Right now, many people might be fed up of hearing the word ‘tariff’, but away from the controversies over Donald Trump’s trade policies, the energy tariff your business pays can be as important to a healthy bottom line as the wider state of the economy and the knock-on effects impact of changed global trading relationships may have on it.
A widespread perception is that sustainable energy tariffs do not offer the best option from a financial perspective. This notion holds that green energy may be better for the ecosystem, but this requires a trade-off that involves paying more to protect the planet. For that reason, many firms are resistant to the promptings of local councils to sign up for green tariffs.
A Big Myth And The Truth About China
Indeed, this concept has manifested itself in a backlash in some quarters against the wider national aim of reaching ‘Net Zero’ by 2050, with opponents arguing it is unachievable, will produce economic impoverishment and is irrelevant because larger countries than the UK produce much more emissions – such as China.
However, the truth is rather different. In the first place, not only is a world of net zero and green energy achievable, but it is being actively pursued all over the world – and yes, that does include China. Far from not caring about producing as many emissions as the whole of the Western hemisphere, the country has since 2020 embarked on a major change of policy.
Instead of building more and more coal-fired power stations as it had been doing, China is now investing heavily in renewable energy, no longer builds coal-fired plants abroad, and has set a target of Net Zero by 2060.
The UK Renewables Situation
The most pertinent question, however, is the cost of renewable energy. This was examined in a study published in the House of Lords Library last autumn.
An important fact to note was just how much electricity was produced by wind, solar, or hydro in the UK, amounting to 36.1 per cent of the total in 2023. This came before the closure of Britain’s last coal-fired power station last year. Wind alone accounted for 29.4 per cent.
More notably, the report highlighted how complicated it is to draw up comparisons between the energy generation costs of different sources. Among the factors it highlighted were the lifetime cost of building and running an energy-generating asset, known as a ‘levelised cost of electricity’ (LCOE) and expressed in megawatt-hour terms.
However, the report added, what matters more is the ‘strike price’, which is the fixed price at which units of electricity are sold in longer contracts. It noted these include extra factors “such as market conditions, revenues for generators, and policy factors, which are not considered in levelised costs”.
Nonetheless, the report noted that the LCOE of new renewable onshore or offshore wind, or large-scale solar is far lower than that required to build a gas turbine.
The flip side of this is that there will be some extra costs, the chief reason for this being intermittency; that weather dependence (such as variable levels of wind and seasonal sunlight levels) will require more battery capacity and this will have a cost.
Professor of Economic Policy at the University of Oxford Dieter Helm argued that it is important for the government to be upfront about the fact, but this acknowledgement is not a reason for your business not to use green tariffs.
This is partly because the green energy transition is happening anyway and there will be inevitable costs ahead, such as replacing decommissioned nuclear power stations.
The Future Of Green Energy Technology
Another reason to look forward is a technological consideration. An argument against trying to decarbonise Britain’s energy sector by 2030 highlighted in the report came from shadow energy and Net Zero secretary Claire Coutinho. This was not to reject the idea of going green, but to suggest the timescale was too tight.
She argued that this would mean trying to achieve the goal before several new developments in clean energy had fully emerged, including nuclear fusion, small modular reactors, space solar technology and developments in carbon capture and removal.
It might similarly be argued that, whatever the timescales set for decarbonisation, battery technology to resolve intermittency will also improve. Put together, that and the growing range of green energy options make a decarbonised energy future increasingly viable.
A further consideration is that the cost of producing green energy is getting cheaper as technology improves.
The above considerations are all good reasons for businesses to consider green energy tariffs. But, quite apart from the increasing internal logic, there remains the fact that this decision may also play very well with your customer base, as a matter of corporate social responsibility that could help attract more customers.
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