Sourcing Renewable Power: creating enough to go round
Transitioning to renewable energy is a vital part of achieving net zero. With the consumption of electricity being a major source of emissions for many, shifting to renewable energy tackles the problem. Overall, the transition requires a massive uptake. Sooner or later, everyone will be fighting for renewable energy sources.
In the long term there are simply not enough renewables in the pipeline to meet the demands of net zero committed business, so now is the time to sort out procurement once and for all.
Finding the right procurement options is not a straightforward process. The most common source of renewable energy currently used comes in the form of unbundled RECs (Renewable Energy Certificates) . These are certificates of clean energy which can be used to claim renewable energy use. However, these do little for reducing emissions in reality and have started to attract criticism.
A recent study found that the widespread corporate use of RECs is “unlikely to drive additional renewable energy production”, casting doubt on the ability to reach the Paris Agreement temperature goal of 1.5C1 .
This suggests that more RECs are being sold than there is actual renewable energy dedicated to RECs.
There has been a lot of attention on "additionality". Simply put, buying certificated renewable energy from an existing solar or wind farm does not decarbonise anything, it just displaces the credits. In contrast, large users such as data centres came up with the concept of additionality: by contracting with renewable developers at the project's early stages, they provide financial guarantees making the project viable. They enable additional renewable energy delivery to the grid mix, making it greener, and supporting the transition to net zero.
What RECs fail to do is to create any additionality. S&P states that the “transaction merely reshuffles existing renewable energy” and “it creates little to no additionality”, leaving the amount of renewable energy available unchanged2. Better options linking the procurement to local renewable projects, such as local energy companies working on solar or wind energy generation, seem reserved to very large users like Google.
Take the built environment sector. Buildings need vast quantities of energy to run, but how can property owners source the green energy they need to supply them? Nils Rage is Head of ESG at Stanhope, a property developer, asset manager and investor behind some of London’s most well-recognised areas, from White City Place and Television Centre to Broadgate and Chiswick Park. Stanhope is committed to leaving a positive and sustainable legacy in the buildings they build and run.
However, Nils identifies five key issues with the current renewable energy market:
Power Purchase Agreements (PPAs), agreements to purchase electricity directly from renewable energy generators, are unavailable to small players as their energy demand is not sufficient to meet the minimum purchasing threshold
It is difficult to have informed conversations about renewable electricity procurement beyond Renewable Energy Guarantees of Origin (REGOs), the scheme that provides transparency to renewably sourced electricity. For example, discussions should involve the locality of the energy source as it is more sustainable to source energy from a source as local as possible. One should also find out how much actual renewable energy can be guaranteed during consumption time versus how much of it will be from conventional non-renewable assets. These are important questions to ask to understand what is the actual carbon content of the ‘green’ contract
Additionality is little to none; few energy providers are investing in new sources of green energy
Market maturity is problematic; generators and infrastructure lack the sophistication to match the energy demand with renewable supply in real-time
Little progress has been made on battery storage solutions to allow for a better guarantee of renewable energy 24/7
It is currently impossible to source 100% renewable energy in a physical, additional, time-matching manner. It takes the scale of a Google to attempt to pull it off and even there it is a work in progress3.
Nils believes there is a role for large energy users in the built environment sector committed to credible net zero pathways to signal this demand collectively to energy suppliers.
Credible renewable energy procurement will be a key differentiator of net zero carbon claims. However, energy consumers will also have to act accordingly, looking for solutions for better storage and flexibility between renewable energy sources.
There are already positive signs in the market . Suppliers are looking at ways to further enable and accelerate meaningful renewable contracts. The UKGBC has developed a Task Force to produce guidance on informed energy procurement decisions4. Meanwhile in France, ENGIE is now offering a PPA solution to a wider range of consumers, the first of its kind in the country5.
In a market where standards are rapidly evolving, pushed not only by global heavyweights like Google and Amazon but also through the ambitions and decisions of smaller businesses, market transformation happens and everyone’s a winner when energy users get informed, think ahead and demand a revolution.
1. Bjørn, A., Lloyd, S.M., Brander, M. et al. Renewable energy certificates threaten the integrity of corporate science-based targets. Nat. Clim. Chang. 12, 539–546 (2022). https://doi.org/10.1038/s41558-022-01379-5