Green Energy in Europe Selling green energ.y with green certificates

Sales of green power products are booming in Europe:

50,000 customers in the United Kingdom, 775,000 in

the Netherlands and 300,000 in Germany. Laws of

physics are however formal: the way in which electricity

flows within the grid does not allow suppliers to assure

customers that they are directly receiving electricity

produced exclusively from renewable energy sources.

What are marketers selling their green energy cus-

tomers then? t, Greenprices takes a closer

look and focuses on the potential of selling green ener-

gy in the form of renewable energy certificates.

Selling green energy is in fact selling the

concept of preferring renewable energy

sources to grey sources for the produc-

tion of electricity. A green certificate is

a certificate representing all the benefits

of the production of electricity from

renewable energy sources. Is the market

ready to receive their green energy in

the form of certificates?

Owning the green benefit In the current model of green energy

products available on European mar-

kets, there are three options:

Green tariffs: The customer is guar-

anteed that his electricity consump-

tion will be matched by the input of

the same amount of kWh’s from

renewable energy sources into the grid.

Most suppliers guarantee this match

within a year, others promise to do it

monthly. (In the Netherlands, this

match is done by the purchase of green

certificates by the supplier. Certificates

remain however held by the supplier.)

This was in fact the first form of green

power product to enter the German,

Dutch, UK and liberalised US states

markets. In this form the greenness

from green electricity production is

enhanced by the customers paying for

its entry in the grid.

Green funds: Green funds work dif-

ferently although the overall objective

is the same. When switching to a green

fund, customers continue to receive

“conventional” electricity. The cus-

tomer asks the supplier to donate a

part of the electricity bill to a fund that

supports the installation of new

renewables production capacity. It

means that customers subsidise the

future production of greenness.

Mix of green tariff and green fund:

A new type of offer has come into play

on the market. In this model, cus-

tomers’ consumption of electricity is

matched by the feed of existing green

power into the grid. But on top of this,

they also contribute to the constitu-

tion of a fund to start new projects and

increase the installed capacity of green

power in the future. This is the choice

made by, among other suppliers, the

UK supplier Npower with its product

Juice. While contributing to the fund

to start up the North Hoyle Offshore

Wind Farm, customers’ consumption

will be matched with electricity from

existing on-shore wind sources and a

hydro plant based in Dolgarrog in the

Snowdonia Mountains, Wales.

There is one common denominator

to all three products and that is that

they do not allow for the appropriation

of the greenness of the electricity by the

end-consumer. Indeed, in all cases, cus-

tomers contribute to the support

of existing or future production of

“greenness” but do not own this green-

ness they are supporting. None of the

customers are the owners of the green

benefits that are coming or will come

from the renewable energy production

they are supporting. They own a con-

cept and get the satisfaction that they

are “doing their bit”.

A recent initiative started by World

Wide Green in February 2002 should

soon reveal if selling green certificates as

such to customers is a feasible route for

green power marketers. World Wide

Green offers customers the possibility

to buy green certificates without chang-

ing supplier or signing up for a green

tariff or fund. Upon reception of their

bank details, customers become the

owner of one or more certificates. To

optimise customer confidence World

Wide Green will have its procedures

controlled by the German environmen-

tal Institute for Applied Ecology, the

Oeko Institut (www.oeko.de), which

has developed a pilot quality certifica-

tion for products based on tradable

renewable energy credits.

A certificate is one of the two prod-

ucts: the physical electricity and the

benefits from having produced this

electricity from renewable sources.

Countries such as Italy, the

Netherlands, Austria, Belgium and

soon the United Kingdom and Sweden,

have implemented registration process-

es referred to as “certificate systems”.

Those processes include an Issuing

Body, with which renewable energy

producers can register their plants and

obtain green certificates for the benefits

of their production (avoided emissions

52 March/April Xl02 REFOCUS www.re-focus.net

Kick-starting @bore: Some suppliers are contributing to firndr to start up off&ore windfarm while cuztomers’consumption is matched with

electricity from existing on-shore wind source3

to air, security of supply, etc.. .). These

certificates are then listed in a database,

which will track them until their final

use (called redemption). The final user

of the certificate will be its owner, he

will own the green benefits included in

the certificate. Should green certificates

be used as a green product on the mar-

ket and sold as such to customers, the

latter would then own the green benefit

that they are supporting. But is a green

certificate marketable?

A mere identification number? A green certificate concretely takes the

form of a paper or electronic folder

containing the registration number,

date of registration, source of energy

used, and location of plant. As such it

does not present any glamorous fea-

tures that marketers could play upon

when introducing them onto the green

power market. Electricity has long had

the reputation of a product, which

appealed very little to domestic cus-

tomers. Although this has now

changed to some extent with the cou-

pling of electricity with other services

such as telecoms, very few people actu-

ally understand the rationale of elec-

tricity. Green power has been intro-

duced to the public via the debate on

climate change and atmospheric pollu-

tion. Awareness of customers of the

fact that neither do they own, nor do

they personally receive green power is

very low. How will marketers now tell

customers that they are being sold a

computer registration number that

was issued to a plant producing power

from renewable energy sources?

Greenprices’ advice would be to “keep

the story simple”. There are programmes

nowadays that explain to IO-years old

children how nuclear fission takes place,

the concept of green certificates is not a

much more complex story to tell.

