Green energy tariffs off the menu as demand outstrips supply

Firms keen to buy energy from renewable sources are being turned away by major energy suppliers who do not have the capacity to meet soaring demand for green energy tariffs.

A BusinessGreen investigation has revealed that EDF, British Gas, npower, Scottish Power and Ecotricity are either sold out of renewable energy or close to being so as soaring demand for green tariffs outstrips supply. As a result several energy firms are now recommending that corporate customers only buy a small proportion of their energy from green sources.

Green tariffs have become increasingly popular as more firms look for simple ways of limiting their carbon footprint. In theory green tariffs provide an easy mechanism for a firm to slash its carbon emissions - allowing them to bolster their CSR efforts and avoid the government's Climate Change Levy tax by paying a small premium for electricity sourced from either renewable or low carbon sources.

However, with only around 5 percent of UK energy coming from renewable sources industry insiders are warning that finding a supplier able to provide large corporate customers with a renewable energy contract is now proving extremely difficult.

Jim Butler, head of marketing strategy at EDF, insists that demand is outstripping supply and green energy shortages are now common across the entire corporate energy market. "We're looking after existing customers and allowing them to renew their contracts," he says. "[But for new customers] we have low carbon energy available which is levy exempt, but not much green [renewable energy]."

This scenario is being repeated at npower, where a spokesman claims that while existing green tariff customers were fine, the company would "have to think very carefully" about its ability to fulfill demand before signing up new green tariff customers.

British Gas' business division has also been afflicted by shortages with Simon Wallwork, SME energy products manager at the company, admitting that it has "sold out" of green energy and is unable to service requests for green energy until more comes online or contracts expire.

Even specialist green energy supplier Ecotricity says it is struggling to meet demand from companies wanting all their energy to be sourced from renewable sources. "We have recently had to turn away a big business customer because they wanted 100 percent green," says a spokeswoman for the company. "We do offer 100 percent green to business customers but only small ones - there simply isn't enough [green energy] to go round."

Meanwhile, at Scottish Power a spokesman admits the company is "reaching the end of our output" for business customers, before adding that it is still able to buy in green power on the energy market in the form of the government's renewables obligation certificates (ROCs) and that it has more renewable energy scheduled to come online soon.

Of all the big suppliers only Powergen and Scottish and Southern Energy claim to be currently facing no problems meeting demand for green energy from new corporate customers. However, a spokeswoman for Powergen adds that such green energy is "strictly subject to availability, so its availability does vary from time to time".

Some advocates of green energy tariffs insist this gap between supply and demand is good news as it is driving up prices and increasing the incentive for energy suppliers to build more wind farms and renewable energy sites. But others argue that this is a far too simplistic interpretation of the UK's green energy market.

"It is a widely held misconception that demand [for green energy] will push the price up and stimulate supply, but it just doesn't work like that," explains Butler. "The government's Renewables Obligation target is effectively a mechanism to subsidise the building of renewable energy sites. It means that if you are building a wind farm, for example, you get £40 per mwh back from the subsidy. Under green tariffs you get about £4 per mwh so the subsidy is ten times more valuable than the market price."

Butler argues that no extra wind farms are built because a company has paid for a green tariff, because there is no increase in the incentive for the power company to build more capacity. In fact, buying 100 percent green energy has negligible overall impact on the UK's carbon emissions and simply drives up prices leaving another company without any green energy, he claims.

Even if green tariff prices were pushed so high that they, rather than government subsidies, became the main driver for investment in renewable energy, experts agree that it would still have little impact as most power companies are already seeing many of their existing investments in new wind farms held up at the local planning level.

To help manage this shortfall in supply EDF is recommending customers keen to buy green energy set themselves "sensible" purchasing targets, ideally in line with the government's target to source ten percent of its energy from renewables. "If you try to buy more than is available you are simply robbing Peter to pay Paul and having no net effect on the UK's carbon emissions," argues Butler.

It is a recommendation echoed by Juliet Davenport, chief executive of green energy specialist Good Energy, who also claims firms should take a more conservative approach to sourcing renewable power. "In the business market you can't afford to be too prescriptive about what you want," she advises. "Because demand is greater than supply you may not always be able to get a green tariff at a price you can afford and in that case it may be worth sourcing green energy for just a couple of sites a year from renewable sites or just buying a proportion of your energy from renewables, then, as the supply comes on line, you can increase your use of green tariffs."

You can catch the second part of our investigation on what to watch out for once you have found a green tariff next week.