Green power retail strategies in European utilities

Burgeoning climate policies have placed upward pressures on power producers to source power from renewable energy sources and meet stringent carbon abatement targets. Yet in the current context of market liberalization and increased environmental awareness, too few utilities have truly leveraged their green credentials as a non-price differentiator and a way to unlock greater commercial advantage.

Report Highlights
Most of all the electricity generated from renewable sources in the UK is being supplied to businesses. 'Green' tariffs destined for the residential retail market are not delivering the environmental benefits they claim to. As a result, few residential consumers are actually making the additional positive contributions they intend.

Utilities are adding renewables to their generation portfolios in excess of legislative requirements. Yet, UK residential consumers will continue to struggle to find green electricity unless there is an expansion in the renewable capacity allocated to that segment. Regardless, suppliers will continue to target 'green' power demand from businesses.

None of the UK 'big six' have truly leveraged their green offering as a non-price differentiator in the domestic retail market. Of the five types of 'green' tariffs currently available in the UK, some are much 'greener' than others, most suffer from a lack of transparency and clarity, and all compete with other voluntary carbon offsetting vehicles.
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DATAMONITOR VIEW 1
CATALYST 1
SUMMARY 1
SOURCES 1
ANALYSIS 2
In an increasingly competitive environment, retail energy utilities must sell energy in an environmentally friendly way or face losing market share as they address a shifting set of strategy drivers 2
Faced with falling margins and rising wholesale prices, European energy retailers must take new initiatives to preserve margins 2
Retail prices are rising and converging: UK case study 3
In an otherwise commoditized environment, differentiation can be achieved either in the manner of sale or additional service 4
With record levels of renewables in their generation portfolios, utilities must now deliver equally robust renewable retail strategies 5
'Green' energy must bridge the gap between aggressive renewable strategies and much-needed utility innovation 6
Utilities should think of 'green' energy as a differentiator which is gaining acceptance as a more sound basis of competition than simply price or even service 7
In the UK, the disjuncture between wholesale and supply is caused by the Renewables Obligation subsidy 7
In the UK, the disjuncture between wholesale and supply is caused by the Renewables Obligation subsidy 7
None of the UK 'big six' have truly leveraged their green offering as a non-price differentiator in the domestic retail market 8
Of the five different varieties of 'green' tariffs currently offered by suppliers in the UK, some are much 'greener' than others 9
Of the five different varieties of 'green' tariffs currently available in the UK, some are much 'greener' than others 10
Most 'green' energy tariffs suffer from a lack of transparency and clarity 11
Ofgem has called for an end to 'hollow' green tariffs paid for by existing subsidies that provide little extra environmental benefit 12
The success of green power programs has varied significantly due to the variability of marketing programs and pricing strategies 13
Most UK retail suppliers are not marketing their fuel mix to their full commercial advantage 14
Different UK suppliers offer varying degrees of voluntary guarantees to back up their green tariffs 15
Non-UK European utilities have successfully engaged with 'green' tariffs by favoring the clear-cut 100% green source variety 16
Residential 'green' energy tariffs are competing with other voluntary carbon offsetting vehicles available to consumers 17
The voluntary carbon offset market is taking the 'green dollar' away from domestic retail customers signing up for green tariffs 18
UK Climate Change Levy legislation created overnight demand for renewable power from businesses. The proposed Carbon Reduction Commitment scheme should sustain that demand. 19
Levy Exemption Certificates create industrial and commercial demand for renewable power 19
New UK carbon reduction commitments will further incentivize suppliers to market the bulk of renewable power to I&C customers 20
BT has the largest publicly stated green contract, being supplied by npower and British Gas with three-year contracts 21
APPENDIX 22
Ask the analyst 22
Datamonitor consulting 22
Disclaimer 22
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Figure 1: UK energy retailers are under pressure from rising wholesale prices in the established wholesale power market 3
Figure 2: Correlated gas prices in the UK have also been on an upward trend as European supply fundamentals tighten, a situation which is exacerbated by the indirect impact of record oil prices 3
Figure 3: UK case study of domestic switching rates - Residential customers are struggling to find enough price benefit in switching suppliers 4
Figure 4: Rising wholesale energy prices will force suppliers to adopt innovative strategies in order to compete 4
Figure 5: The major European utilities are adding renewables to their generation portfolios far in excess of 2010 EU legislative requirements 5
Figure 6: Green is gaining acceptance as a more sound basis for competition than simply price or service 6
Figure 7: In this illustration of the relationship between the wholesale and supply markets, the supplier can either 'absorb' or 'pass on' the inputs from the wholesale market to the supply market 7
Figure 8: Under the Renewable Obligation, licensed electricity suppliers in the UK must source and increasing proportion of electricity from renewable sources 8
Figure 9: Some 'green' tariffs are such that part - or even all - of the supplied electricity may actually come from non-renewable sources 9
Figure 10: Green energy programs are niche programs and they must be marketed to customers correctly if they are to gain acceptance 11
Figure 11: Good Energy is the only utility to offer truly 'green' power tariffs and zero CO2 emissions per kWh of generated power 14
Figure 12: Currently, only four suppliers are committed to retiring a small percentage of ROCs 15
Figure 13: A sample of current German, French and Spanish residential 'green' offerings shows that some of the largest European suppliers have opted for the 'greenest' green tariffs 16
Figure 14: Carbon offsetting as part of a 'carbon neutral' lifestyle has gained some appeal and momentum, mainly among consumers in western countries 17
Figure 15: In 2007, the global voluntary markets, supporting activities to reduce emissions not mandated by policymakers, saw transacted volumes doubling to 42 MtCO2e and value tripling to $265m 18
Figure 16: Renewable energy targets are increasingly being met by industrial and commercial buyers 19
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