Pre-legislative scrutiny of the draft Domestic Gas and Electricity (Tariff Cap) Bill Contents

5Recommended changes to the Bill - The green tariff loophole

Clause 3: green electricity tariffs

67.Green electricity tariffs are exempt from the cap under clause 3. This is because although these tariffs are usually more expensive, they are actively chosen and purchased by consumers who want to support the generation of renewable energy.124 We accept the argument that customers should be allowed to pay more for renewable electricity if they actively decide to do so and if the tariffs in question truly encourage renewable generation. We support the exemption of green electricity tariffs from the cap.

68.However, several submissions raised concerns about the exemption as currently drafted, saying it could create an opportunity for suppliers to game the system and avoid the cap if the bar for what constitutes a green tariff was not set at a higher standard. These stakeholders argued that the current standards to be met to sell energy as a green tariff were not stringent enough and would allow suppliers to re-brand SVTs as loosely environmental tariffs to avoid the cap.125 Ofgem expressed similar concerns126 and reiterated them in oral evidence to us in January.127

69.The Government did not signal any intention to close the loophole but welcomed the Committee’s views on how the risk of gaming could be lessened.128 The Minister told us that to avoid this loophole being exploited, Ofgem would have to monitor which tariffs are truly green (providing environmental benefits) and which ones are not.129 We were concerned by Dermot Nolan’s view that the “ways to check whether a tariff is green” or not were “imperfect”.130

70.We share stakeholders’ view that the Bill as currently drafted allows for unscrupulous suppliers to game the system and avoid the cap by moving customers on poor-value tariffs onto loosely-defined green tariffs. The Government should work with Ofgem to strengthen the definition, standards and checks for electricity tariffs with environmental claims so the system cannot be gamed in this fashion and undermine the success of the cap.

71.We recommend that the Bill be amended to make clear that attempts to circumvent the cap by offering tariffs that do not provide substantial environmental benefits and were not actively chosen by customers will be in breach of the legislation. Ofgem should be alert to and be prepared to stop any form of pricing that is designed to circumvent the cap.

Green gas tariffs

72.Some stakeholders suggested that the same exemption should be extended to green gas tariffs131 as many customers on green tariffs are on dual-fuel tariffs.132 We understand from the evidence that in order to include green gas tariffs in the exemption Ofgem would be required to create a green gas accreditation.133 We heard no valid reason not to remove this obstacle and ensure that dual-fuel and gas tariffs that are chosen actively by customers for their environmental characteristics are included within the exemption. The Government should explain its rationale for not exempting green gas tariffs under clause 3.

73.The Government should respond to the concerns expressed by stakeholders in evidence to us on the detriment to investment in renewable generation and green gas tariff customers of not exempting these tariffs.

74.The Government should work with Ofgem to create the necessary accreditations to include green dual-fuel and green gas tariffs within the price cap exemption. This should be done without repeating the gaming risks of the green electricity tariff exemption.

124 Q383 [Chair]; Department for Business, Energy & Industrial Strategy, Impact Assessment: Draft Domestic Gas and Electricity (Tariff Cap) Bill, 29 November 2017, 11 December 2017, para.24

125 Good Energy PLS0046, Rt Hon Caroline Flint PLS0041; Q283 [Ed Kamm]; Qq285-286 [David Bird; Patrick New]

127 Q374 [Dermot Nolan]

128 Qq489-490 [Claire Perry]; Q286 [Patrick New]

129 Q489 [Claire Perry

130 Q374 [Dermot Nolan]

131 Good Energy PLS0046,

132 Good Energy PLS0046, Energy UK PLS0028, Co-op Energy PLS0030, Ecotricity PLS0015, Energy Policy Group PLS0036

133 Ecotricity PLS0015, para.1.2

9 February 2018