Sales of green electricity – by which we mean electricity from renewable energy sources – are on the rise in Europe, but this has also provoked considerable critical debate. An important factor in this criticism is the lack of understanding of the basic principles of the disclosure process, the process that delivers information to electricity customers about the source of the power with which they are supplied.
From the customer’s perspective, reliability is the key issue. How to ensure that the information about the source of the electricity supplied can be trusted by the electricity customer? That is the main reason that the Association of Issuing Bodies (AIB) has joined the supporters of the CEER-BEUC 2020 Energy Customer Vision. The integration of the market for green electricity in Europe (in a broad sense, including Switzerland, Norway and Iceland) is progressing, thanks to the activities of the AIB. The purpose of the AIB is to develop, apply and promote a standard for Guarantees of Origin (GOs), the European Energy Certificate System – EECS. Through its HUB, AIB allows national authorities responsible for issuing, managing and redeeming GOs to exchange GOs internationally between their registries in a reliable and cost-efficient way. The AIB also acts as a knowledge centre for the authorities responsible for energy certificates, by providing advice and guidance.
But other principles of the 2020 vision are also relevant to the activities of the AIB and the disclosure debate, such as simplicity and affordability (in the sense of cost efficiency). Finally, providing information about the source of the power which is supplied to them has the potential of empowering the electricity customers, and thus can contribute to making the electricity market more competitive.
Green electricity is heavily debated in many countries
Should we debate what ‘green electricity’ actually is, and how best to inform the customer about the source of their power? Absolutely! But are we doing well to bring this discussion to customers using terms such as “so-called green electricity”? (This refers to the debate about ‘sjoemelstroom’ in the Netherlands). Certainly not! Allow me to explain why.
Often, when buying green electricity is discussed, people are sceptical. The reasons can vary: support for renewables is getting a lot of bad press in terms of cost and efficiency, but many people and companies also have difficulty understanding how buying electricity from renewable sources works for electricity customers. An interesting example is the discussion on Guarantees of Origin that I found myself participating in some time ago with a representative from a Belgian consumer organization. He was not impressed, to say the least, with the use of Guarantees of Origin as a means of providing the energy customer with information about the source of his electricity (the disclosure process).
What is a Guarantee of Origin?
The Guarantee of Origin (GO) is an instrument that labels electricity from renewable sources to provide information to electricity customers on the source of their energy. Guarantees of origin in the meaning of Directive 2009/28/EC are the only precisely defined instruments evidencing the origin of electricity generated from renewable energy sources . In short, a GO is a ‘tracker’ guaranteeing that one MWh of electricity has been produced from renewable energy sources; and if the customer buys the GO, they can be certain that they have purchased green electricity, as the GO is then taken out of circulation and discarded (‘cancelled’). Therefore, GOs are the instrument for making green electricity contracts reliable.
In short, a GO is a “green label” which ensures that one MWh of electricity has been produced from renewable energy sources, and if the electricity customer buys power which has been certified with GOs, they are certain to have bought power from renewable sources. After selling the associated power, the GO will indeed be taken out of circulation and destroyed, so that the same amount of electricity cannot be sold a second time as ‘green’. Therefore, GOs are the instrument to make green power contracts reliable.
What is disclosure?
This is what the RE-DISS project says about disclosure:
Electricity Disclosure is a requirement implemented in the revised Electricity Market Directive (2003/54/EC). All suppliers of electricity to final customers have to disclose to their customers the contribution of different energy sources to the portfolio of the supplier in the preceding year. They must also disclose related environmental impact indicators, at least in terms of CO2 emissions and the production of nuclear waste. The objective of disclosure is to provide consumers with relevant information about power generation and to allow for informed consumer choice, and for choice not to be based on electricity prices alone. In a liberalized market, disclosure requires some sort of tracking of the required attributes from generation to the supplier.
Member states have implemented national legislation on disclosure in different ways, sometimes also allowing for disclosure of differentiated product information (e.g. a green power product and a standard product).
While green power quality labelling is based on subjective quality criteria, which usually exclude a significant part of the electricity market from labelling, disclosure is an objective information scheme for the whole electricity market, providing consumers with information which they can use following their individual preferences.
