GreenPower is a government accredited scheme that allows energy consumers to “recognise and purchase renewable electricity that meets stringent environmental standards.”
Many Green consumers are supporting renewable generation through choosing GreenPower and voluntarily paying more for their power. Not all retailers offer GreenPower. Those that do are listed in the GreenPower website.
For the first time in Australia, Bill Hero now includes GreenPower pricing as part of our personalised energy comparison, so you can now support renewable generation through GreenPower, and do it in the most cost-effective way possible.
If you're unsure about how much GreenPower might cost you, or if you're considering if you would apply GreenPower uplift to some or all of your kWh consumption, you can use Bill Hero to see exactly how much it will cost you to step up to the various levels of GreenPower energy plans available from all the retailers.
This is important because there is very significant variation in the price uplift charged by the retailers in their GreenPower plans – the most expensive GreenPower plan in the market is 400% more expensive than the cheapest one.
Also, as we'll show in this article, and contrary to common assumption, the money you voluntarily spend on GreenPower does not directly translate to money invested in renewable energy. The GreenPower scheme brings a massive arbitrage and financial gaming opportunity for the retailers, which means that they have plenty of room to maximise their own benefit from your voluntary GreenPower contributions.
In this article we'll explain how GreenPower actually works, how the retailers can game it, and what you can do to support renewable generation in the most cost-effective way.
How GreenPower works
When you buy GreenPower, your retailer is obliged to purchase and surrender GreenPower certificates, known as 'Large Scale Generation Certificates', or LGCs, which are created by accredited renewable energy generators. Each certificate represents 1 MWh of electricity, and retailers are obliged to purchase and surrender LGCs equivalent to the aggregate GreenPower consumption of their customers each year.
The GreenPower certificate scheme creates a revenue source to support development and operation of renewable energy generators. Only generators built after 1997 are accredited under this scheme. Older renewable generation assets including hydro do not qualify as GreenPower generators.
Because the LGCs are created by renewable energy generators, revenue will flow to them through this scheme, so your purchase of GreenPower helps support development and operation of renewable energy generation assets.
How retailers game GreenPower
Many GreenPower energy consumers naively assume that the price uplift they pay will be directly contributed toward new renewable generation. This is not the case. Retailers are obliged to buy and surrender LGCs to the equivalent level of electricity consumption, not to the equivalent level of money spent.
LGCs are a traded in the same way as other commodities or financial instruments, so there is a spot price and a futures market for LGCs. Retailers participate in this market, and use hedging and trading strategies to maximise the benefit from their participation.
Buy low, sell high
The first and most obvious LGC strategy employed by the retailers is to buy low and sell high. Retailers are free to set their own rates for the GreenPower uplift they charge to their customers, so there's a direct arbitrage opportunity between the price they charge to you for GreenPower and the price they must pay for the equivalent LGCs.
We've done the research and have found that there is significant price variation among retailers for their GreenPower offers – at the time of this writing, the most expensive GreenPower per-kWh price on offer is over 400% more expensive than the cheapest.
LGC shortfall strategy
A less obvious strategy is the timing of the certificate surrender. The rules for the GreenPower scheme include penalties for failing to surrender the required number of certificates on time, but the rules also allow for those fines to be refunded in future at the time of eventual surrender.
The LGC market operates like any other, with prices going up when demand outstrips supply, and going down when supply outstrips demand.
So if your retailer believes the price for LGCs will decline, they might postpone their obligation to surrender LGCs that you've already paid them for, in expectation that they can fulfil the obligation in future at a lower price. This reduces current demand for LGCs, thereby driving down the market price for LGCs which reduces all the GreenPower revenue that flows to accredited renewable generators, not just from your retailer.
The LGC shortfall strategy, which some retailers have adopted very aggressively, arguably supports market outcomes that are in opposition to the intent of GreenPower consumers, whose money helps fuel the entire process.
The Clean Energy Regulator maintains a Shortfall Register, which presents a useful signal about how diligently a retailer is meeting its LGC obligations.
How to support renewable generation the smart way
Both the 'buy low, sell high' strategy and the 'LGC shortfall' strategy play to the advantage of the retailer, at your expense.
Many retailers seem to think that, by definition, GreenPower consumers are non-price-sensitive, since they are willing to voluntarily pay more for their power. Some retailers take this as an invitation to ramp up the prices they charge for the GreenPower they sell. This is pure arbitrage, any overspend only benefits the retailer.
Given the indirect nature of the money transfer, and the propensity for retailers to overcharge and game the GreenPower system, it makes sense for you to find the most cost-effective GreenPower option.
Bill Hero's GreenPower pricing and filters allows you to support renewable generation the smart way, maximising the impact you can make while minimising both the cost to you, and the opportunity for your retailer to game and skim this market.
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