At a European level, certificates are

supported by the RECS (Renewable

Energy Certificate System group).

RECS is a platform constituted of dif-

ferent stakeholders of the renewable

energy world and aimed at promoting

certificates as efficient tools to stimu-

late the production and uptake of elec-

tricity from renewable energy sources.

While discussions about green certifi-

cates are often confused with discussion

about the trading of renewable energies,

the potential of green certificates reach-

es much further. In its recent Mission

and Strategy Paper, RECS listed the

contexts in which green certificates

could be used: Trading of green energy,

certification of origin, support of

demand-stimulating policies for green

electricity (tax exemptions, feed-in tar-

iffs, mandatory purchasing orders) but

also labelling of green energy. Last but

not least, the document makes light of

the potential of green certificates as

routes to sell green energy.

Transparency, additionality, verification: the three gifts. In its recent document “Guidelines on

Green Supply Offerings”, OFGEM, the

regulatory body for the electricity and

the gas market in the United Kingdom

lists transparency, credibility and addi-

tionality as the three main features a

green offering should offer. Green cer-

tificates would help f&l all three.

Transparency: a green certificate

presents all the information needed

about the source, quantity, subsidies

already perceived by the producer,

location of the production capacity

and date of production. How many

customers can claim receiving so much

information about the fund they are

paying their contribution into and/or

the green electricity that is fed into the

grid to match their consumption?

Additionality: The question most

often asked by visitors to wwwgreen-

prices.com is whether the customer is

not already paying for the support to

renewables as a taxpayer. This is the rea-

son often put forward, among others, by

experts of the green electricity market in

Germany, where money from the ecotax

is diverted to the feed-in tariff or guaran-

teed price paid to electricity from renew-

able energy sources. A system based on

green certificates ensures, by using one

central database where certificates are

tracked from issue to redemption, that

the benefits are only used and paid for

Greenprices is an independent web-

site on green energy in Europe and

abroad, with information on suppli-

ers of green energy, their products

and prices, policy and news.

Greenprices is an initiative of I&&s

B.V. Currently the following coun-

try sections are online: Belgium,

Germany, The Netherlands, United

Kingdom and Sweden. The address

is www.greenprices.com, which is

the general portal and gives informa-

tion on green energy in the

European Union. From here you can

visit the separate country sections on

green energy. For more information

about Greenprices or to suggest

green energy suppliers or large cus-

tomers currently not mentioned on

the website, please contact Heddeke

Heijnes, editor, or Laetitia Ouillet,

I?O. Box 8408, NL-3503 RK,

Utrecht, The Netherlands, tel.

+3 1.30.2808300, fax. +3 1.30.

2808301 or send an email to green-

prices@greenprices.com.

54 March/April 2002 RE?$.I~: 1::: www.re-focus.net

GREEN ENERGY

once. A producer receiving a feed-in tar-

iff for his wind energy will not be able to

sell the same energy to customers signing

up for a green tariff with their supplier.

Upon delivery to the grid and reception

of payment for the greenness (feed-in

tariff), the certificate is redeemed.

Buying a certificate will give the assur-

ance to customers that the greenness he

is receiving is his own and has not been

compensated for by others. His purchase

of the certificate is additional to other

forms of support paid to renewable ener-

gies. Double counting of that benefit is

avoided.

Verification: In the current way

countries are implementing systems to

issue and track certificates, verification

seems possible within a country but

not once the certificate crosses the bor-

der. In the RECS approach, all those

national systems and databases com-

municate with each other in a secured

environment so that their databases

can join in a megadatabase, which

enables certificates to be tracked across

borders. Should this secured commu-

nication take place in the future then

the third feature recommended by

Ofgem, verification, would most cer-

tainly be fulfilled by green certificates.

In a nutshell, selling green energy in

the form of green certificates would

satisfy all three features that are expect-

ed from green offerings. Would the

market in its current form be also satis-

fied by them or would there need to be

some changes on the market as well?

New categories of customers Certificates open the doors to an inter-

national playing field. Local, national

and international certificates will be

available. But are they destined for the

same public! Whereas in their current

form, green energy offerings differ only

in prices depending on whether they

are intended for business customers or

for households, certificates could allow

for a greater degree of differentiation.

International certificates (from

developing countries or the US and

Australia) could for example be mar-

keted for large multinational compa-

nies as a strengthening tool for their

international image. For instance, a

company with assembly lines in South

America could buy certificates for its

headquarters in London from green

certificates produced in Brazil.

NGOs active in developing coun-

tries could also be a target group for

those international certificates.

In the same way, certificates from a

local wind farm could be reserved for

people living in the area, who suffer

the few disadvantages (noise, intrusion

in landscape) and could be rewarded

by giving them the chance to own the

greenness of the same farm. Green cer-

tificates would in fact open up new

horizons for marketers by creating new

clusters of customers depending on

the type of certificates offered.

Conclusion Certificates have the potential to give a

real impetus to the uptake of green

energy by customers. They offer the

clarity and authenticity that the mar-

ket is waiting for. However, the intro-

duction of those certificates to the

market would require a lot of care and

attention in ensuring that the right

messages are communicated to the

public. The story is simple if told sim-

ply. At first sight, certificates might

not appeal to customers that are

unaware of the benefits. Marketing

and communication will be the key to

their success.