The energy transition: How do you make sure the electrification of energy remains affordable? - Simon Maine AMA

  • 20 August 2021
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The energy transition: How do you make sure the electrification of energy remains affordable? - Simon Maine AMA
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OVO Energy’s Corporate Affairs Director, Simon Maine during an ‘Ask me anything’ event in August 2021:

 

“The way we subsidise the energy transition at the moment is that it’s entirely levied on the electricity side of the bill and very very little on the gas side. Which means artificially gas is quite cheap in comparison to electricity. 

 

That’s fine 10 years ago. Now we’ve all seen the incredible change on the electrical side of the equation on the grid, that’s now the cleaner part of the energy system and we can see a route to getting it even cleaner. So the idea that electricity, which is a fundamentally cleaner fuel, is somehow the more expensive one and gas is the cheaper one relatively speaking is a nonsense. We need to change that. 

 

We actually collaborated with a few other energy suppliers to write a report on this earlier this year and its publicly available, here. Some people say that you should just move the energy costs from electricity to gas - just do a straight swap. Our concern with that is that you’re making gas very expensive at a time when many people are very reliant on it. 

 

Either way it’s fundamentally regressive, people with less income pay proportionately more if you do it that way. So we’ve called for bringing it on to government taxation and then levying a carbon charge, a carbon tax to make gas more expensive than electricity but on a fair, per carbon basis. The idea is that by shifting the policy costs, proportionality back on to gas, you’ll actually create that incentive to switch. 

 

It’s not just about the upfront costs of doing all the things that I’m sure you’ve done to your house, which can be expensive and they take time and commitment, but then there’s the ongoing costs. We want electricity to show that it’s the cheapest way of running a home as well as the cleanest. 

 

The other thing to consider, and this takes me back to my days when we were financing solar farms and wind farms, is that all of the investment is upfront in renewable energy because the fuel is free, so the whole business model is about getting the capital together and then once you’ve managed to pay off the original capital then you’re just pure profit at the far end of the lifetime of a plant. 

 

So government stepped in to securitise that profit, the return on investment at the beginning but once you get beyond that part of the cycle we’re gonna have wind farms that are 20, 30, 40 years old that are just generating essentially free energy - the capital costs would have been recouped decades before, so the power price in the market should come right down. 

 

That’s where renewables can really do something quite interesting to the price of energy on the market and I know there are issues around how do you account for back-up generation and system level costs that go with that but I do think fundamentally once you're past the investment phase a mainly renewable grid should be an ultimately cheaper source of electricity.”


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Some really great questions here for Simon already! Don’t forget to RSVP to the event or you won’t get to hear the discussions around these questions, @D10hul @ArundaleP @EverythingNeedsAUserName @Transparent:

 

 

I’d like to put a question to Simon as well. Hope that’s OK… Based on some recent forum threads I’ve seen on the forum, I’d like to ask:

 

Q: What is OVO Energy’s position on the electricity infrastructure of the UK, and how changes might need to be made if we are to fully decarbonize electricity and electrify everything from transport to heating?

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My question to Simon:

 

Corporate Direction in Testing Times:

 

Both the development of the new Billing System to provide Time Of Use tariffs, and the development of the Flex Platform to act as a control system for distributed/local energy resources have taken far longer than the OVO Group had hoped for.

Delays in the two projects affect each other. Without any trials of flexible tariffs yet being undertaken, Flex cannot create algorithms to map energy supply to varying customer demand throughout the day.

In the meantime Flex continues to use National Grid data, with the possible exception of the Sönnen Storage Battery Trial in the Woodhall Spa area of Lincolnshire. As Western Power Distribution have themselves stated, that Trial is implemented to overcome constraints in the 33kV and 11kV feeds into the area.

The lack of a ToU tariff also severely restricts the ability of us customers to be engaged with the much-heralded Zero Carbon initiatives. This is demoralising at a time when the wider population is actively seeking direct involvement to combat Global Warming.

 

To make matters worse, the new Zero Carbon Heating Trial in SE England has fundamental design flaws which will dramatically increase the amount of electricity required during the early-evening period of peak demand. Many of the trial participants will be unable to afford the price difference between that and the gas-heating which has already been removed from their homes.

