Electricity is not a tangible consumer product that can be observed and tracked, it is a charge maintained across a grid that acts as a carrier to transfer energy to a location where it is required. 

TGCs were created because electricity cannot be physically tracked from producers to consumers in the same manner as other commodities, even when electricity is bought from a specific producer it cannot be packaged and delivered directly. The producer transfers electrical energy into the grid at one location and the customer contracts with a supplier to extracts the equivalent energy from the grid somewhere else;[1] as such, buying electricity is purchasing the right to draw energy from the grid. Domestic energy is measured in kilowatt-hours or units, with the average UK household drawing between seven and eight units a day from the grid.[2] On a commercial scale electrical energy is measured in megawatt-hours (MWh).[3]

At a basic level, TGC schemes operate in the following way:[4]

1. A RES-E generator transfers electrical energy to the grid, an electricity meter measures the energy and informs the system operator.[5]
2. For each MWh of RES-E transferred to the grid, the system operator[6] creates a TGC, an electronic certificate, containing information attributing to the energy including where, when and how it was generated, this is held by the generator.[7]
3. The TGC is traded between market participants, ultimately reaching an end user, such a domestic energy supplier. These transactions are facilitated by the system operator and the holder of each TGC is recorded in a central ledger.[8]
4. The end-user, typically a domestic supplier who are using the TGC to justify the renewable proportion of their fuel mix, requests that the operator cancels the TGC.[9]
5. The consumer can claim to have consumed energy represented by the TGC.

In a TGS scheme, certificates can be used by the supplier to evidence the RES origin of their electricity or traded although the ability to transfer certificates between market participants precludes the final user of energy from identifying the original source of electricity. Supplier licensing obligations oblige suppliers to produce a specified proportion of electricity from RES.[10] If this is not sourced directly from a renewable generator the supplier can purchase certificates to match part or all of their RES obligation from RES generators or from other suppliers that have more certificates than they require. According to Ofgem their “primary use […] is to disclose to potential and existing clients the mix of fuels (coal, gas, nuclear, renewable and other) used to generate the electricity supplied.”[11] In effect, they are used to justify the percentage of RES-E claimed under FMD arrangements in supplier invoicing and marketing materials.[12] Spot markets and independent trading organisations have developed to facilitate trade in TGCs.

 

[1] Large business consumers may contract directly with a producer.

[2] The Department for Business Energy and Industrial Strategy, ‘Review of the Average Annual Domestic Gas and Electricity Consumption Levels: Methodology Note’ 8.

[3] For an explanation of units of energy used in electricity supply, see Creti A. and Fontini F. Economics of Electricity: Markets, Competition and Rules (Cambridge University Press, 2019) P.7-16

[4] The Electricity (Guarantees of Origin of Electricity Produced from Renewable Energy Sources) Regulations 2003. S.4

[5] Ibid. Provision for a generator to make the request is made in section 4 of the regulations, the right of access to the generation plant (to measure the electricity produced is conferred on the authority by section 5).

[6] The UK system operator is Ofgem. The legislation refers to Ofgem as ‘the Authority’.

[7] The Electricity (Guarantees of Origin of Electricity Produced from Renewable Energy Sources) Regulations 2003. Section 6 defines the volume of energy in one REGO and section 7 lays out what information should be held on the register relating to each REGO issued: The Electricity (Guarantees of Origin of Electricity Produced from Renewable Energy Sources) (Amendment) (EU Exit) Regulations 2018 [1093] 6.

[8] Ibid. Section 6 authorises the trade of REGOs between market participants - ibid.

[9] Provision for cancellation of REGOs and GoOs was only made by the amendment of the 2003 regulations – in 2010 section 7A was introduced which detailed how the certificates should be cancelled from the register and significantly, gave them a shelf-life of 16 months. See: The Electricity (Guarantees of Origin of Electricity Produced from Renewable Energy Sources) (Amendment) Regulations 2010. S.7A

[10] The Renewables Obligation places an obligation on licensed electricity suppliers in the UK to source a proportion of their supply (specified annually by BEIS) to customers from renewables, See: The Renewables Obligation Order 2015. Art. 7

[11] ofgem, ‘Renewable Energy Guarantees of Origin (REGOs): Guidance for Generators, Agents and Suppliers’ accessed 20 February 2022.

[12] See section 2.3.4 for FMD arrangements in the EU and UK