Today, Ovo Energy have announced that all the electricity they supply to their 500,000 customers will be coal-free. The UK’s coal power stations produced 17% of total greenhouse gas emissions last year, so it is a very welcome move that customers can now buy electricity coal-free, not as a premium product, but as part of their standard electricity tariff.
Ovo purchase their electricity from the wholesale market. Normally, the CO2 content of wholesale electricity is quite big, because it is calculated on the average electricity sold onto the system (called “the residual mix”), which includes a lot of generation from coal power stations. However, Ovo have purchased “Generator Certificates” from a big gas power station in Wales. This means the CO2 content of their electricity is now rated at a lower CO2 content than the residual mix.
What is the role of suppliers in decarbonising the electricity sector?
Ovo say “By paying generators which produce electricity from gas rather than coal as an extra 'top-up payment', OVO can reward gas and squeeze out coal, without customers paying a penalty for their cleaner energy.”
If every supplier in the country did this, then more gas-fired electricity would be produced, and coal-fired electricity would be a thing of the past. Therefore, voluntary actions by suppliers can have an influence on helping to decarbonise the electricity sector.
However, whilst it is clear that customers appreciate lower-CO2 electricity, the “top-up” premium that Ovo pays is likely to be quite small, and if all suppliers participated to push out all coal generation, then arguably the cost may be too large to incorporate into a standard electricity tariff, whilst the electricity suppliers are competing against suppliers who do not do this.
Therefore, even if Ovo’s actions are copied, it will be unlikely to be voluntarily copied across to the entire electricity sector, as much as we would love for that to happen.
What about an obligation for suppliers to decarbonise?
All policy efforts to decarbonise the electricity sector are generally concentrating on generators. However, we believe that policy concentrating on electricity suppliers could be the answer to cost-effectively decarbonising the electricity sector.
At Sandbag, we have discussed how a “supplier decarbonisation obligation” could look, and last week we submitted our proposals to the European Commission in their consultation on European electricity market reform.
It could be a great way to phase-down renewable subsidies whilst ensuring decarbonisation of the electricity sector. A lot of the infrastructure already exists – Ovo are demonstrating how the “Generator Certificates” can be used to help implement a supplier decarbonisation obligation.
Therefore, policy-makers should consider how a supplier obligation could help most cost-effectively decarbonise the electricity sector.
Anyone can check the carbon intensity of grid electricity in the UK using Sandbag's free Climate Tracker app.