GreenPower is a government-accredited scheme that allows energy consumers to “recognise and purchase renewable electricity that meets stringent environmental standards.”

Many Green consumers are supporting renewable generation through choosing GreenPower and voluntarily paying more for their power. Not all retailers offer GreenPower. Those that do are listed in the GreenPower website here: https://www.greenpower.gov.au/get-greenpower/find-provider.

For the first time in Australia, Bill Hero now includes GreenPower pricing as part of our personalised energy comparison, so you can now support renewable generation through GreenPower, and do it in the most cost-effective way possible.

This is important because there is significant variation in the price uplift charged by the retailers in their GreenPower plans – the most expensive GreenPower plan in the market is 400% more expensive than the cheapest one.

Also, as we'll show in this article, and contrary to common assumption, the money you voluntarily spend on GreenPower does not directly translate to money invested in renewable energy. The GreenPower scheme brings a massive arbitrage and financial gaming opportunity for retailers, which means they have plenty of room to maximise their benefit from your voluntary GreenPower contributions.

In this article, we'll explain how GreenPower actually works, how the retailers can game it, and what you can do to support renewable generation most cost-effectively.

When you buy GreenPower, your retailer must purchase and surrender GreenPower certificates, known as 'Large Scale Generation Certificates', or LGCs, which are created by accredited renewable energy generators. Each certificate represents 1 MWh of electricity, and retailers are obliged to purchase and surrender LGCs equivalent to the aggregate GreenPower consumption of their customers each year.

The GreenPower certificate scheme creates a revenue source to support the development and operation of renewable energy generators. Only generators built after 1997 are accredited under this scheme. Older renewable generation assets including hydro do not qualify as GreenPower generators.

Because renewable energy generators create the LGCs, revenue will flow to them through this scheme, so your purchase of GreenPower helps support the development and operation of renewable energy generation assets.

Many GreenPower energy consumers naively assume that the price uplift they pay will directly contribute to new renewable generation. This is not the case. Retailers are obliged to buy and surrender LGCs to the equivalent level of electricity consumption, not to the equivalent level of money spent.

LGCs are traded in the same way as other commodities or financial instruments, so there is a spot price and a futures market for LGCs. Retailers participate in this market, and use hedging and trading strategies to maximise the benefit from their participation.

The first and most obvious LGC strategy retailers employ is to buy low and sell high. Retailers are free to set their own rates for the GreenPower uplift they charge to their customers, so there's a direct arbitrage opportunity between the price they charge you for GreenPower and the price they must pay for the equivalent LGCs.

We've done the research and have found that there is significant price variation among retailers for their GreenPower offers – at the time of this writing, the most expensive GreenPower per-kWh price on offer is over 400% more expensive than the cheapest.

A less obvious strategy is the timing of the certificate surrender. The rules for the GreenPower scheme include penalties for failing to surrender the required number of certificates on time, but the rules also allow for those fines to be refunded in future at the time of eventual surrender.

The LGC market operates like any other, with prices going up when demand outstrips supply, and going down when supply outstrips demand.

So if your retailer believes the price for LGCs will decline, they might postpone their obligation to surrender LGCs that you've already paid them for, in the expectation that they can fulfil the obligation in future at a lower price. This reduces current demand for LGCs, thereby driving down the market price for LGCs which reduces all the GreenPower revenue that flows to accredited renewable generators, not just from your retailer.

The LGC shortfall strategy, which some retailers have adopted very aggressively, arguably supports market outcomes that oppose the intent of GreenPower consumers, whose money helps fuel the entire process.

The Clean Energy Regulator maintains a Shortfall Register, which presents a useful signal about how diligently a retailer meets its LGC obligations.

GreenPower is the brand name for the main renewable energy scheme in Australia, but it does not cover every renewable energy generator - the GreenPower scheme has eligibility requirements, and some renewable energy generators do not qualify for accreditation under the GreenPower scheme.

A GreenPower Generator is defined as "an electricity generator that results in greenhouse gas emission reductions (within the electricity sector)". Renewable energy must come from wind, solar, hydro and bioenergy generators that meet the standards specified in the GreenPower Program Rules.

Some types of energy generation not allowed in the GreenPower accredited scheme include:

The main non-GreenPower renewable generators are the hydro projects such as Tasmania Hydro and Snowy Hydro, and other legacy renewable generation assets that were commissioned before 1997.

This is why Tasmania Hydro, does not qualify as a GreenPower generator, and the energy that is sold through Momentum Energy, which Tasmania Hydro owns, does not automatically qualify as accredited GreenPower, even though Momentum has made private commitments to deliver renewable energy into the grid to at least the level that their customers consume - a commitment that is very similar to the accredited GreenPower requirement.

At this time of writing, Momentum does offer its customers an accredited GreenPower option, which means that it needs to buy and surrender LGCs equivalent to the GreenPower consumption of its customers, the same as any other retailer.

Both the 'buy low, sell high' strategy and the 'LGC shortfall' strategy play to the advantage of the retailer, at your expense.

Many retailers seem to think that, by definition, GreenPower consumers are non-price-sensitive, since they are willing to pay more for their power voluntarily. Some retailers take this as an invitation to ramp up the prices they charge for the GreenPower they sell. This is pure arbitrage; any overspending only benefits the retailer.

Given the indirect nature of the money transfer and the propensity for retailers to overcharge and game the GreenPower system, it makes sense for you to find the most cost-effective GreenPower option.

Bill Hero's GreenPower pricing and filters allow you to support renewable generation the smart way, maximising the impact you can make while minimising both the cost to you and the opportunity for your retailer to game and skim this market.