O.K. let’s start by getting to grips with the basics of the Fuel Mix Disclosure (FMD).
Essentially, the FMD is supposed to provide evidence of the mix of fuels used to generate electricity. It is shared with suppliers’ existing customers during a compliance period which runs for a year starting on the 1st April.
And it’s how you (as the customer) are supposed to know what the makeup of the power you are buying actually is.
In 2005, the Electricity (Fuel Mix Disclosure) Regulations introduced a requirement on all licensed electricity suppliers to disclose the mix of fuels they use to generate the electricity supplied, annually.
Without fail, suppliers must disclose this information by 1 October, every year.
Helpfully, energy suppliers in Great Britain receive a letter from Ofgem which sets out the actions required and reminds them of the deadline for submission.
Note: The regulation was embedded into electricity suppliers’ standard license conditions (SLC) and is now known as SLC.
Why should you care about FMD?
As a responsible business that’s concerned about its environmental impact, it’s likely you’ve chosen an energy supplier based on its ‘green’ credentials.
And that’s a wise decision to make.
After all, powering your business with genuinely clean energy is one of the key tactics to meeting net zero.
So, I put this question to you:
What would you think if you found out that your chosen energy supplier – the one that claims to help reduce your impact on the planet – is actually providing you with energy from ‘dirty’, polluting sources?
Or, worse still, your supplier is masking dirty fossil fuel generated energy as clean?
You’ll pardon me for putting words in your mouth, but I’d expect that you’d feel pretty cheated, disappointed and confused?
Well, I hate to be the bearer of bad news, but I’m here to tell you that it’s happening.
And unfortunately, it appears to be happening industry wide.
A scheme that was intended to provide transparency.
I think it would be helpful to start with some context around renewable energy certification.
For every unit of renewable electricity generated, Ofgem issues a Renewable Energy Guarantee of Origin (REGO).
In short, a REGO is a certificate of proof issued to the organisation that generates the renewable energy – like a wind farm or solar park – to show that the energy produced is, indeed, renewable.
Ultimately, the REGO scheme was put into place to provide transparency to consumers and businesses about the proportion of electricity that suppliers source from renewable generation.
There is a loophole in the system that lends itself to malpractice.
Buying REGOs can mask fossil fuel energy as green.
Generators have the option to unbundle the energy produced from the REGO.
And is entirely permitted to sell each one separately.
Essentially, this means that an energy supplier can buy a REGO without needing to buy the renewable energy itself.
For example: a supplier can purchase fossil-fuel generated power, like coal or gas, combine it with a REGO, and claim that it is renewable.
And what this ultimately means is that an energy supplier can ‘act’ like it is supplying clean energy, when in fact, it is simply buying the right to say it is.
Now, I wish I could tell you that this has all been a terrible mix up.
But sadly, it is all true.
And what’s perhaps most concerning is that this has become the norm amongst many of the UK’s leading energy suppliers.
In fact, Cornwall Insight’s ‘Green certificate survey’ found the demand from big corporate power buyers pushed the prices of REGO certificates up significantly toward the end of 2021.
It found average reported prices of £1.35/REGO for Fuel Mix FMD 2021-22 and £1.41/REGO for FMD 2022-23. This is 228% and 214% higher, respectively than reported prices in the April 2021 survey.
Whether these are assigned to electricity generated from 100% clean generation or not, is very much open to debate.
And there is more worrying news still…
Sharp increase in UK suppliers buying European renewable energy certificates.
In recent years, we have also seen a sharp rise in suppliers buying European Guarantees of Origin.
These are otherwise known as European GOs, or, GoOs.
Essentially, a GO is the European counterpart of the UK’s REGO scheme.
It is worth noting that in 2019, the number of European GOs in the UK market reached 57.9 million – an increase of 41% when compared with the previous year.
In fact, our own analysis of European GOs submitted for the FMD period, 01 April 2020 – 31 March 2021, found British Gas Trading Limited (the UK’s largest energy company) is the largest user of GOs. It purchased almost 21 million certificates – twice as many as anyone else in the market.