 

The V2G charger Trial shifted electricity demand to a time of night when the Distribution Grid was more lightly loaded. But the lack of data from substation feeds means that the impact on the local grid was undefined. Indeed, some V2G chargers had their export limited in order to reduce the losses due to phase-imbalance, surges and harmonics at the 11kV transformers.

The Cenex report of Jan’21 on the V2G Trial (Project Sciurus) emphasises the commercial viability using a national overview, without reference to the problems imposed on the local Grid, for which Kaluza has negligible data.

Cenex highlights revenue streams in £s. It values jewels more highly than joules.

Cenex’ calculations of potential revenue streams are central to the report. These are of obvious interest to shareholders and potential investors such as Mitsubishi, but little comfort to trial participants on fixed contracts.

Kaluza’s connection to Electron's AI and block-chain algorithms allows 1kWh unit of electricity can be traded at over £1 on the European wholesale market at peak demand times (price comparison source: Octopus Energy Agile tariff). This is over three-times more than the 30p income shared with the owner of the Nissan Leaf supplying that energy.

Worse still, the greater the proportion of foreign investment to the OVO Group, the less likely it is that the UK Government could adopt the Flex Platform as a national energy asset in similar fashion to National Grid PLC. We cannot entrust our emerging renewable energy balancing system to the oversight of foreign investors incentivised to increase their own revenue.

 

The current PowerVault battery trial also demonstrates the ‘me first’ attitude in OVO‘s project planning.

Trial participants suffer a 15% reduction in export from their PV Solar Panels due to the (in-)efficiencies of charging and discharging the lithium cell stacks in the PowerVault unit.

Additionally, the battery design consumes 500kWh of energy per annum for its own internal electronics and cooling fans. That’s equivalent to £20 loss of SEG credits, and equates to the power needed to boil 2673 litres of water in an electric kettle.

During winter months Flex will top-up the battery in order to ‘support the local grid’. But OVO has declined an offer to provide data which demonstrates the actual effect on that local grid.

Each time Flex re-charges a battery from the grid to 4kWh it will cost OVO‘s customer 10.36p (calculated at generous efficiencies of 94% for charge and 90% for discharge cycles).

The Smart Home Team are assured that this is more than compensated for by SEG payments during the summer months. They are unaware of the loss of export during that time and it does not factor in their calculations.

With Trial participants still unable to have a ToU tariff, all the calculated ‘savings’ are in favour of OVO. The stored energy significantly reduces the amount of electricity the company will need to buy on the wholesale market during times of peak demand.

 

The manner in which OVO uses Flex makes it increasingly appear as a golden goose to be sold for a profit, unwittingly fattened up by diligent participants of “carbon reduction trials” in their quest for greener pastures.

 

These strategies are at odds with the overall company direction laid down by Stephen Fitzpatrick when he was hands-on at the OVO Board of Directors. His prophetic vision of a green energetic future enthused employees and customers alike.

Has OVO now lost sight of the prophet in its quest for the profit?

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As ever such a detailed contribution, @Transparent. We’ll make sure Simon gets to read the full question but just to make it easier to answer during the event we might have to summarise this one a bit - 

 

How do OVO plan to keep members engaged and motivated despite delays to a TOU tariff, issues with zero carbon heating/ Powervault battery trials and developments to the function of the Flex platform? How are these balanced with the needs of the business?

 

Does this cover most of the points you raised? And do others have any questions related to these themes - as our most engaged members we’d love to hear what your main concerns are in relation to our future products and technological advancements…:slight_smile:

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Who is the summary for @Jess_OVO ?

Won’t all participants have read the questions here before the event?

Can’t you just copy the style used by the Speaker in the Commons:

“We now come to the question on ‘Corporate Direction in Testing Times’ raised by the member for Invisibility. Response by the Minister for Corporate Affairs please!”

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We’re hoping for a bit more of an informal Q and A session than the PMs questions, @Transparent - although I’m sure @Tim_OVO will appreciate the comparison to the Speaker of the house!

