Mike Scott looks at how upcoming revisions to reporting rules for greenhouse gas emissions will address growing concern about use of renewable energy certificates
The way companies measure and account for the renewable energy they buy is set to change, potentially shaking up the corporate clean power market and how companies cut their emissions.
The business community is buying more renewable energy than ever as falling costs and improved technology have made it more affordable and available.
Demand is being driven by the fact that renewable technologies increasingly offer one of the cheapest sources of electricity
Corporate purchases of renewable energy are now a key driver of the clean energy market thanks to schemes such as RE100, where companies, now 152 in number, have committed to source 100% of their electricity from renewable sources, and the 492-strong Science Based Targets Initiative, where firms align their emissions with the requirements of the Paris Agreement. In 2017, companies bought a record 5.4 gigawatts (GW) of clean energy, but this figure will be far surpassed in 2018. Bloomberg New Energy Finance reported that 7.2GW had already been bought by early August.
Demand is being driven by the fact that, as well as allowing companies to play their part in decarbonising the economy, renewable technologies increasingly offer one of the cheapest sources of electricity, as well as reduced uncertainty and price volatility.
However, because power generated by renewable energy projects flows into the grid network and is impossible to distinguish from power generated by coal or nuclear, generators need a way to prove they have produced renewable power, and customers to prove they have bought it. This is where renewable energy certificates (RECs) come in, as they certify that each 1 megawatt hour (MWh) of electricity generated comes from a renewable energy project.
In the voluntary corporate market, RECs are sold on the open market and bought by companies, who can use them to claim that they are hitting carbon reduction targets by offsetting their emissions.
Often the certificates are sold in tandem with a power purchase agreement (PPA), through which the customer also buys the power. But they can also be sold on a stand-alone basis.
According to IRENA, the International Renewable Energy Agency, RECs and other energy attribute certificates accounted for 130 terawatt hours (TWh) of corporate sourcing of renewable energy in 2017, more than a quarter of the 465TWh sourced by corporates globally.
It’s a massive missed opportunity, which is diverting millions away from actions that can genuinely mitigate climate change
The IRENA report recommended that governments should “support an effective system for issuing and tracking of energy attribute certificates, enabling companies to make credible renewable electricity use claims. An energy attribute scheme is crucial to support renewable electricity sourcing whether through PPAs, utility purchases, unbundled certificates or direct investment in self-generation.”
Dr Matthew Brander, senior lecturer in carbon accounting at University of Edinburgh Business School, is a strong critic of renewable energy certificates, whose use is enshrined in the Greenhouse Gas Protocol.
“The argument goes that the revenue from these certificates acts like a subsidy to renewable producers, allowing them to invest and grow, which ultimately increases the supply of greener energy,” he says.
However, he describes it as “corporate greenwash. It’s also a massive missed opportunity and one which is diverting millions each year away from actions which can genuinely mitigate climate change.
“To put it simply, an organisation can spend a fraction of a pound on a certificate for every £100 to £140 it spends on a megawatt-hour of electricity from the grid and claim the right to report zero emissions.”
Brander says problems arise because of the highly regulated nature of the market. “In most markets, the assumption is that demand drives supply. That’s missing in this market. We have growing amounts of renewable energy generation and that’s great, but it’s driven by government policies and in some cases – such as hydro-electric power in Norway – by legacy investments. Consumer demand for certificates is so low that it has no impact at all on supply.”
Certificates should be an indicator of supply – how much renewable energy is available on the market – not of demand
Instead of being able to claim 100% sourcing of renewables by buying certificates, companies sourcing energy through the grid should only be able to claim as renewable the proportion of power on the entire network (the grid average, or location-based, method), he adds.
There are ways to buy clean energy that are more transparent – signing up for long-term power purchase agreements and buying all the certificates generated as a result, although Brander argues that this does not, in itself, guarantee additionality.
Brander hopes that the situation will improve with the introduction in the New Year of the revised standard, ISO 14064 Part 1. The new guidelines will require companies to report emissions using the location-based approach, although they also allow a market-based approach, according to Pedro Faria, strategic advisor at disclosure organisation CDP. The update is “part of a wider push to get the reporting infrastructure to where it needs to be to support the low-carbon transition”, Faria says.
Alberto Carrillo Pineda, renewable energy director at CDP, which produced the data for the IRENA study, says only about 5% of companies with renewable energy targets have explicit targets on sourcing that energy.
He adds: “Many companies make claims about renewable energy consumption but have nothing to back up their claims … But if a certificate is sold as part of a PPA for a new project, that’s a pretty solid claim. Certificates should be an indicator of supply – how much renewable energy is available on the market – not of demand. Corporate renewable energy targets are the indicator of demand.”
Sam Kimmins, head of RE100 at The Climate Group, would not reveal the extent to which RE100 companies purchase certificates, but said they were a necessary interim measure for some.
No-one is going to throw money at certificates for the rest of time. You need common sense
“No-one is going to throw money at certificates for the rest of time. You need common sense – RE100 members are focused on the prize. Right now, renewable energy is cheaper than fossil fuels in many locations. In many, it isn't. If you are a retailer in a shopping centre, or you hire one floor of an office building, you have no choice but to use certificates. In Japan, the certification system is still being developed.”
RE100 recently published a guide with specific recommendations for how companies can adopt best practice in procuring renewable energy.
It features case studies on how IKEA Group, AEON, AkzoNobel, Organic Valley, H&M, Apple and Google are using their commitment to 100% renewables to stimulate the renewables market.
Another RE100 member, software company Salesforce, which issued a challenge for all tech companies to go 100% renewable at last month’s Global Climate Action Summit in San Francisco, has made an explicit commitment to additionality in its target to procure 100% of its energy from renewable sources by 2022.
“The purpose of our 100% Renewable Energy programme is to increase the proportion of renewable energy on the grid,” the company says. “Therefore, we only count new renewable energy generation that we’ve helped catalyse or that our suppliers have catalysed on our behalf. Often this means providing enough financial certainty to a project's developer or financier to guarantee the return on investment necessary to justify large upfront capital investment.”
We're making progress and we shouldn't let the perfect get in the way of the good
Salesforce also prioritises projects that lead to the greatest reduction in emissions, so it seeks to fund projects on the dirtiest electricity grids, which may be nowhere near where it is using power. It says that buying carbon credits on the carbon market is a more effective way to reduce emissions than buying renewable certificates. Carbon credits go through a scientific review process and third-party certification to ensure each credit sold is associated with a real, verifiable, reduction in emissions beyond the business as usual framework, it points out.
“Year on year, we are seeing a transition from certificates to PPAs and onsite generation, says Kimmins. “We're making progress and we shouldn't let the perfect get in the way of the good.”