How good is buying renewable electricity?

Guy Lipman
Jul 29 · 4 min read

As I approach the end of my first year of a PhD, I thought it would be useful to reflect out loud on one of the key questions that I’ve been considering so far: to what extent it is good to buy renewable electricity?

First, some background. Most residential and commercial customers in Europe, North America and Australia are allowed to choose which retailer they buy their electricity from. These retailers in turn can choose which generators they buy their electricity from. These are economic relationships — where the electricity you use actually comes from is a matter of physics, and much harder to pin down. But most people seem to accept the idea that they are buying electricity from their retailer (rather than from the grid).

Now, a lot of customers care about the environment, and would like to contribute to a reduction in greenhouse gas emissions. Renewable electricity generation has lower emissions than fossil-fuel generation, and so these customers would therefore prefer to buy electricity that their retailer has sourced from renewable electricity (assuming it doesn’t cost a lot more). A number of retailers have responded, selling electricity from renewable sources to some or all of their customers.

According to some people, this idea that you can or should buy renewable electricity is seriously misleading (I’ve even heard it described as a fraud, though never with any justification). They argue that your purchase doesn’t increase the amount of renewable electricity being generated, and is likely to reduce your likelihood of taking other steps to reduce emissions. Other people have argued that encouraging people to choose a retailer that cares about where its electricity comes from is a worthwhile first step, and should be encouraged.

Having thought about this for many months, I have given up trying to reach a general verdict. Some retailers source their renewable electricity in ways that genuinely reduce the amount of fossil-fuel being burned, others do it in a way that has much less impact. Some customers do see it as a first step towards engagement, while others probably do see it as a way of avoiding the need for more substantial effort.

That isn’t to say that there is no point in trying to do good. At the individual customer level, I would encourage customers to think about buying renewable electricity, and, if you can, to look behind behind the raw numbers to how much impact the retailers are having. I wouldn’t pay considerably higher prices for renewable electricity, but in the UK at least, you can often get well-sourced renewable electricity and good service without paying noticeably more. And regardless of whether you end up buying renewable electricity, there is a lot more that you can do to reduce emissions, at an individual and community level.

At the policy level, it is a bit more challenging to make recommendations. There is a big debate about whether organisations can take into account the source of the electricity they buy when calculating their carbon footprint. At the moment UK standards require them to report their carbon footprint once showing the grid average, and they can additionally report it taking into account their purchases (most international standards are similar). This is messy, but I’m not convinced that changing it would lead to a better outcome.

There is also a question as to whether requiring electricity retailers to disclose more information would lead to better decision making by customers. In one sense, it absolutely would — I struggle to tell from retailer websites how they source renewables and how much impact it has. But the extra information I would want isn’t one or two additional objective statistics that could easily be mandated by regulation, but a richer picture of attitudes and approaches. Maybe a requirement to give more detail would provide better guidance, but it might just lead to retailers spending more on marketing.

I still find this whole topic a fascinating one — it involves questions of psychology, communication, business strategy and policy design. I do feel a stronger sense that buying renewable electricity often is a good thing, but how you do it and what else you do matters more. But I’m less confident than there are any easy policy changes, in respect of electricity purchase disclosure, that will lead to significant increases in the amount of renewable electricity generated. As a result, I’ve shifted the direction of my research — towards understanding and managing the uncertainties that make it harder to finance new wind and solar capacity.

Additional note:
One point that I haven’t mentioned in the discussion above is the fact that many markets allow renewable generation to be unbundled — that is, generators can sell the electricity to one retailer, and renewable energy certificates to another. Some people have argued that this allows retailers to buy certificates with even less involvement in the generation of the electricity. While I agree that contributing more to the viability of the generator is a good thing, I’m not convinced that requiring renewable electricity to be bundled would make much difference to the end outcome: participants could still buy renewable electricity without any real contribution.

Guy Lipman

Fascinated by what makes societies and markets work. Undertaking a PhD in sustainable energy at UCL. http://guylipman.com.

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