How Green Is Your Green Tariff?

Green tariffs have got a lot cheaper recently. But are they really as green as they seem - or is it all just another rip-off?

How things have changed. A few years ago, you would have struggled to find a green energy tariff, and paid through the nose to get it. Nowadays, electricity providers are falling over themselves backwards to offer you green energy - and often at a competitive rate too.

The trouble is, how do you know whether that so-called `green tariff' really is green, and comes from renewable energy sources? Most people assume that, by taking out such a tariff and paying slightly more than a conventional `brown' tariff, they are ensuring that the energy company generates more green energy. But is this actually the case?

The Renewables Obligation

To understand this market, it's vital to get your head around something called the Renewables Obligation.

This places a mandatory obligation on the UK electricity suppliers to derive 9% of their electricity from renewable energy sources over the next year (increasing to 15% by 2015), or face a large fine.

That means the biggest energy providers have to generate a substantial amount of green energy every year - even if none of their customers choose a green tariff. And as green energy is far more costly to generate than brown energy, this means their costs are rising.

Luckily for these companies, it just so happens that green tariffs have become really popular in recent years and most of us think it's perfectly acceptable to have to pay more for green energy.

So instead of being forced to either swallow their extra costs or spread price increases evenly among all their customers - which would effectively ensure that the brown energy users paid the same as the green energy users - the companies are choosing to charge green energy users a higher rate.

No longer seems quite so `green', does it?

The Green Tariff Rip-Off 

Of course, if you are a brown energy user, you may think it is fair that you should not have to pay for the extra costs associated with supplying green energy to National Grid.

But the green energy user may feel very differently. Indeed, phrases like `ripped-off' and `cheated' may spring to mind.

And partly, I feel the Government is to blame for this. There's no doubt that it is a good thing that electricity providers have to increase their supply of green energy to the grid. But, in my view, companies should not be allowed to resell this compulsory generation as `green tariffs', unless it is additional to their renewable obligation.

Unfortunately, at the moment, the big six electricity providers (EDF, npower, British Gas, Scottish & Southern, eon, Scottish Power) are a long way off achieving their 9% target. Certainly, they are not yet at the point of being able to supply additional green energy to the grid, on top of the amount they are now obliged to supply anyway.

So you could argue there is not much point paying more for a `green tariff' from one of the big six energy suppliers; it will not in any way increase - or, indeed, decrease - the overall amount of green energy being generated this year.

In fact, even if everyone in the entire country opted for a brown tariff instead of a green tariff this year, the big six energy providers would still have to substantially step up their generation and supply of green energy to the grid.

Go Green - Truly Green

But please do not infer from this that you should give up on green tariffs in despair. There is a way around this problem.

All you have to do is switch to a green tariff with a smaller energy supplier that is generating more green energy than is strictly necessary, under the Renewables Obligation.

Because they supply less energy, these smaller companies have a much smaller target. And once they have fulfilled their target, any green energy they do supply is additional to the amount required by the Government.

This means that a green tariff with a small energy provider - particularly one that specialises in green energy - will usually increase the generation and supply of green energy, while a green tariff with a larger energy provider will not.

This situation may change if larger energy providers start meeting their Renewable Obligations targets, but as I say, right now that is a long, long way off.

For this reason, Florian Ritzmann at Xelector (which provides The Fool's gas and electricity comparison service) believes the Government should introduce a kitemark to distinguish between tariffs which provide additional green energy to the grid and those that do not.

This certainly would make a lot of sense - although I doubt the bigger energy providers would be in favour of this idea.

Pay For Your Principles

OK so, after reading all this, you may have made up your mind to switch to a green tariff from a small provider which supplies additional green energy to the grid. The bad news is, you'll just have to dig a bit deeper in your pocket to get this tariff. Unlike the big six, smaller providers do not benefit from economies of scale and so cannot spread the extra costs involved in generating green energy across a large amount of customers.

For example, Southern Electric currently has a green `better plan' tariff which costs 12.25p per unit for the first 900kWh, and 9.26p per unit thereafter.

By contrast, Green Energy UK's +10 tariff is more expensive: the unit price is 10.34p, and there is also a standing charge of £44.08 per annum.

This means the average Fool reader, using 5000kWh of electricity a year, would pay nearly £100 more if they went with Green Energy UK over Southern Electric.

But the energy Southern Electric would supply you with - while 100% renewable - will be generated anyway, even if you had chosen an even cheaper, brown tariff. However, the renewable electricity you would get from Green Energy will be additional green energy, generated solely because you took out that tariff. (And you would still save nearly £25 a year if you switched from an npower Standard Tariff to the Green Energy UK tariff.)

Still, the sad truth is, if you can't afford to go for the truly green tariff from a small specialist green energy provider, you may as well plump for a large provider's cheapest brown option rather than that provider's slightly more expensive green tariff. The amount of green energy that is generated this year by that provider will be exactly the same, no matter which one you go for.

If you do want a truly green tariff, you can run a normal comparison search on The Fool and then click on `Electricity Only' and then the `Green' button at the top of the results page. Look for the names you don't recognise, like ecotricity, Good Energy and Green Energy UK.

Of course, only you can decide what going green is worth to you. Just don't make the mistake of assuming that, just because the tariff says it's green, it's worth paying extra for.

More: Ten Ways To Save Energy | The Truth About Green Cars

>  Compare green and brown tariffs via the Fool's Gas And Electricity Comparison Service.