Are green energy tariffs cheaper than standard deals?

Green energy tariffs - we explain how they work and if they could save you money on your energy bills

Green energy tariffs
Green energy tariffs - how much do they really cost
(Image credit: Getty)

If you’re struggling with eye-watering energy prices, you may be wondering if you could save money by switching to a green energy tariff.

Millions of households have seen their bills rise as a result of the soaring gas price, while the energy crisis could push annual average payments up even further if the  price cap increases again in October.

Green energy tariffs are often based on 100% renewable energy, so in theory should not be affected by record-high gas prices.

By avoiding fossil fuels, you’ll also be doing your bit to protect the planet and help fight climate change.

However, the reality isn’t as simple as that. 

We explain how green tariffs work, which suppliers offer them, whether you should switch to one, and why, unfortunately they are no cheaper than standard deals right now. In fact, they are sometimes more expensive.

What is a green energy tariff?

Green tariffs have become much more popular over the past few years, with many suppliers listing their fuel mix as green in some way. For example, Shell Energy says it supplies “100% renewable electricity” while EDF claims to be “Britain's biggest generator of zero-carbon electricity”. There are other smaller, specialist providers like So Energy and Good Energy.

About 9m customers are on green energy tariffs, according to the comparison site uswitch. However, there is no set definition of what a renewable or green tariff is, and companies take different approaches.

Typically, a supplier promises to match all or some of the electricity that customers use with renewable energy, such as wind and solar, which it then feeds back into the National Grid. 

It can do this by taking renewable power from generators that it operates, or using renewable obligation certificates (ROCs) or renewable energy guarantees of origin (REGO) certificates.

It’s important to note that all customers receive their power from the National Grid, regardless of their tariff. So, even if a supplier pledges to give you “100% green electricity”, the power that comes into your home will be from a variety of sources. Suppliers cannot control this.

About a third of the electricity from the grid is from renewable sources, a third from gas, and the remainder from other sources like nuclear and coal.

However, by signing up to a green electricity tariff, you will be contributing towards renewable energy investment and boosting the amount of renewable power that is in the grid.

In terms of environmentally-friendly tariffs for your gas supply, the green gas market is still in its infancy as it can be difficult and expensive to generate gas from renewable sources. Green Energy UK is the only supplier of 100% green gas, which is via biomethane from farm, food and landfill waste.

Are green tariffs cheaper than standard tariffs?

Green tariffs are currently no cheaper than standard deals - and at the moment, some are significantly more expensive. 

Joe Malinowski, founder of the comparison site The Energy Shop, says he finds it strange that green tariffs are not cheaper, given the ongoing costs of generating renewable energy are low. “Looking at the economics, renewables should be cheaper,” he tells The Money Edit.

“Some of the green energy providers are currently offering some of the most expensive tariffs. Intuitively this does not make any sense.”

However, the price of renewables are also affected by the cost of gas because renewable providers raise or lower their charges in line with the wider energy market. 

Good Energy, which claims to be the greenest supplier, backing all the electricity it supplies with power bought from a community of more than 1,900 generators, says it is affected by wholesale gas and electricity prices. “Firstly, because the prices we pay generators are influenced by the wider market, but also because we do still have to trade wholesale power.” This occurs when customer demand exceeds the renewable power that Good Energy buys, which happens about 10% of the time.

Gareth Kloet, energy expert at the comparison site GoCompare, points out that the process of buying ROCs - the certificates issued to operators of renewable generating stations for the electricity they generate - costs money, so this also pushes the price of green energy up.

He adds: “As most suppliers buy ROCs, they are still getting their gas wholesale which means they are still subject to the same price rises as everyone else.”

Does the Ofgem price cap apply to green tariffs?

The price cap applies to most variable green tariffs. The cap, which is set by the regulator Ofgem, is currently priced at £1,277 a year on average for a typical household paying by direct debit. 

However, a trio of green suppliers have a permanent exemption from the price cap, because they contribute to the growth of renewable energy. They are: Good Energy, Green Energy UK and Ecotricity.

This means their tariffs can be higher than the price cap. For example, Ecotricity’s standard electricity tariff is about 34p a kWh - compared to the price cap average unit price of 21p.

How can I find the greenest tariff?

It can be tricky finding a truly green energy firm - and some companies have been accused of “greenwashing”.

Look carefully at how the green tariff works, and how the parent company fulfils its pledge of being eco-friendly. Also, consider what “green” means to you - for example, are you happy to include nuclear as a renewable energy?

According to Energy Saving Trust, the greenest tariffs are where the energy supplier buys renewable electricity and its accompanying certificates directly from generators, such as UK wind or solar farms. It says this provides a clear benefit to the UK renewable industry.

The trust puts Good Energy, Green Energy UK and Ecotricity in this category. The trio provides 100% renewable electricity from wind, water and sun, while some or all of their gas supply is green too.

Then there’s the “moderately green” category. These are typically larger electricity suppliers that own or have partnerships with renewable and fossil fuel generators. The standard tariffs provide electricity from a mix of sources, while the green tariffs are backed up by REGO certificates from their low-carbon electricity sources.

Finally, there are the suppliers that aren’t really green at all. Energy Saving Trust explains: “Some electricity suppliers, including some who claim to supply 100% renewable energy, will do so simply by buying up excess REGO certificates. These certificates are cheaply available from times of excess production across the EU and these tariffs do little to encourage the generation of renewable energy in the UK.”

What are the cheapest green tariffs?

According to GoCompare, So Energy has the cheapest green tariff at the moment with its So Grape Two Year - Green deal. It has an average annual bill of £2,053. The one-year version is next on the list at £2,098. 

Ovo Energy’s Better Smart 11 January 2022 deal is the third cheapest, at £2,350.

However, beware that due to the energy crisis, some price comparison websites have frozen their switching service.

Suppliers have withdrawn their cheapest tariffs due to the sky-high price of gas, and until there is more clarity over how Ofgem will change the price cap.

What should I do if my green tariff is about to end?

The normal advice is to choose another fixed tariff as this will often be cheaper than falling onto a variable rate.

But, these are not normal times. “Customers on a fixed tariff about to end can always choose another, more expensive, green tariff or they can do nothing and default to the cheaper price cap option [unless their green supplier is exempt from the price cap]. Most suppliers are advising customers to do nothing right now,” notes Kloet.

Malinowski agrees. “For now, do nothing, sit tight and see what comes out of the price cap announcement in February.”

Ruth Emery

Ruth Emery is contributing editor at The Money Edit. Ruth is passionate about helping people feel more confident about their finances. She was previously editor of Times Money Mentor, and prior to that was deputy Money editor at The Sunday Times. A multi-award winning journalist, Ruth started her career on a pensions magazine at the FT Group, and has also worked at Money Observer and Money Advice Service. Outside of work, she is a mum to two young children, a magistrate and an NHS volunteer.