Wednesday, March 29, 2006

The Green Electricty Illusion

For the past six years, I have been a customer of green electricity supplier Good Energy. Today I abandoned ship and signed up to nPower’s low price tariff. Why?

Three reasons.

One. Good Energy kept putting their prices up. It’s the most expensive electricity supplier in the country. At home, we use around 8500 kilowatt hours of electricity every year and their latest price hike, to over 11p per kWh, when taking standing charge into account, will bring our annual electricity bill to nearly a grand. Good Energy used to go out at a premium of around 10% to the mainstream suppliers. Now the premium has grown to 35%. The nPower offering will save us £350 a year. A kWh at nPower is still less than 8p. Good Energy keep saying that everyone else is about to put their prices up, but you can buy electricity now at 9p per kWh with the price fixed until 2009.

Two. I have gradually lost faith in the concept of green electricity and I now think that the extra £350 a year I would be paying to Good Energy will make little difference to the UK energy scene. Of course, I always accepted that green electrons, delivered over the National Grid, were never going to be anything more than an accounting nicety, but I bought into the idea that Good Energy would match everything I paid over to them with renewable supplies. And indeed I accept that they do this. I have interviewed several of them over the years, including Juliet Davenport, the chief executive, and I have no doubt that their intentions are entirely honourable. This is a feelgood business par excellance and it trades on this factor.

But it turns out that the realities of the renewable energy market are a little different to how I first imagined. Which was that you put up a windfarm, which cost a shedload of money, but then you sold the generated electricity in perpetuity and all you had to do to cover your costs was to recoup enough money to pay off the loans. I couldn’t see why the price should change at all from year to year, so it came as quite a shock when Good Energy started passing on price rises every few months and the price paid per unit shot up from 7p to 11p.

What really drives the renewable electricity market is government intervention. The government has a commitment to produce ever greater quantities of renewables and, in order to do this, they set purchase targets for the big suppliers. Each year, they raise the targets thus ensuring there is a growing demand for renewables. The renewable electricity actually changes hands by way of an auction and the price has become artificially inflated because the targets set by government are always a little ahead of the supply. This is good news for renewable suppliers because they see a rapidly increasing market and a healthy premium price paid for their product. But it’s awful news for a boutique supplier like Good Energy because they are committed to purchasing 100% from renewables so they have to pay a premium price at auction in order to get hold of the stuff.

What’s also apparent in all this is that the market is being driven forward by government subsidy, not by any well-meaning consumer purchasing power. So the way the market is set up (or should that be rigged?), buying green electricity is an entirely pointless gesture.

Three. What finally tipped me into my decision to ditch Good Energy was an article in the Spring edition of Building For a Future by Cath Hassell and David Olivier entitled the Green Electricity Illusion. They point out that there really is only one sort of electricity supplied through the National Grid and, whilst we can slowly change the production mix, it behoves us all to use this resource wisely and carefully. By pretending that we are buying green electrons, it actually encourages us to go out and be profligate with it. They point out that several supposedly green schemes have been built recently which have chosen to use electric space heating and justified the choice by signing the scheme up to a green supplier. They show that the demand for electric space heating is growing year on year. Whilst they can’t prove that the availability of green tariffs is a contributory cause, the implication that they are is clear. We should be concentrating our green efforts on reducing electricity demand: the existence of renewable-only suppliers only muddies the waters and makes this less likely. “Greenwash” they call it. I say “Ouch. Point well made.”

So today, I voted with my direct debit. Went online to UK Power and switched over all within the space of ten minutes.

Now to reduce that 8500 kWhs per annum.


Blogger ralph said...

aah but.....Good Energy will probably totally agree that you should do all the energy efficiency stuff first, design your house well etc, and only then decide whether to buy green or dirty juice to meet your residual electricity requirement. And green electricity 'units' must be a good thing at that point. (Similarly, I know SolarCentury will tell you that you shouldn't spend money on PV until you've done all the other stuff first)

And on the other point, think long term about supply and demand. It could well take years before all the green generators (windfarms etc) start seeing their demand sustained at high levels, their share prices up, institutional investors piling in etc etc. So I think there is a case for buying into firms like Good Energy.

Oh yes, and I've got a few of their shares.

7:58 pm  
Blogger Mark Brinkley said...

I don't think green generators are having any problems selling their proposition to institutions at present. On the contrary, the City thinks renewables are a surefire bet for many years to come. This is no longer a yoghurt and knitting industry that needs the support of well-meaning liberals with a conscience, which is how Good Energy sell it: it has moved on.

11:05 pm  
Anonymous replacement windows said...

Yeah, the first step really is to reduce your electric consumption before looking for green solutions. That way you'll feel the whole benefit of going green.

10:25 am  

Post a Comment

<< Home