Corporate clean energy buyers are playing a pivotal role in advancing the transition to a decarbonized grid. Over the last decade, visionary organizations and their developer partners helped define the corporate power purchase agreement (PPA) that is today a vital instrument used by hundreds of global companies. Where there was once a void of best practices and standardized success metrics, a group of motivated parties collectively built today’s robust ecosystem of procurement approaches, contracting structures, and delivery mechanisms.
These voluntary actions have spurred very real shifts in grid composition. Since 2014, 42% of all wind and solar capacity added to the U.S. grid occurred as a result of procurements from corporate or institutional buyers. And in 2022, voluntary procurements equaled 70% of the carbon-free energy (CFE) added to the grid. As the urgency of climate action grows, corporate leadership must remain a powerful engine for change, helping drive the transition to the carbon-free future our world needs.
The impact and momentum of PPAs creates a strong foundation that enables us to tackle new problems that will unlock even greater decarbonization. The door is now open to solve one of the next great challenges of the energy transition: how to encourage carbon-free generation at all hours of the day, in every corner of the electricity system.
The urgency of meeting this challenge cannot be overstated. That’s why today, we’re proud to announce the creation of the Granular Certificate (GC) Trading Alliance: a collaboration with AES, Constellation, Google, and Microsoft to build the market infrastructure needed to scale time- and location-based carbon-free energy.
In Search of Higher Resolution
As the energy transition progresses, more organizations are setting their sights on new targets focused on abating emissions in more geographically and temporally specific ways. Achieving these targets requires a different procurement and verification ecosystem — one that complements the existing PPA landscape, and that enables new levels of procurement precision.
A Energy Attribute Certificate (EAC) — which represents one megawatt-hour of renewable energy generated and added to the grid — is, in essence, the unit of account for clean energy procurement. In North America, EACs are referred to as “RECs” (Renewable Energy Certificates), while in the EU, they are called “GOs” (Guarantees of Origin). Whether “bundled” with the energy commodity (as with most PPAs) or procured independently (i.e., “unbundled”), the EAC bestows upon its owner the right to claim the environmental attributes associated with its corresponding megawatt-hour of clean electricity production. An EAC is stamped with a year, or “vintage” (and in some markets, the month), as well as the electricity market in which that megawatt-hour was produced. To fully green their Scope 2 emissions footprint under today’s greenhouse-gas accounting standards, organizations must acquire (and retire), at minimum, the number of EACs commensurate with their total electricity consumption for that year.
In its present form, the EAC has facilitated the deployment of massive amounts of carbon-free energy. Nonetheless, the annual EAC isn’t particularly suited to address the next major energy transition challenge: encouraging renewable generation at all hours of the day, in all locations. For companies aiming to use carbon-free energy during every hour of the year (“24/7 CFE”), or for those targeting the most carbon-intensive times and locations in an effort to maximize carbon reduction, this current annual framework is insufficiently precise. Ultimately, an annual lens produces a rather murky picture of when and where clean energy is being generated, preventing energy buyers from sending useful time- and location-based price signals to generators, and generally making 24/7 and carbon-intensity goals impossible to achieve.
To enter the next chapter of grid decarbonization, the industry needs to develop tools that allow for finer grid resolution. Only with this clearer view can energy buyers transact with greater time- and location-based specificity, and move their granular procurement ambitions forward.
Time To Go Granular
Granular certificates, or “GCs,” are the next-generation EAC. Stamped with a generation type, location, and hour of production, they can paint a far clearer picture of real-time electricity production and grid carbon intensity, and can thus facilitate much more targeted procurements.
As industry-wide support coalesces around GCs, it will take a vibrant ecosystem of partners to support GC market development and deliver environmental legitimacy at scale. Accomplishing this will require a user-friendly platform that delivers standard contracts and price transparency, while providing settlement, delivery, and tracking functionality. In other words, a transparent market for verified GCs.
A New Marketplace to Supercharge Granular Goals
LevelTen Energy remains focused on building forward-looking marketplaces that facilitate the next generation of renewable energy transactions. We build these marketplaces with two vital tenets in mind: environmental legitimacy and scalability. It was in this spirit that we convened the sustainability leaders and energy procurement specialists at Google and Microsoft, the energy experts at Constellation and AES, and the world’s foremost market exchange provider, the Intercontinental Exchange (ICE), to create the world’s first GC trading and management platform.
The GC Trading Alliance will soon deliver a solution that enables market participants to trade, track, and manage GCs. The solution will include two key components:
- GC Trading Platform: The GC trading platform is expected to launch in 2024 on ICE. This platform will connect CFE buyers and sellers — including solar, wind, hydropower, and nuclear generators, and battery storage charged by CFE resources — allowing them to trade GCs based on buyers’ preferred technologies, and the time and location electricity is generated.
- GC Management Platform: In addition, LevelTen Energy is developing a centralized hub for market participants to manage GCs before and after trades, which will include access to GC market data, custom reports to inform granular procurement strategies, as well as GC tracking and settlement.
This new platform will facilitate granular renewable certificate trading at speed and at scale. Critically, these trades will send new time- and location-based price signals to the universe of clean energy projects and developers, incentivizing carbon-free generation to dispatch when and where it is needed most.
The necessity and utility of these granular price signals cannot be overstated. Fundamentally, more targeted pricing can change the math on crucial grid investments — like standalone storage — by appropriately compensating the contributions these assets provide. Enabling buyers to relay more specific needs to the developer community will fuel creativity in our industry, and allow developers to adapt business strategies to capture emerging market opportunities. With more sophisticated market infrastructure in place, our sector can explore new possibilities that will drive more fossil generation off of the grid, faster.
Importantly, the GC trading and management platform will remove the need for companies with granular procurement goals to “over-procure” long-term PPAs to cover their full load at all hours. With the transactional precision provided by the platform, organizations can better utilize their capital to create impact exactly when and where they need to — and in doing so, spur the development of crucial grid assets that have historically lacked clear demand signals and avenues to investment.
The Next Chapter of Decarbonization Begins Now
To say this is an exciting moment is an understatement. This platform will provide market signals that will optimize the dispatch of existing carbon-free generation, and fuel investments in new assets that current market signals do not reach. What’s more, if and when policymakers choose to implement stricter regulations that move beyond today’s annual approach, a GC trading platform will be an essential execution tool necessary for the market to rapidly scale. And beginning very soon, organizations in need of granular trading infrastructure will be empowered to drive forward the next chapter of their decarbonization journeys.
In a few years, a granular procurement approach will likely be the norm in our industry. But the need to develop new tools that allow for precise decarbonization is pressing now, and we know this granular trading platform will grow more liquid and widely used over time, as organizational goals and regulatory requirements evolve. By putting in place the infrastructure needed for the market to continue growing, we can build on the substantial grid transformation that PPAs and EAC transactions have enabled.
Our industry must continue to innovate at a relentless pace if we are to meet the climate crisis head on, and tracking and trading clean energy through a granular approach will be pivotal to our success. My sincere thanks goes out to our ambitious founding Alliance members for their bold leadership and collaborative spirit. Working together, we will continue to develop the tools needed to allow even more organizations to tackle climate change and build a better future.
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