All about Good Energy's Standard Variable Tariff
In this article, we share the history of the enery price cap – from why it was introduced, to its purpose since the energy crisis. We also look into the the support Good Energy provides to the UK’s renewable sector, and why that makes our Standard Variable Tariff exempt from the price cap when many other energy suppliers are not.
What is the energy price cap?
The energy price cap was first announced by the government in 2017 and implemented by the energy regulator Ofgem in 2019. It was intended to be a temporary measure to prevent big energy suppliers charging higher prices to customers who don’t switch to subsidise the cheap fixed deals they used to attract new customers.
The energy market is a very different place to what it was back in 2019 – with the wholesale cost of supplying energy much higher, although down from its peak in 2021 and 2022. With much less movement in the market, far fewer energy companies to choose from and and cheap deals very hard to come by, the price cap reflects the true cost of supplying energy from the wholesale market. It is updated every three months and protects customers and suppliers alike.
The price cap applies only to suppliers’ Standard Variable Tariffs (SVT) – with fixed deals exempt from the cap (some with high exit fees).
After the price cap was announced, a government committee recommended that there should be an exemption to the price cap for suppliers that contribute more than others towards the UK’s renewable energy industry (also known as a derogation). After a thorough review by Ofgem, Good Energy’s SVT was granted this exemption. Read on to find out why.
Why is Good Energy’s SVT exempt from the energy price cap?
Our Standard Variable Tariff is priced to reflect the true cost of supplying 100% renewable electricity in this volatile market, as well as cover the non-energy-related costs all suppliers have to pay. Ofgem recognised that we support renewables beyond other suppliers and that our costs to do so are materially higher as a result.
Here are three reasons why our SVT is exempt from the energy price cap, and why it costs more to provide 100% renewable power.
We never greenwash
Most suppliers that claim to offer green tariffs buy their electricity on the wholesale market, which comes from a mix of sources, including fossil fuels. They calculate the overall amount of power their customers use and then buy enough renewable certificates to claim that it’s “green”, through a policy loophole. This is made possible because units of power, and the certificates that certify that power as renewable (REGOs) can be sold separately from each other.
Some suppliers, such as British Gas, even bought certificates relating to renewable electricity generated in other countries that never entered the UK power grid. Thankfully, the government have now closed this loophole as part of a wider crackdown on the greenwashing of electricity tariffs.
At Good Energy, we don’t greenwash. We buy our 100% renewable electricity directly from over 2,000 independent renewable generators across Britain.
We match that with the energy you use at home over the course of a year, and have achieved over 90% real-time matching (energy generated and used within the same half hour) over the past five years.
The work it takes to sustainably support renewable generation means that we have higher operating costs compared to suppliers that simply buy certificates.
We directly support the growth of the UK renewables sector
At Good Energy, we have contracts, known as Power Purchase Agreements (PPAs), in place with over 2,000 independent renewable generators. The majority of these generators are small businesses, farmers or non-profit organisations, and 40% of these don’t receive financial subsidies for the power they generate.
As well as providing a reliable income to these generators that supports local economies, our long-term PPA contracts provide a level of financial certainty that helps get new generation projects off the ground. As well as paying our generators fairly for their power, a key part of the value we provide is our expertise – our team of energy originators who provide the support and knowledge to make renewable generation projects a success.
Between 1 April 2022 and 31 March 2023 58% of the generators Good Energy contracted with were new connections to the electricity grid. This is a clear example of how Good Energy’s SVT customers are directly supporting the growth of renewable energy in Britain.
Our approach to sourcing renewable energy has led to us being credited by independent panels of experts, including Uswitch, Which? and Ethical Consumer.
There is risk involved in weather-based power
Renewable electricity generation technologies like wind and solar depend on the weather. Even when we have bought ahead more than enough power for our customers, a PPA does not guarantee the wind will blow or the sun will shine.
After over 20 years’ experience in forecasting output based on the weather, our team of forecasters and traders have become extremely effective at predicting how much power we will get from our generators and matching it against our customer demand. They do this for every half hour of every day and manage to match supply with demand in real time over 90% of the time.
Sometimes, we have too much renewable electricity, so our team sell it on the wholesale market. And there are times when we have to buy wholesale energy to make up for shortfalls. If the wind doesn’t blow and the power we have procured doesn’t show up, we can be exposed to extremely expensive market prices – and this is a risk that we have had to price into our SVT.
We buy our 100% renewable power from a wide range of generation technologies and locations, and we have long-term contracts in place with our generators to mitigate our risk as much as possible.
Over the course of a year, we match all of the power used by our customers with 100% renewable power from our generator community.
Why is the cost of renewable electricity affected by the cost of gas?
At the moment, gas prices tend to drive the cost of electricity in the UK. This is because the electricity price in every half hour period is set by the marginal cost of the last generating unit to be turned off to meet demand. During peak times, this will be a gas power plant with high marginal costs (meaning it’s expensive to fire up and operate).
At Good Energy, we buy our power through long term contracts with renewable generators, which provides a level of protection against extreme volitility. However, we do have to pay our generators a fair rate that reflects what is going on elsewhere in the market – otherwise they will sell their power elsewhere. This is why the cost of our 100% renewable electricity goes up in a gas crisis.
The future of the UK’s energy system
The past three years have been volatile for the energy market. The frequent raising of the price cap and the necessity of extra government support schemes demonstrated that the cap can struggle to keep pace with the true cost of supplying energy.
The UK’s energy market is currently too strongly influenced by the cost of fossil fuels, such as oil and gas, which are in turn strongly influenced by geopolitical events.
At Good Energy, we’ve long argued that the way to make energy sustainable and affordable for the long term is to invest in more locally generated renewable sources. The sooner we can break away from our reliance on expensive, volatile fossil fuels, the more stable energy prices will be for everyone. Good Energy’s customers are helping to make that more stable, lower carbon future a reality.
