What are REGOs?
REGOs (Renewable Energy Guarantees of Origin) are certificates issued to renewable energy producers in the UK, confirming the renewable origin of their electricity.
The concept of the certificates is to help regulate suppliers in their fuel mix disclosures, and provide assurance to consumers about the source of their energy consumption.
Acceptable forms of renewable generation are defined by the UK Government, and include wind, solar, hydroelectric and biomass. Electricity which is generated from unapproved sources will not be eligible to receive REGOs.
For a long time, the cost of acquiring REGOs was minimal. However, in recent years the price of the certificates has changed dramatically.
How have REGO prices changed?
The cost of REGOs began to increase steadily from the end of 2020, before taking making a substantial spike in 2021, and again in 2023:
Source – Renewable Exchange (https://renewable.exchange/blog/rego-index-update-october-2023/)
Although the market has eased in the early part of 2024, the cost of REGOs is more than 50% higher than this time 2 years ago, and as much as 5x higher than in 2021.
Customers who are exiting 2-3 years agreements and in the market for renewable electricity may find themselves facing substantial increases.
What has caused REGO prices to change?
There are two significant factors which have contributed to the rise of REGO prices in recent years.
The first is increased demand. With Net Zero and sustainability becoming more prominent drivers, REGOs have become an efficient way for a company to reduce their Scope 2 emissions. As more companies look to acquire REGOs as part of their carbon reduction plans, the increased competition allows generators to charge more for their certificates.
The second factor has been a reduction in the volume of available certificates. Post-Brexit, GoOs (Guarantee of Origin certificates – the EU equivalent of REGOs) can no longer be used in UK Fuel Mix Disclosures, or in other UK-based schemes.
This means that suppliers are no longer able to supplement their renewable guarantees by procuring certificates from overseas, and must use only UK-based REGOs.
This combination of two events led to an explosion in the price of REGOs, as the market adjusted to these new dynamics.
The rise in REGO prices may have also benefitted from similar volatility in the wholesale energy markets, with the increase in cost largely overshadowed by even greater rises in the cost of electricity.
How might the REGO market change in the future?
The REGO market will still be influenced by basic supply and demand. Inevitably, there will remain an appetite for REGOs for at least the foreseeable future, especially as Net Zero commitments increase and deadlines loom.
Demand for power itself is likely to increase in the coming years as EVs become more prevalent, and technology such as Heat Pumps are used to replace gas heating. As more business look to secure more renewable electricity this will naturally create a higher demand for REGOs, and more upward pressure for prices.
However, as the market demonstrated towards the end of 2023, there is a ceiling on what buyers are currently willing to pay for REGOs.
The substantial increase in cost has impacted demand and – at a time where prices are rising globally across all goods and services – this could be an obstacle for many businesses in making a future commitment to REGOs. As the awareness around Net Zero grows and buyers become more knowledgeable, many are beginning to view sustainability in a different light.
At present it is practically impossible for an end user at to accurately source any power which is imported from the grid. At any given time, the UK fuel mix can be made up by varying degrees of renewable and non-renewable sources.
This means that REGOs essentially function as offsets – you might not be able to determine the exact provenance of the power you consume, but you can pay (by purchasing certificates) for the equivalent amount of renewable power to be generated.
Some consumers are now looking to partner directly with generators, and to try and offset their usage in real time.
Instead of simply purchasing REGOs through suppliers or other traditional routes to market, they invest in the solutions. This enables them to acquire REGOs in a more direct fashion from the generators (such as through PPAs) and in some cases, even balance their usage against the generation of the assets.
As buyers become more sophisticated, many are also becoming more discerning about the source of their REGOs.
Although all forms of approved renewable generation are treated equally in terms of receiving REGOs, many companies – and those in their supply chain – are choosing to differentiate between the various sources.
Some consider certain forms of generation (primarily Wind, Solar, and Hydro) to be “deeper green” than others, and will express a preference for those when considering their green credentials. This can create a disparity in the cost of REGOs, with some being deemed worth more than others, depending on the source.
As awareness continues to grow, buyers may even start to look at the ESG impact of the various assets, such as the emissions associated with their production.
Some may decide to abandon REGOs altogether and be satisfied with the low-carbon or carbon-neutral credentials of other fuels, such as Nuclear or Hydrogen. If appetite (and supply) for these sources grows, then that would limit demand for REGOs.
The growth of generation options is likely to be one of the largest factors impacting the cost of REGOs. As demand for renewables has risen, the investment in new UK-based supply has ramped up substantially (aided by government targets and support).
Although the building of brand-new renewable projects takes time (in some cases years, depending on the scale) as more and more come online and supply begins to meet demand, this should relieve some of the buying pressure on REGOs.
What are my options when it comes to securing renewable credentials?
Many companies have made commitments – whether in their Net Zero Roadmaps, or through other statements – with regard to carbon reductions and/or green energy. Those commitments could be in jeopardy due to the high cost of acquiring REGOs.
There are a number of options which can be explored: PPAs, self-generation, offsets, unbundled REGOs (those purchased or traded separately from a supply contract).
For more information on these, speak to one of our representatives at info@lcutility.co.uk
