Natural Capital Partners’ VP Western Region, Saskia Feast, looks at how companies can help increase the amount of renewable energy entering the grid and how customized sourcing options can add value to the business.

Supporting the Transition to a Low-carbon Grid with Energy Attribute Certificates

According to the National Renewable Energy Laboratory (NREL), the voluntary renewable energy market in the U.S. grew by 19% to 95 terawatt hours (TWh) in 2016, representing approximately 27% of the total renewable energy market, excluding large hydropower [1]. By far the largest option for purchasing renewables remains unbundled Renewable Energy Certificates (RECs), which increased by 22% over 2015 and represented almost 52 TWh of demand in the U.S.

Of the six other voluntary procurement mechanisms, Power Purchase Agreements (PPAs) came in fifth at almost 8 TWh. NREL’s Senior Energy Analyst Jenny Heeter has noted the geographic differences in green power procurement; in states where green power is available through utility green pricing programs, competitive suppliers or community choice aggregators (CCAs), there is increased participation from both corporates and residential customers. These options, where available, offer corporates and residential customers (myself included) the option to buy local renewable energy easily.

So, while there are some geographic differences in uptake, we know that more and more companies around the world are powering their operations with more and more renewable energy, and a large part of that is sourced via Energy Attribute Certificates (EACs) such as RECs. But why are EACs so popular?

Voluntarily purchased EACs are the most cost-effective way a corporate buyer can procure renewable energy and signal to the local, regional and global market their demand for renewable energy. Fundamentally, EACs provide the tracking and accounting structure essential to functioning renewable energy markets and credible consumption claims. And that applies to all grid-connected means of sourcing from solar, wind, hydropower, biomass and other renewable sources, including via PPAs and green tariffs. With this backbone, suppliers have the flexibility to create and offer new products.

Globally, the three main EAC systems are U.S. RECs, European Guarantees of Origin (GOs) and International RECs (I-RECs). There are also national REC systems in some countries, for example Australia, Japan and South Korea. The I-REC market is currently set up to issue I-RECs in 22 countries outside of Europe and North America. As the youngest EAC market, 1.7 TWh I-RECs were retired in 2016. The European GO system retired more than 367 TWh on behalf of consumers in 2016: 10 times more than the U.S. market [2].

With this growth, buyers need to ensure their renewable energy purchases are delivering the best value for their business and making an impact. In a whitepaper published earlier this year, Tim Juliani, former Director of Corporate Engagement and Sustainability at Edison Energy, made the case for talking about “impact” in corporate renewable energy purchases, as opposed to “additionality”: a term well-defined in carbon markets [3].

Typical approaches to increase the impact of your renewable energy purchase are to use your corporate buying power and credit line to help a new renewable energy power plant to be built (i.e. participate in a PPA). If you can negotiate a good deal, this will also have a business advantage in hedging your energy costs many years into the future. Joby Carlson, Director of Energy and Operations Sustainability at Walmart, explained at the Climate Leadership Conference earlier this year how Walmart’s procurement strategy focused on exactly that, with Walmart having signed 10 large PPAs in multiple markets to supply their global operations, and having installed 620,000 solar panels on site since 2007. In addition, Walmart is engaging its suppliers in a global challenge to reduce CO2 emissions from their supply by one gigaton by 2030.

Many corporate buyers are looking to increase the amount of renewable energy generating capacity on the grid. Markets are designed to be efficient mechanisms for scale, and the global EAC market is proving to be effective in increasing the volume of renewable energy generated and fed into grids around the world. However, this impact is primarily due to the high volumes of EACs purchased in aggregate. There is a risk that the original concept and purpose of EAC markets, which was to create change at scale, gets lost in the pursuit of more directly attributable impact by individual companies.

How do you as corporate procurer of renewable energy describe the impact of your procurement decisions? A recent paper from WRI notes the existence of multiple approaches and provides the following simple recommendations: describe i) what you did and ii) how you did it.  

An accessible and impactful solution is to customize your EAC procurement specifications. We need to make it easy, cost-effective and credible for the next 100,000 fast-following corporations and cities to procure renewable energy.

The figure below demonstrates that EAC procurement options are customizable depending on the needs and preferences of the business. For example, your procurement policy could be to only buy renewable energy with an ecolabel, such as Green-e Energy or EKOenergy. Or, you could have a geographical requirement, such as within your state or market; or a technology requirement, such as only wind or solar; or a size restriction, only from plants that are less than 5 MW in capacity; or from a supplier that only supplies renewable energy.

Whichever way businesses choose to consume renewable energy, they will often look for cost-effective procurement options. There is a clear need to increase the amount of renewably-produced energy entering the grid, and suppliers are stepping up to this challenge.

Across the globe, renewable energy markets at all stages of maturity require demand from buyers. The increasing demand from companies with commitments to source up to 100% renewable energy will continue to send a signal to policy makers, investors, customers, employees and developers that businesses support the transition to a low-carbon grid. 

 

 

[1] Status and Trends in the U.S. Voluntary Green Power Market (2016 Data), NREL, 2017. Available at: https://www.nrel.gov/docs/fy18osti/70174.pdf 

[2] Note this number includes hydropower, which is not included in the U.S. market, but if you remove hydropower, the GO market is still larger than the U.S. at 62 TWh in 2016 and 142.5 TWh in 2017.

[3] Renewable energy, additionality and impact: An FAQ on the U.S. Voluntary Renewable energy markets, 2018. Available at: https://www.smartenergydecisions.com/upload/whitepapers/ee_wp_rea_faq_jan_2018.pdf

[4] WRI Report: Describing Purchaser Impact in U.S. Voluntary Renewable Energy Markets. Available at: https://www.epa.gov/greenpower/wri-report-describing-purchaser-impact-us-voluntary-renewable-energy-markets