Author: Aran Rice has over 10 years of experience in corporate sustainability strategy, renewable energy, and carbon markets, and is directly involved in helping RCE’s clients to achieve complex renewable energy and sustainability goals.
Renewable energy markets are swiftly evolving worldwide. Dramatically falling prices – thanks to advances in technology and economies of scale – and shifting policy resulting from the Paris Agreement are leading to the rapid expansion of renewable generation across the globe.
A powerful partner to these evolving markets is the commercial and industrial (C&I) buyer. These multinational organizations are increasingly adopting clean power in an effort to achieve renewable energy and carbon reduction goals or respond to NGO pressures. Favorable economics in many markets have also spurred C&I buyers to act.
As C&I organizations with an international footprint strive to improve their environmental and social impact, realize cost savings, and meet their goals, contractual instruments, such as Energy Attribute Certificates (EACs) and Power Purchase Agreements (PPAs), have become more widely available.
EACs are the primary contractual instruments that organizations use to acquire, track, and trade green power. One EAC verifies that one megawatt-hour of renewable electricity was generated and added to the grid from a clean power source. In North America, EACs are referred to as Renewable Energy Certificates (RECs). The EU uses the term Guarantees of Origin (GOs), Australia refers to GoldPower, and many developing markets reference I-RECs, or International Renewable Energy Certificates.
EACs are a critical component for C&I buyers that are seeking to reduce the emissions associated with their Scope 2 purchased electricity, or who wish to make zero-carbon emission claims when reporting to agencies like CDP. They remain the most credible and readily available instrument for C&I buyers to use in these scenarios.
PPAs, on the other hand, are long-term contracts between a renewable energy developer and a dedicated, creditworthy buyer. PPAs are a crucial component of financing wind and solar energy projects, and have become a progressively competitive way for C&I buyers to secure affordable, renewable electricity while simultaneously locking in a stable energy price in a volatile market. Global organizations, such as Facebook, Philips Corporation, and friends of Renewable Choice Amazon Web Services, have all benefitted from PPAs and continue to pursue future PPA opportunities.
Established markets for EACs and PPAs currently exist in North America, Australia, the EU, and the UK with emerging markets rapidly developing in Latin America, Japan, India, and Southeast Asia. This increasingly globalized landscape has placed a greater emphasis on the accurate reporting of green power purchases and emissions claims for C&I buyers.
Making false or inaccurate green claims can put an organization into jeopardy with the Federal Trade Commission, as well as a variety of NGOs and agencies worldwide. It is critical, especially as global markets become more dynamic, that buyers utilize generation data, ownership details, and Scope 2 reporting guidelines to ensure that their emission reduction and marketing claims are accurate.
The Greenhouse Gas (GHG) Protocol Corporate Standard is the customary tool for the accounting of organizational GHG emissions. In 2015, the World Resources Institute – one of the founding agencies behind the Protocol – issued a new guidance on Scope 2 reporting and claims. Scope 2 refers to the indirect emissions from a company’s purchased electricity, heat, steam, or cooling.
Under the new guidance, if a company’s operations are based in markets where there is consumer choice available regarding renewable electricity—in other words, if a C&I buyer can acquire EACs, PPAs, or another type of contractual instrument in those markets–then Scope 2 emissions must be reported on both a location-basis and a market-basis.
Location-based reporting quantifies Scope 2 emissions averages from the grid in which a company’s operations are located. This method allows organizations to articulate the effects of energy generation and distribution in their operational region; however, in this scenario, GHG reductions are dependent on a lower consumption of energy via efficiency measures.
The market-based method, on the other hand, identifies Scope 2 emissions associated with a company’s contractual instruments – such as EACs or PPAs – which they choose to purchase. This method realizes that buyers have a choice regarding renewable electricity in their markets; therefore, emission reductions are dependent on choosing low-carbon contracts.
The new market-based guidance is more comprehensive and precise. It can be challenging to match contractual instruments to the markets in which a company’s electricity is consumed, which is a mandate of the guidance. In established markets, such as the United States and Canada, matching is straightforward because the location-based and the market-based consumption occur in the same region. In emerging international markets, however, matching can be more complex if operations exist in isolated grid locations.
It is a minimum condition that organizations use EACs within the same region as their operations. RECs are expected to be used for North American operations, GOs should be used for European operations, and so on. In areas like Latin America, where contractual markets are still developing in some regions, market-based inventory data may not be readily available, or the instruments in those markets may not be credible. EACs from separate geographies should not be attributed to these nascent markets, so organizations may have to rely on additional location-based metrics or a residual mix of emissions factors for accurate reporting connected to their operational locations.
As falling prices and favorable policy shifts drive renewable generation, C&I buyers with a global presence can benefit from attractive international opportunities. Corporations that pursue contractual instruments in these markets must consider the nuances of claims reporting, particularly in regards to recent updates in the GHG Protocol and location-basis vs. market-basis methods. Working with a trusted buyer’s agent, such as Renewable Choice, can alleviate this process and expose valuable projects abroad that benefit both the bottom-line and environmental/social causes.
For a deeper analysis on how to make credible claims domestically and abroad, download our new Guide: Clean Energy Marketing & Emission Reduction Claims: What You Need to Know.
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