 

Just in case any attendees might not remember the full details of your comment I think a summary question would be helpful - how does my suggestion sound? :thumbsup:

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The length of the question is intended to ensure that Simon can see actual data underpinning what I’m querying.

Without the background evidence it would possible to answer the question summary by quoting OVO official statements. I think we’d all like more than that!

If we must have a summary, then it should surely include some reference to the financial imbalances in the trials:

How do OVO plan to keep trial participants engaged, motivated and fairly compensated despite delays to a TOU tariff, issues with zero carbon heating/ Powervault battery trials and developments to the function of the Flex platform? How are these balanced with the needs of the business?

And let’s note that there are ways in which customer responses to a variable tariff could be trialed without the ToU functionality of the new Billing System being operational. The current strategy is needlessly depriving Kaluza of the data required to seed its algorithms within Flex.

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What I took from @Transparent was

How does OVO reconcile

* the desire to go green "We launched in 2009 to make energy cheaper, greener and simpler. "

* the need to meet the needs of customers and staff in a simple cost-effective way

* the demand to make profit for the shareholders, who are increasingly not from the UK and hence do not have any particular interest in the locals 

* the system that does not encourage energy efficiency. 

* a grid that is not currently fit for the future

I hope it isn't like Prime Minister's question time, because we'd never get an answer to the question posed. 

I was horrified to learn that energy is traded using  "Electron's AI and block-chain algorithms". Blockchains, from my reading, are incredibly power hungry. 

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Thanks @Jeffus but I don’t share your optimistic view of new build homes.

The present situation is particularly favourable to the major house developers who are members of the NHBC scheme.

 

1: House developers may ignore energy-related requirements which have been proposed and adopted by local authorities. They only need to abide by energy criteria which form part of the National Planning Policy Framework (NPPF).

This is due to the Deregulation Act 2015, Section 43:-

In the Planning and Energy Act 2008, in section 1 (energy policies), after subsection (1) insert—

“(1A)Subsection (1)(c) does not apply to development in England that consists of the construction or adaptation of buildings to provide dwellings or the carrying out of any work on dwellings.”

 

The relevant Section 1 in the Planning & Energy Act states:

A local planning authority in England may in their development plan documents,[F1a strategic planning panel may in their strategic development plan ….] include policies imposing reasonable requirements for—

(a) a proportion of energy used in development in their area to be energy from renewable sources in the locality of the development;

(b) a proportion of energy used in development in their area to be low carbon energy from sources in the locality of the development;

(c) development in their area to comply with energy efficiency standards that exceed the energy requirements of building regulations.

 

2: Developers who use the NHBC as their insurer and Building Regulations inspection service are permitted to pre-register land with the NHBC, even before they have bought that land or obtained any form of planning permission.

The NHBC registration-date determines the point at which the Building Regulations and Energy-efficiency requirements are ‘fixed’.

Eg a construction site near me for over 700 dwellings was registered on 31st March 2014 – just six days before the new SAP (energy regulations) standard would become effective. The developer may now continue to build those houses for the next decade provided that they comply with the 2009 Energy Performance levels and the 2006 edition of the Building Regulations.

The Future Homes Standard, which the Government expects to impose within the next year, will have no effect on the large national house-builders. They have pre-registered land for many years to come.

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I am more optimistic @Transparent about new homes but I get your points. 

I don't doubt your points are correct regarding the rules as they stand and the vested interests of the industry etc. 

However i do expect further announcements on taxes, levies, mortgages, rules, legislation, hydrogen  etc. I also think demand from consumers will gradually increase, and shareholder action will gradually increase. There are lots of interventions other than a formal ban on a fixed date which is the alternative and could still come in one day. I expect quite dramatic changes in supply and demand leading up to 2025.

I don’t doubt that there will be a transition period for new homes.

Perhaps i am unrealistic given the vested interests and the current government.

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I’m rather hoping that the government does not try to accelerate the move towards Zero Carbon using taxes and subsidies. Their track record with this approach isn’t great. The FIT payments for installing PV Solar Panels resulted in:

  • increasing losses on the Distribution Grid from 5% to 10% because they failed to consider the physics of these being connected from single-phase houses
  • saddling the rest of the country, including those in energy poverty, with a 25-year debt to pay FIT to the richer households who have large enough homes in private ownership to afford the Solar Panels in the first place.