In total, energy suppliers in the UK redeemed more than 64 million European GOs in the 2020-2021 compliance period. This accounts for approximately 19.7% of overall UK electricity supply in that period.
Lack of transparency amongst energy suppliers can cause you a tonne of issues
Arguably, the biggest issue here is transparency.
Or in this case, the lack thereof.
And it’s an issue that throws out a multitude of problems for both you as a responsible business, and for our planet.
Let’s look at the main ones, in turn.
If you do not know the FMD of your supplier, you will never truly know your own climate impact.
Firstly, you should know exactly what you are buying into when you choose an energy tariff.
Because the fact is:
If you do not know the mix of fuels that make up your power, you will never truly understand the impact of your business on the planet.
Which brings me onto my next point…
By not understanding the true source of your power, you could be falling foul of greenwashing.
As a business with a conscience and environmental goals of its own, it’s likely you’ve chosen to power you company with renewable energy.
And as many other businesses like yours have, it may be that you’ve laid claim to this on your website, or in the media.
And why not? Making this type of information public knowledge is a great way to increase loyalty amongst both your environmentally conscious customers and employees.
Given our understanding of the scale at which energy suppliers are taking advantage of the trading loopholes in REGO and GO schemes, there’s a very real chance you could be unintentionally greenwashing.
Essentially, your renewable energy claim could well be undermined by your supplier masking their fossil fuel power behind REGOs or GOs.
And here’s the thing:
Greenwashing – whether knowingly or not – will likely put your company’s reputation at risk.
Ultimately it is not enough to take your energy supplier at their word on this, you will need to delve into your FMD yourself too. More on this shortly.
(Note: Greenwashing is a topic we unpacked in a previous blog post, and you can find out more on that here.)
But that’s not all…
The UK’s transition to renewable energy is hindered.
Aside from the obvious problem that European GOs enable suppliers to mask fossil fuel sourced energy as ‘green’, there’s another major issue with the REGO’s European counterpart…
In the UK, all suppliers are required to pay into government schemes to support the development of renewable energy in the UK.
But buying a European GO enables suppliers to dodge these costs. Electricity suppliers can seek exemption from certain industry costs in respect of renewable electricity generated in an EU member state and supplied to customers in Great Britain (GB). Eligible imported electricity is not included in a supplier’s market share of supply for the purpose of calculating their obligations to pay CfD and FIT scheme costs. This means that suppliers supplying electricity in GB which has been generated via renewable sources in an EU member state can reduce their liability to pay towards the costs of these support schemes.
In 2019 alone, this practice enabled suppliers to collectively avoid paying £126 million into government mandated renewable energy schemes, like new wind or solar farms. In fact, a Sunday Times investigation found this same practice helped British Gas to avoid £49 million in green levies, 2019-2020.
These are schemes that will ultimately help accelerate the UK on its net zero mission.
Essentially, if you procure energy from a supplier that buys European GOs, you are, unfortunately and probably unintentionally, undermining the UK’s transition to net zero.
View and download our detailed explanation of the FMD and find out how clean your energy supplier’s fuel mix really is.
It’s time to scrutinise your energy supply chain.
The reality is:
This is not a time to be paying lip service to environmental concerns.
We recently questioned 250 sustainability and energy managers who work at FTSE250 and equivalent size companies…
And one of the questions we asked them was: “What do you rely on to ensure your supplier is providing you with the energy they say they are?”
40% said they merely rely on their supplier to tell them, whilst 14% said they rely on the FMD of their supplier.
What’s more, only 15% of sustainability and energy managers at some of the UK’s biggest companies look up how many REGOS their supplier has redeemed – information which can be found on the Ofgem website.
The sad fact is:
It is not enough to put trust in your supplier’s word – the evidence is there to prove it.
As a leader or sustainability professional reporting back to your C-suite, it is time to get up, close and personal with your energy supply chain.
Now is not the time to have any skeletons in your energy closet.
At Squeaky, our energy mix is 100% clean. We only provide electricity that has been generated by the force of the wind, the power of water and the rays of the sun. Take a look at our Fuel Mix Disclosure for yourself.