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Why have REGOs got so expensive?

Why have REGOs got so expensive?

Renewable Energy Guarantees of Origin (REGOs) just keep hitting record high prices. Why are they so expensive, and will prices come down again?

A few years ago, Renewable Energy Guarantees of Origin were changing hands for just 20p a certificate. These certificates are issued to renewable generators, one for every MWh of power, to prove their green origin. They are frequently sold separately from the energy itself; a supplier might get its energy from a mix of sources and then buy REGOs from green generators to match it. This can be cheaper for the supplier than buying the energy and REGO together from the same renewable generator. The key thing is that the supplier’s end-of-year accounting shows that every unit of energy sold as renewable was backed up by a REGO.

By December 2019, when analysts Cornwall Insight began issuing a regular REGO pricing survey, a REGO for use in a supplier’s 2020-21 accounting would have cost them 66p – a big increase in percentage terms, but still small sums overall.

But in the past couple of years, the price of REGOs has rocketed, hitting a record high of £20 in October 2023. Why?

Rising demand for green tariffs

One of the reasons for this is actually good news: there is simply more demand for renewable electricity. Both businesses and households are making more environmentally conscious buying decisions, including their energy sourcing. Suppliers are responding by attempting to meet that demand; over half of new electricity tariffs are now labelled as “renewable” or “green”. Most suppliers find that the easiest way to meet the legal requirements for a green tariff is through buying enough REGOs to match the energy sold. So the law of supply and demand means that REGOs are getting more pricey.

The CPPA boom

Corporate power purchase agreements (CPPAs) had a record year in 2023, as businesses struck deals worth 46GW of power. This form of energy sourcing is rapidly growing in popularity as a way to help businesses reduce their carbon footprint, save money and develop some measure of energy security. A CPPA involves signing a deal directly with a renewable generator, with the agreement often managed by a supplier. To make up for the times when the generation asset isn’t producing anything, the supplier will make up the shortfall with grid energy, then buy REGOs to match this grid energy so the company’s sourcing can still be labelled 100% green. CPPAs are clearly going from strength to strength, with new contracts up 12% year on year, and this means another source of demand for REGOs.

Lagging on generation targets

The UK has ambitious targets for renewable generation: 50GW of offshore wind and 70GW of solar by 2030. But the offshore wind strategy was blown off course in 2023 after a catastrophic tendering round received zero bids. The government is now attempting to correct course by increasing the maximum price for projects and reshaping the Contracts for Difference system to do better in future. But the setback for the most recent funding round has still slowed down the creation of new green generation capacity in the UK. And this means fewer REGOs available than might have been predicted.

Brexit

Before Brexit, the UK’s system for labelling a unit of green energy was harmonised with the EU system. Suppliers had the choice between using UK-sourced REGOs or importing Guarantee of Origin (GoO) certificates from the EU. But the UK government no longer accepts GoOs as valid, so suppliers can only source their certificates from UK generators. This contributes to the supply shortage.

Will REGO prices come down again?

The price of REGOs may fluctuate in future, but the days when they cost just a few pence are almost certainly gone for good. If your business is on a renewable supplier tariff or CPPA, the price of REGOs will continue to make up a significant portion of your energy costs. Businesses with high-volume energy consumption should develop a strategy for protecting their budgets against this volatile element of their energy bills.

(For full definitions of the carbon-related terminology in this article, check out our Energy & Carbon Dictionary.)

To discuss sourcing of Green Energy Certificates such as REGOs or GoOs, complete the form below to request a call back from on of the experts at Sustainable Energy First.
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