 

Returning to your earlier point, @Jeffus , and remembering that we’re targeting these questions at Simon Maine:

What issues need addressing and what needs to be in place before the government makes a really big push for the replacement of mains gas boilers?

We need private industry (like OVO/Kaluza/Indra) to give us the tools required.

Without Flex, Time Of Use tariffs, V2G, locally-sensitised Storage Batteries, and Heat pump systems that properly store energy, the consumer is left trying to plug the hole in the dam of Climate Change with his finger!

The corporate strategy could be so much better focused than at present. Instead of spending years slogging away at developing a product in-house and then launching it as part of an ‘energy bundle’, we need to see genuine collaboration with the Community Energy Groups who are already years ahead of the curve.

Stephen Fitzpatrick wants to see that.

What does Simon think?

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@Transparent good points.

I deliberately didn't mention FIT or anything like it. I agree anything like that is not suitable now if it ever was. I am not knowledgeable enough to know if it was a good idea for a finite time, but the cliff edge of the FIT going for solar panels was a big mistake IMHO. We saw solar panel installs slow down. I also think the RHI is poorly targeted in terms of need. 

I prefer any levy/taxes etc. go towards funding solutions for those in fuel poverty, both capital expenditure and sadly I think for many running costs, building on the current ECO, Warm home schemes etc.

I am deliberately staying away from any tech related comments as you are much more knowledgeable and experienced than me. I am a complete novice and not an early adopter in the transition away from fossil fuel so far at least. I am in the group waiting for the mass market/hands off solution. I would even quite like the option of heat as a service where i pay a fixed amount to have my home heated up to a certain temperature throughout the year depending on the cost.

Keep up the good work. 

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@Jeffus  wrote:

I am deliberately staying away from any tech related comments as you are much more knowledgeable and experienced than me. I am a complete novice [...]

Please don’t refrain from commenting on technical stuff. This Forum is very appreciative of points being made by those who don’t know the ‘correct’ technical terms and concepts.

Your views are extremely important in shaping the way in which this new energy technology needs be presented. There’s absolutely no point in OVO developing a product which needs a level of technical knowledge deeper than most people can understand.

I am not trained or qualified in any of this stuff!

When I first opened an OVO account 3½ years ago I’d never seen a Smart Meter. My house was full of partially-completed energy projects and some spectacular failures… including a home-built wind turbine which caught fire!

It’s the discussions here which help us all to progress with greater confidence towards the Zero Carbon future which will keep us alive on this planet.

One of the ‘features’ which OVO doesn’t yet have is a “taste panel”.

Simon may not agree with me on this, but I think they need to gather a representative group of consumers (like yourself) who get to hear about projects and energy ‘bundles’ before they then spend months developing them.

You wouldn’t find M&S or Waitrose launching a new range of ready-meals if they hadn’t first trialed the possible recipes using a “taste panel”!

And yet OVO has been taking this approach with their field-trials before I even became a customer. Unsurprisingly the feedback from those trials contains a sizeable proportion of disappointed participants.

Have a look at the Forum Topic Should I stay or should I go? if you want to read a snapshot of those participants coming to the end of their V2G Charger Trial.

Do you want to respond to the “taste panel” concept please Simon?

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So you seem to disagree with OVO’s position on the carbon tax, @EverythingNeedsAUserName 

Please note that we are close to the end of a massive public consultation on the UK’s Future Energy Strategy. So you need to make your voice heard asap.

The Electricity Networks Association (ENA) has commissioned a report from Regen on Enabling Net Zero through Distribution System Operation. To obtain the necessary public opinion on this, Regen have launched an online survey which closes tomorrow (Sun 8th Aug). Please complete it!

Fortuitously, the survey allows free-form comment space at the end of each section. So if they haven’t asked the questions you want to answer, then simply write in what you want to say!

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@Transparent The Durham Energy Institute (which despite living half a mile from the University I had never heard of) has also done a research project on Smart Grids!  Optimum Network Solutions - Customer-Led Network Revolution .  It seems to have been done with customers of British Gas, which I left in 2004.  I found it in their latest magazine from 2019, their 10 year review.

