise.