The principle of disclosure works on the premise that markets function best when participants are given adequate and reliable information.
Consumer (organizations) and GOs
The consumer organization’s representative mentioned earlier was not impressed with GOs. The GO system cannot be explained to consumers, he said. They will never understand that Norwegian GOs are used to ensure that green electricity is sold in Belgium. It is in fact true that many GOs issued to Norwegian hydro-plants are transferred to Belgium, Germany and other countries, which makes the electricity sold in Norway mostly ‘grey’, meaning that it is no longer green . Customers can understand that mechanism, but is it not sufficient that there is a reliable disclosure system that energy customers can trust?
He said it was not acceptable that when electricity is produced from renewable sources, the electrons themselves and the GO that proves the renewable origins of the electrons are being separated and that the GO can be traded separately. Indeed, the GO can wind up somewhere else than the electrons, the physical energy.
The potato metaphor
The consumer organization’s representative then used ‘the potato metaphor’ to prove his point. If customers want organically grown potatoes, they are willing to pay a premium for them, but they would not accept that when an organic potato is grown, a GO is created to prove its biological nature, the organic potato would then be mixed with normal potatoes and the GO could be bought by people who want to eat potatoes without pesticides and fertilizers. I think he’s absolutely right and consumers would not accept this organic potato GO. But… the metaphor does not work intellectually!
First of all, it is perfectly feasible to put organic potatoes in a bag that is presented in the store separate to non-organic potatoes. And it is perfectly possible to label the bag with “organic potatoes”, so a separate GO does not make any sense at all. The metaphor would only work if the only way to transport potatoes from the farms to the stores was one big conveyor belt, on which all potatoes – organic or not – were put. Because that is what happens with electrons from green and ‘grey’ (non-renewable) sources: it all has to be transported on the same grid, and there is no way to distinguish the renewable electrons from the other ones. Fortunately, that is not the case with potatoes.
But there is a second – and much more important – reason that the metaphor does not work. A customer would be absolutely right not to accept an anonymous potato with a GO that certifies that somewhere a potato has been grown to organic standards. The customer wants the organic potato itself, not the information that some potato was organically grown! That is because there is a distinction between an organic and a non-organic potato: they are basically different, and the customers is willing to pay for that difference. This is not the case with electrons: the electron produced by a renewable production facility (a wind turbine, solar panel, biomass plant, hydro plant …) is no different from an electron produced by a fossil or nuclear plant.
Yet there are more and more customers willing to pay for green electricity, and this is a good thing! But since there is no difference in the electrons that come out of a consumer’s outlet, what they pay for is the knowledge – the guaranteed information – that the amount of green electricity they buy is produced by a renewable source, and that this amount of electricity has only been sold once. To be able to prove this, the GO system was created: it is an accounting scheme (a ‘book and claim’ system) that takes stock of the amount of electricity that is produced from renewable sources and of the sale of this electricity, ensuring that each green electron is only sold once.
The disclosure system is constantly being refined, so customers can take confidence in a contract that guarantees them green power, if this is what they want.
After Norway comes Iceland
Another aspect of this debate has surfaced in Flanders/Belgium due to the fuel-mix report of the Flemish energy regulator VREG, which shows that 15% of the electricity from renewable energy sources that was supplied in 2013 in Flanders came from Iceland. That was seen by some people as ridiculous, because there is no power cable between Iceland and the mainland! How would that power ever end up in Flanders? So the reactions to the news about the Icelandic green electricity that is sold in Flanders were harsh: “GOs are a European contrived deception” and “Sheer nonsense to see that Iceland is in the list of countries supplying green power sold in Flanders” are but a few examples. It is clear to these people that with GOs, consumers are being deceived…
But is the whole idea really that ridiculous?
Suppose you go to an ATM in Malta and withdraw euros from your bank account. These are clearly not the same physical euros which you have deposited into your bank account some time before in your home country. Yet no one find it strange that there is no pipeline to ‘pump’ euros from your home country to Malta. In the financial system, we have long been accustomed to the fact that an administrative system guarantees reliable payments, without the need to move the physical money.
