The share of renewables in overall power generation is rapidly increasing across the world. Germany has been called ‘the world’s first major renewable energy economy’. The share of renewable electricity rose from just 3.4% of gross electricity consumption in 1990 to exceed 10% by 2005, reaching over 40% of consumption in 2019.
Renewable energy technologies include solar power, hydro, wind, geothermal power, biomass, and ocean power. With the growth of renewables driven by both consumer demand and government regulation, a question that often comes up is “How do I know if the energy I pay for is actually green?” To answer this, a bit of background on how electricity grids work might be helpful.
This article is structured into three parts:
Prefer listening? Check out Episodes 10-14 of the How to Make a Difference podcast, where we talk about everything green electricity!
Part 1 – How do electricity grids work?
A national energy grid is a network of interacting parts which form one big system to provide electricity to all sectors of the economy. It starts at the power stations where the electricity is generated. The power stations then feed the electric current into large power lines called transmission lines. A Transmission System Operator (TSO) transmits electrical power from generation plants over the electrical grid to regional or local electricity distribution operators.
Electricity supply stack
Unlike other goods, electricity is grid-based and very difficult to store. This means that electricity must be produced at the same moment that it is consumed. One of the results of this is that the electricity price fluctuates throughout the day. Hence, if during a day when the sun is shining and the wind is blowing, a large amount of renewables production can drive the price down given their extremely low running costs.
Energy suppliers, through complex models, predict the daily and hourly energy requirements of their customers. This data is used to plan their production and consumption and forms the basis of their participation in the energy market. Electricity can be traded several years in advance on the financial markets and suppliers use these markets for planning certainty. As the day of supply draws close, the actual volumes of consumption and generation can be predicted more accurately. Thus, the short-term market consists of the ‘day-ahead’ and ‘intra-day’ markets. In the day-ahead market, producers and suppliers submit their bids to a central auction, specifying the amount of electricity they are willing to both produce and consume for each hour of the next day, along with their rates. The exchange then selects the clearing price where production meets demand. This forms what is called the ‘supply stack’. In the supply stack, renewable energy sits at the bottom along with nuclear where running costs are nil or marginal, and coal, oil, gas at the top with the highest quoted costs. In the day-ahead auction, the price for all suppliers is then fairly set based on the highest quotes. In the intra-day market, electricity can be traded until just a few minutes before the supply. This allows market participants to adjust their activities to actual demand/supply which might deviate from what was forecasted the previous day.
Prefer listening? Check out Episode 10 of the How to Make a Difference podcast!
The role of renewable and non-renewal sources
A nuclear plant once set up and switched on, will produce a constant supply of energy for its lifetime of say 20-40 years. So the energy the grid will receive from nuclear is predictable, constant, and cheap. While renewable energy production has low marginal costs, its production has limitations during the day or seasonally due to the temporal nature of resources. The grid thus needs sources that can supply energy to fill that temporal void when it occurs (rainy day/nights/no wind) and for unexpected peaks in demand like extremely cold weather. A gas, coal, or oil plant can be ramped up and down depending on this momentary demand. Thus, while energy demands can often be met solely by renewable and nuclear energy, fossil fuel energy continues to play an important role in ensuring the reliability of the system.
In 2019, Germany produced 516 TWh of electricity of which 46% was from renewable energy sources, 29% from coal, and 10% from natural gas. This is a major change from 2018 when a full 38% was from coal, only 40% was from renewable energy sources, and 8% was from natural gas.
What is the role of my energy supplier?
All electricity produced feeds into the grid from where it is directly supplied to our homes and commercial set-ups. So what is the role of Energy companies apart from producing electricity? The role of the energy company starts by ascertaining the energy requirements of their customers as mentioned before, including the green energy requirements. If 40% of their customers have signed up to using green energy, they ensure they produce/procure as much (or more) green energy into the grid.
While the electricity supplied into our homes comes from a common pool of energy that includes renewables as well as fossil fuel sources, the energy units supplied into our homes are commercially owned by our electricity supplier.
Part 2 – Are GOs and RECs just greenwashing?
How do I know if the energy I pay for is actually green?
