With Britain's electricity retailers chasing a limited amount of renewable energy to meet the Renewables Obligation, green power retailer Ecotricity has adopted a new approach to meeting its customers' demands for a cleaner supply of power. Instead of competing for existing green power supplies, Ecotricity's solution commits to providing customers with an additional 10% of their demand from new wind turbines each year, without having to pay a premium.
Dale Vince of Ecotricity calls it "the next evolutionary step in our business model." The company's aim is to build 100 MW of renewable energy over the next three years and 500 MW by 2010. "We have gone away from the 100% green energy proposition and the existing capacity idea," says Vince. "We are saying to our customers: what is more important is that we build new capacity together. We are committed to a build program that will produce 10% of all our customers' consumption every year. It starts brown and we make it green as we go along."
The company kick-started the market with existing renewables including landfill gas, he explains. "They were already built, so they were among the cheapest power around, so we could deliver green for the price of brown, which is our key mission." But Ecotricity always maintained that existing "pale green" technologies were a stepping stone, points out Vince. "The second stage has always been to build deep green sources of power," he says. "We have taken that second step now and as a company we are focused on building new capacity in wind and solar."
The introduction of the Renewables Obligation on retailers (known as suppliers in the UK) sparked immediate fierce competition for Renewables Obligation Certificates (ROCs). This provided added impetus to the company's change of direction. Vince says: "The problem with being in the market today and paying a lot of money for existing capacity, is that next year you've got to outbid everybody else for it again. ... It's not a very sustainable policy to be in this bidding war for existing capacity. We believe that what we're offering is more sustainable for the customer, and clearly for the environment as well. It actually does something about climate change; it is introducing new capacity and cleaning up the mix."
Moreover, a 100% green tariff requires some careful balancing of the books, in order that customers are not disappointed by being supplied with less than the full amount, he says. "It gives a chicken and egg problem to suppliers: do you build the generation first or find the customer first," he says. "Actually, you can't really do either because banks like to see that you've got customers before they lend you money to build, and customers like to see that you've got power before they sign up.
"We've tried to break that cycle by telling our customers the supply is 100% brown on day one, but it will change," he points out. "What's green about our tariff is the commitment to change it -- to build new capacity. It requires a different mindset."
He says Ecotricity has no problem in getting this message across to its customers. "I have been quite surprised. I thought the message was a few years ahead of its time." Until recently Ecotricity has sold renewable electricity exclusively to business customers, but in August the company launched its green tariff to domestic consumers by teaming up with the Body Shop chain of cosmetics and beauty products shops.
Never had it better
Vince's verdict on the Renewables Obligation is that, "Things have never been better." Not only is it a massive boost to the economics of wind and all renewable energies, he says, but it has made the work of developing wind farms much easier. "It has given us a great deal of scope in the projects we can build," he says, contrasting it with the Non-Fossil Fuel Obligation (NFFO) whose competitive and stop start nature was an obstacle to development. He points out that the ROC adds at least another £0.03/kWh (EUR 0.047 /kWh) to the value of renewables electricity. The ROC can be sold and the proceeds invested in building new capacity, he says.
But Ecotricity's controversial take on the issue of whether or not green suppliers should sell ROCs, puts Vince at odds with energy regulator Ofgem and Friends of the Earth. Both maintain that energy-based green tariffs should demonstrate "additionality" by retiring some certificates from the market so that customers are buying into the "greenness" of the power they use, and further increasing demand for electricity from renewables.
Vince points out, however, that the market for ROCs is 50% short. "It makes no sense to make it even shorter by burying some of your ROCs. That doesn't increase the incentive on anybody to build. What you do is throw away three pence per kilowatt hour which you could spend on a build program. When the world is not so short of ROCs, their argument will have more merit."
Despite the difference of opinion over the issue, Ecotricity comes second in Friends of the Earth's green tariff league table. But this is not enough for Vince. "We put 100% of our profits and 100% of our ROC money back into the build program," he says. "We have just commissioned 1.2 MW which is tangible evidence. And we don't charge a premium so that everybody can participate. This is real market-enabling stuff. And we come second because we are not willing to bury our customers' money."
Now that the renewables obligation makes wind projects in more locations throughout Britain economically viable, the number one constraint on development is gaining site building permits under the UK's planning process, maintains Vince. Nonetheless, he is confident the company will be able to meet its commitment to build 10% of its customers' demand a year. He expects to build 30 MW in 2003 and 50 MW the year after. "Our projections are that we'll be nearer 30% [of customers' demand] by year three. Projects are planned for the east and south of England and Scotland. "We've got a shed-load of applications going into planning later this year," he says. "It's going to be a hell of a challenge, but wind energy always is."