Physical power flows and electricity markets
Those who question whether Icelandic green power can be sold in Flanders are basing this concern on the desire to link the physical flows of electricity with the sources from which the power was produced. However, this desire is untenable because, as we have already explained, once electricity is generated, it is impossible to know and to indicate the source (nuclear, fossil, renewable …) from which it was produced. Electricity is electricity, period. It is tasteless, odourless and colourless, and has no qualities that can be used to identify its source.
Indeed, if you really want to maintain the physical link, it simply becomes impossible to organize a market for electricity in general! Because if a customer changes to another electricity supplier, that act changes absolutely nothing about the physical nature of the electricity that reaches their home, office or factory. The only thing that changes is the financial and administrative handling of the electricity flows.
To illustrate this: someone living next to a coal plant run by electricity supplier A always consumes – physically speaking – the power produced by that plant, even if he concludes a contract with electricity supplier B.
The Impossible (green) electricity market
Imagine the following telephone conversation:
“I would like to buy electricity from your company.”
“Very well, madam, where do you live exactly?”
“Unfortunately madam, our company has no power plant that is close enough to Vienna to even remotely be sure that it is our power that will come out of the outlet. So I am afraid we cannot accept you as a customer …”.
If you maintain the link between the market and the physical power flows, then the electricity market would be very different: in fact, there would be no way of making the electricity market work at all!
Setting up a market in green electricity also does not work if you want to link that market to the physical energy. People who live next to a wind turbine will use the power from that wind turbine (if the wind blows), whether they want it or not (maybe this customer does not like the idea of wind power, and therefore has signed up with a supplier with only nuclear and fossil plants). Similarly, anyone living next to a natural gas-fired plant or nuclear plant would never be able to sign up for a green electricity contract. So if we want people and businesses to buy green power, we have to prove that with GOs. There simply is no other way to set up a market for electricity from renewables in a reliable and cost efficient way…
Yes, but Iceland?
So it is no more far-fetched to involve Iceland in the European market for green power as it is to involve the Netherlands, France, Germany or any other country. If you can accept that the establishment of an electricity market, green or not, is only possible through an administrative system that does not necessarily reflect the physical reality of the electricity flows; then by the same argument you cannot exclude a country just because it has no physical connection to the other countries.
An electricity supplier who intends to provide its customers with green electricity has several options. Either they invest in the production of electricity using renewable sources such as hydro, wind, solar or biomass … themselves and, doing so, obtain the necessary GOs, or they buy the GOs from other green producers, even if they are situated in another country. By using a ‘book and claim’-system based on GOs, we ensure that green electricity can only be sold once, and more guarantees should not be necessary to give their clients confidence.
Annual fuel-mix report is a good practice
The publication of an annual fuel-mix report by the energy regulator (or the relevant competent body for disclosure) is a very good way to raise awareness among electricity customers, as it provides an overview of the sources from which the electricity supplied in the member state is produced and provides an insight into the disclosure process. Some examples of fuel-mix report are provided by Austria, Luxemburg, Flanders/Belgium and Spain .
Demand for green power grows with GOs
At present, the supply of GOs still exceeds demand by consumers, who are mainly situated in countries like Austria, the Netherlands, Germany and Belgium. But awareness is growing in Norway and the other Nordic countries, the largest source of GOs that as they export their renewable GOs, their own power is getting ever ‘greyer’ (i.e. not green, but coming from fossil or nuclear sources). That is why big companies in Norway have started to purchase GOs now, to prove that they are committed to sustainability. If the demand for GOs grows, the price of GOs will rise and GOs will thus make a (greater) contribution to new investment in the production of electricity from renewable sources. And thus a major criticism of GOs often raised by the environmental movement will also be addressed, the one about the lack of ‘additionality’.