That seems to include the sorts of issues that you have highlighted of voltage and balance in the distribution network, and talks of needing multiple  voltage control devices and area controllers.  I don’t really understand it but I’m sure you do.

@Tim_OVO Durham Energy Institute certainly seems an organisation that OVO could find synergy with, and they are open to partnerships.  There is a news item “New call for Expressions of Interest for funding to research two priority areas within the EPSRC Network for the Decarbonisation of Heating and Cooling.”

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Thanks for the links @EverythingNeedsAUserName 

I’ve just read the executive summary of their report on Optimum Network Solutions. It’s a different strategy to that being taken by OVO via their Flex Platform.

Moreover, I doubt that the report recommendations are cost-effective or viable. Before you even consider the mechanical voltage-selection devices which they suggest could be added to transformers, there’s the need to install monitoring equipment in all substations.

There are 230,000 ground-mounted 11kV transformers, and a further 320,000 smaller pole-mounted units. At about £5000 per monitor plus a massive data-centre to store and analyse the incoming traffic, you’re looking at a £billion project taking 10 years to fulfil.

I’ve been monitoring a substation under the OpenLV Project. This was originally funded by Ofgem, and involved analysis from industry (DNOs), Academics and Community Energy Groups across 80 transformers. At the end of the 12-month Ofgem funded period, it was Western Power Distribution who decided to keep the community monitored transformers and ditch the others. That speaks volumes about how they perceived the value of each of those groups!

As government policy is Demand Side Response, it should be us consumers who lead the way on this. Unsurprisingly it is the local Community Energy Groups who are making most headway towards ‘smart’ energy networks. They actually address the major causes of grid-losses, and devise ways in which end-users can collaborate to reduce overall energy use in their neighbourhood.

When it’s fully operational, Flex would be a very useful tool in achieving these aims. But at the moment it only uses national data inputs for demand/supply. That means it controls single-phase devices in the homes of end-users, but is blind to the effect of those devices on the Distribution Grid.

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@Transparent Thank you for translating some of that information to something I understand. That issue of using only national data inputs for demand/supply seems just crazy, as you’ve highlighted before.  

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My greatest concern at the moment is that OVO haven’t taken the opportunity to lay down an archive of data reflecting what ‘normal’ conditions look like for an operational substation. It’s obviously more tricky to see the influence of adding an EV charger, Heat pump or Storage Battery using Flex control if there are already several houses with such devices on the same transformer.

I could say the same thing about in-home usage. What OVO receives from our Smart Meters is a sequence of half-hour averages. Short-period, high-current devices like kettles and power-tools get completely lost within the 30-minute mean.

The longer Kaluza takes before they start monitoring base-level activity, the more difficult it becomes to create useful algorithms for Flex based control.

As you can see from the above diagram of Distribution Grid expenditure, there are already underlying principles called Use of Service (UOS). If Flex-control over devices in the home were to offer phase-balancing by default then it creates another revenue stream because the DNO will pay rather than suffer the technical losses as heat.

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@sylm_2000 I believe this was your question asked to Simon near the end of the session earlier in August.

 

Now published for others to see, great question this! 

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To assist in our understanding of what Simon is stating above, here’s the breakdown of costs for electricity and gas, rounded to the nearest whole percent, from figures published by Ofgem

Electricity is the larger ring (by area of each segment) because it costs around 5x more per kWh than gas.

I’ve split out the network costs for electricity to show how much is taken up with ‘balancing costs’ which we may need to refer to later.

 

What Simon calls the ‘energy transition’ in his opening sentence is more usually labelled Environmental and social obligation. It’s from within this section that the UK has been insulating attics and cavity walls over the past 20 years.

Simon wrote:

So the idea that electricity, which is a fundamentally cleaner fuel, is somehow the more expensive one and gas is the cheaper one relatively speaking is a nonsense.

[…..]

We want electricity to show that it’s the cheapest way of running a home as well as the cleanest. 

 

However, removing the obligation proportion of the bills is still a long way from making the cost per kWh favour electricity over gas. Gas will still be cheaper.