In Episode 11 of the How to Make a Difference podcast, we discuss if green electricity is really green. Check it out if you prefer to listen.
Most western countries require electricity suppliers who claim to be “green” to prove the production of green electricity with certificates. For example, in the EU these are called Guarantees of Origin (GOs).1 In the US they are called Renewable Energy Certificates (RECs).2 In Australia they are also called RECs but are split up further into small-scale technology certificates (STCs) and large-scale generation certificates (LGCs).3
What all of these schemes have in common is that 1 certificate corresponds to the generation of 1 MWh of renewable electricity and – this is where it gets funky – that the certificate can be traded separately from the electricity itself.
The implications of trading green certificates and green electricity separately
Let’s untangle what this means, by making an analogy with chocolate.
Imagine a cocoa farmer. Our cocoa farmer is very responsible and because he pays his workers fair wages he is awarded the fair trade label. Now let’s assume he could sell his fair trade cocoa beans and the fair trade label separately.
This means one chocolate manufacturer could buy regular cocoa beans, then buy the fair trade label, and sell the result as “fair trade chocolate”. While at the same time a different chocolate manufacturer would be using fair trade cocoa beans, without the label, and sell this as “regular chocolate”. Of course, in the chocolate world – this would be a scandal.
Now when it comes to electricity it’s actually not THAT crazy: Since all electricity is physically the same – electrons are just electrons, and since all electricity – no matter if green or brown – goes into that same grid and is being mixed anyways, what matters really IS how much green electricity is being produced. And the goal is to increase that percentage.
Still – this is quite the contentious issue. Here’s why:
If all electricity goes through the same grid – what’s the point of switching to a green supplier?
The simple answer is: Your switch leads to an increased demand for green electricity – which leads to more green electricity being produced. Over time, an average person living in Germany would be able to save in the region of 700kg of CO2 per year (i.e. roughly 7% of their carbon footprint) if they were to switch to a green energy contract. Because of how the electricity grid works, this reduction of CO2 does not happen immediately when you switch, because it takes time for new renewable energy infrastructure to be built and to displace fossil fuel-energy.
The last part – more renewable energy infrastructure being built – is where it gets complicated.
Green electricity providers have a multitude of different models. As a consequence, the degree to which your money contributes to new green electricity infrastructure being built varies a lot. For simplicity, we will group them into three categories: The certificate-only model, the certificate+electricity model, and the certificate+investment model.
What’s true for all three models is: Green electricity is being produced, certified with e.g. GOs/RECs, and put into the common grid. In either case, you as a customer receive ‘mixed’ electricity from the grid and the guarantee (via the certificates) that the corresponding amount of green electricity has been produced.
And in all three cases you are contributing to an increased demand for green electricity – which will eventually lead to more green electricity supply, i.e. more green infrastructure being built.
This, of course, only works if demand is actually higher than supply. Let’s say a farmer has a tree that produces 100 apples every year. And he has demand for 70 apples. Even if demand increases to 80 apples per year – there is still no incentive for him to plant new apple trees, because he is overproducing apples already. The same is true for renewables.
According to an article in Utilities Middle East, the EU has had an oversupply of renewable energy compared to the demand for the past years. But – the good news is: the gap between supply and demand is closing – with more and more people and companies demanding green electricity this market mechanism (that all models have in common) might actually start working.
The difference between the three models is the following:
The certificate-only model
When your supplier buys only the certificate (GOs or RECs), the electricity producer is receiving the market price for his electricity – which fluctuates and leaves the electricity producer with some uncertainty regarding their income.
The certificate+electricity model
Some suppliers have power purchase agreements (PPAs) with the electricity producers. These are long-term contracts under which the electricity supplier buys electricity directly from a renewable energy producer and agrees to pay a fixed price.
I.e. the only difference to the certificate-only model is that the electricity producer is getting paid a fixed price, rather than a fluctuating market price – and therefore has more income security. The higher level of income security makes it easier for the electricity producer to plan ahead and make investments in new renewable infrastructure (e.g. because it’s easier to get loans).