There is indeed a second group of people that criticize the GO as an information tool for electricity customers, and these people are mainly situated in environmental organizations. They state that green power certification by means of GOs can only guarantee ‘light’ green electricity, because a large part of the GOs, as already mentioned above, comes from plants that have already been operating for decades, especially hydro. These plants are an abundant source of GOs. There is therefore currently no incentive to invest in green energy from selling GO-labelled electricity. Again, this argument is not fully convincing. At the risk of drowning in my own metaphor: if you buy a banana bearing the Fairtrade label, do you expect that immediately an extra banana plantation is started? No, so why expect this regarding electricity from renewables? Why does a kWh of green power have to be linked to new investments in wind farm or solar? If more people want to buy green power than that which can be generated by existing renewable installations, the sales of green electricity will automatically become an incentive to invest more in renewables. Besides, many customers of green power do not support the interpretation that additionality should be part of the green labelling system before it can be called “truly green”.
But is the (temporary) absence of a direct investment incentive a good reason to attack the guarantee of origin and to call green energy a deception? Not in my opinion. It is a fact that we are investing heavily in renewable energy, because there are other mechanisms that have been created with this purpose in mind: SDE+ in the Netherlands, green certificates and quotas in Belgium, feed-in tariffs in Germany … Electricity customers know these systems, and know very well that there are large investments being made in green energy. Including additionality in GOs would not add a substantial incentive. Let each system do what it is intended for, and in the case of the GO that is the labelling of renewable generated electricity, nothing more and nothing less.
Let us continue the debate, but on a positive basis please
There is certainly a need for more dialogue and for a debate about what exactly green electricity is or should be. There is also a need to discuss how best to inform the customer about the source of their power. But are we doing a good job by pushing this debate to the customer with a concept like “so-called green electricity”? Are we feeding the debate on policy with arguments and pushing it forward? I am afraid not. All I see is that a shadow of suspicion is being cast on the entire sector of renewable energy, which we desperately need in the development of an innovative, high-tech, low carbon European society and economy. It seems therefore that the criticism is directed to the wrong ‘enemy’. Let the debate on green energy policy take place where it belongs and not in the media. And let us hope that the consumers, and the organizations that represent them, join the process that aims for a better and broader disclosure system.
1. Article 15 para 1 of the Directive defines the purpose of guarantees of origin as “proving to final customers the share or quantity of energy from renewable sources in an energy supplier’s energy mix.” Member States use guarantees of origin to ensure that “the origin of electricity produced from renewable energy sources can be guaranteed as such within the meaning of this Directive, in accordance with objective, transparent and non-discriminatory criteria.”A guarantee of origin must be of the standard size of 1 MWh, and article 15 para 6 Directive 2009/28/EC states that it must specify at least: The energy source from which the energy was produced and the start and end dates of production; Whether it relates to electricity; or heating or cooling; The identity, location, type and capacity of the installation where the energy was produced; Whether and to what extent the installation has benefited from investment subsidies, whether and to what extent the unit of energy has benefited in any other way from a national support scheme, and the type of support scheme; The date on which the installation became operational; and the date and country of issue and a unique identification number.
2. The import of GOs from exporting countries like Norway to provide evidence of green electricity supply in Belgium causes an excess of ‘grey’ electricity to have been produced in Belgium. This excess of grey electricity attributes are therefore exported from Belgium to those countries who export the ‘green’ character of their electricity, such as Norway. For instance, in 2013 in Flanders, 29.70% of the electricity was sold to consumers as ‘electricity from renewable resources’, while only 21% of that electricity was produced in Flanders from renewable resources. The amount of Flemish non-renewable electricity that was replaced by the imported GOs was reported to RE-DISS, which made allowance for this amount in the European Residual Mix. GO-exporting countries use the European Residual mix to fill up the gap in their disclosure system, caused by the export of their GOs. So Norwegian consumers see, in the disclosure information on their electricity bills, that part of the non-renewable electricity was produced in Flanders/ Belgium.
3. Institut Luxembourgeois de Régulation (French); E-Control, Austrian Energy Regulator (German); VREG, Flemish Energy Regulator (Dutch); CNMC, Spanish Regulator (Spanish).
Dirk Van Evercooren is Director of Markets at VREG, the Flemish Electricity and Gas market regulator and President of the Association of Issuing Bodies (AIB).
Image: Green Mountain Wind Farm_Fluvanna by Leaflet under CC-BY-SA 3.0 license