Gas would still be cheaper per kWh even if the 23% obligation part of the electricity bills was moved across to gas instead of introducing a Carbon Tax.

Placing the obligation into a Carbon Tax may seem attractive if it was ring-fenced, but governments tend not to do that. Vehicle tax doesn’t get ear-marked for highways and National Insurance doesn’t go to the NHS.

Consider also that to reach Net Zero by 2050, the greatest expense for the country will be the infrastructure upgrade costs for electricity.

Around 80% of the existing gas network is ‘hydrogen ready’ by using polyethylene pipes. But the vast majority of our electricity substation transformers and the underground feeds to our houses need to be replaced before we could achieve the targeted change to electric vehicles in 10-15 years.

This means the money required for our electricity supplies needs to increase significantly, which will give consumers the opposite impression to that which Simon uses in the argument above.

That’s not to say I’m against the overall concept of a carbon-tax, but it’s likely to be misunderstood by the wider population - especially when their electricity bills continue to rise steeply to meet infrastructure costs.

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Could someone explain if OVO buy  electricity from 100% renewable sources why do OVO electricity tariffs increase so much when wholesale gas prices increase?

Also have renewable electricity sources also increased or decreasedin price?

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This depends on whether you agree with the method by which OVO declares that its electricity is 100% from renewable sources.

OVO advertises this because it purchases Renewable Energy Guarantee of Origin certificate. But REGOs can be traded separately to the energy for which Ofgem issued the certificate.

There’s a good overview of this here from Good Energy, which actually does purchase the electricity to which the REGO is attached.

 

In light of what Simon Maine has told us about OVO campaigning for a Carbon Tax, I now have a nagging doubt as to whether that too would enable companies to make claims about something being Zero Carbon, when it isn’t actually so.

Ie the method by which Ofgem has made its ‘100% Renewable’ claim has made me trust the company less, not more.

 

[Apologies and thanks to Simon1D for pointing out that this should have read OVO , not Ofgem, in the above sentence]

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This depends on whether you agree with the method by which OVO declares that its electricity is 100% from renewable sources ...

There’s a good overview of this here from Good Energy, which actually does purchase the electricity to which the REGO is attached.

 

In light of what Simon Maine has told us about OVO campaigning for a Carbon Tax, I now have a nagging doubt as to whether that too would enable companies to make claims about something being Zero Carbon, when it isn’t actually so.

Ie the method by which Ofgem has made its ‘100% Renewable’ claim has made me trust the company less, not more.

 

That’s a fascinating read - thanks for the link, @Transparent - and only reinforces my cynicism.

Watch out - there’s a lot of greenwashing about.

[btw - possible typo? did you mean to name Ofgem in your last sentence?]

[edit - haha I just noticed that @Transparent ‘s link is to the republication of a piece first posted on Good Energy’s blog under, sure enough, “Greenwashing”]

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Yep good question that, @Jeffus 

 

I know that it’s complicated enough to put me off making sweeping statements around pricing. However I agree with Transparent that wholesale gas prices will effect the price of electricity as this is how the biggest chunk (see live fuel mix here) is generated. We’ve made a guide on wholesale prices, here. We’ve outlined our position on Renewable Energy Guarantee of Origin (REGO) certificates, here

 

I should also call out the major power purchase agreements that OVO have signed this year:

 

OVO Energy and Ørsted sign major power purchase agreement

 

OVO Energy signs major Power Purchase Agreement with Eneco
 

A similar chat happening on price increases here: 

 

 

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@Simon1D wrote:

[btw - possible typo? did you mean to name Ofgem in your last sentence?]

Yes, my apologies. That was an error due to the way in which I insert my coloured text from the look-up list! It should, of course have read OVO.

 

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@Tim_OVO wrote:

We’ve outlined our position on Renewable Energy Guarantee of Origin (REGO) certificates, here.

And what OVO states there is correct.

However, I have an idea as to how the OVO Group could actually increase the amount of renewable electricity it ‘captures’ and uses by the way in which they implement the Flex Platform.

If they follow that strategy successfully, what would we then call that additional energy which would otherwise have been discarded?

Greener than green?

Super-green?

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