The certificate+investment model
As in the certificate-only model, the electricity producer is receiving the market price for his electricity. However, on top, the electricity producer guarantees to invest a certain amount of money (usually coupled to the amount of electricity sold) into new renewable electricity infrastructure.
Is it greenwashing or not?
As always – it depends. Each model has a variety of manifestations and as long as electricity suppliers are transparent about what they do – switching to a green supplier/contract of any model is always better than funding the fossil fuel industry through your electricity bill. We also discuss this in Episode 13: Beyond Green Electricity of the How to Make a Difference podcast. Have a listen! We talk about the various contract models and what they mean for the impact you can have by switching your electricity contract.
As a rule of thumb:
- The certificate-only model might be cheaper than the other two models – but also has a smaller positive impact.
- The certificate+electricity and the certificate+investment models increase the speed of the electricity transition – but might also be more expensive for you as a consumer.
Part 3 – Where to find green electricity suppliers around the world in 2021
- EKOenergy: International ecolabel for energy, requiring a fixed investment into their climate fund, which is used to finance clean energy projects in developing countries. Certified energy companies in most European countries (Czech Republic, Denmark, Estonia, Finland, France, Germany, Italy, Latvia, Liechtenstein, Luxembourg, Netherlands, Poland, Romania, Slovakia, Slovenia, Spain, Sweden, Switzerland, United Kingdom), but also in Ecuador, New Zealand, Russia, Taiwan, and Turkey. Be aware – they list the company – but not the individual plan. So make sure to pick the right contract.
- Green-e: Certification for clean energy. Their website is very confusing, but if you go to Find Certified Clean Energy and filter for “Residential Renewable Electricity” you will find suppliers of green electricity (REC-only).
- Grüner Strom-Label: Green electricity label that requires linking GOs with electricity purchase and a fixed investment per kWh into new renewable energy infrastructure.
- Octopus Energy: Green electricity supplier whose German branch buys mostly4 time-stamped GOs. In Episode 12 we interview Andrew Mack, the CEO of Octopus Energy Germany. Check it out if you would like to learn more about Octopus Energy and their mission!
- OK Power: Green electricity label that requires additional investments into new renewable energy infrastructure, or energy efficiency projects on top of GOs.
- Milieukeur: Green electricity label (GO-only), that certifies green electricity produced in the Netherlands.
- Bra Miljöval: Green electricity label that requires a reduced environmental impact on top of GOs and an investment per kWh in projects that repair environmental damage and increase energy efficiency.
- naturmade: Green electricity certification with 2 separate labels: naturemade basic requires the construction of new ecological plants on top of GOs and naturemade star requires payments into a fund for ecological improvement measures on top of GOs.
- bulb: Green electricity supplier that PPAs with many (but not all) of their renewable energy generators.
- Octopus Energy: Green electricity supplier whose UK branch has PPAs with their renewable energy generators. In Episode 12 we interview Andrew Mack, the CEO of Octopus Energy Germany. Check it out if you would like to learn more about Octopus Energy and their mission!
- This article on the greenest energy providers by Canstar Blue is a very good resource and lists various labels and ratings.
1) For more reading on Guarantees of Origin (GOs) in the US go to the Wikipedia article on Guarantees of Origin.
2) For more reading on Renewable Energy Certificates (RECs) in the US go to the Wikipedia article on Renewable Energy Certificates.
3) For more reading on Renewable Energy Certificates (RECs) in Australia go to the REC Registry of the Clean Energy Regulator which is legislated by the Australian Government.
4) Note from the CEO of Octopus Energy Germany, Andrew Mack, from March 2021: “We had planned to buy time-stamped GoOs for all our electricity. However, in 2019 there weren’t quite enough GoOs of the EE+ (time-stamped) quality available on the market. As a result, we had to buy a very small number of EE GoOs to fill the gap. Therefore we can only show the EE certification on our website because not 100% of the electricity for 2019 was covered with EE+ certificates”.
EE and EE+ refers to the TÜV Standard “Zertifizierung der Erzeugung von Strom aus Erneuerbaren Energien (kurz: Erzeugung EE) mit Modul Erzeugung EE+: Zeitgleichheit”.