The renewable energy landscape has changed dramatically over the past two decades. In 2020, renewable sources produced more power than fossil fuel plants in Europe. Nevertheless, recently-set decarbonization goals, such as the US Biden Administration’s “50% 24/7 CFE grid by 2030” or the EU’s “Fit-for-55 by 2030”, are still very far from being achieved. Along with energy markets, voluntary carbon markets have been experiencing all-time highs, together with increasingly severe scrutiny by public opinion and sustainability experts.
The two aforementioned trends are influencing each other, resulting in more and more companies including in their corporate energy procurement a new focus on maximizing decarbonization impact and not just on procuring volumes of renewable energy for the cheapest price available. These changes are being dubbed carbon-aware energy procurement, which can be defined as any holistic energy strategy which links electricity procurement with its real carbon impact, by collecting and analyzing high-granularity data concerning both time and location.
This shift is driving change and a transversal demand not only for higher data granularity, electricity-related carbon reporting methodologies, standards, and energy certification but also for new zero-carbon generation technologies and the resulting electricity products that corporate buyers can purchase.
Carbon-aware energy procurement is today considered by many experts the “next generation” of corporate renewable procurement and the world’s leading academic and non-profit institutions* have all started dedicated workstreams and research on the subject.
To help further understand this “generational” change, we have created a series of articles that will deep-dive into the concept of carbon-aware energy procurement through the in-depth analysis of 24/7 Carbon-free Energy (24/7 CFE or 24/7 Carbon-free Electricity, for the purists) and Carbon-optimized Energy (or Electricity) procurement as the two coexisting approaches to ensure a collaborative, fast-tracked decarbonization of the electricity grid all around the globe. We discuss what they are and their complementarities, why buyers should already transition to the next generation of procurement, and, most importantly, how it can be done by providing an actionable framework.
The past and the current generation of corporate clean energy procurement
To understand the benefits of next-generation energy procurement approaches, we review the origins, evolution, achievements, and limitations of today’s practices; we then introduce and define 24/7 Carbon-free Energy and Carbon-optimized Energy procurement.
Generation Z (1996-2009)
Carbon emissions, which result from the production of the electricity that companies buy and consume, can be accounted for in the Scope 2 emissions inventory. In the late 90s and early 2000s, only the “location-based” accounting methodology was recognized; following this methodology, companies could report on the carbon impact of their electricity procurement strategies using the emission factors of the electricity grids where they consume. A limitation that comes with location-based emissions accounting is represented by the impossibility for the buyer to have a direct impact on their Scope 2 score, regardless of the electricity they procure; in fact, using this accounting methodology, the benefit of sourcing a direct PPA in the same grid as consumption would be diluted between all buyers in that grid zone. This action would surely benefit the emission factor of the local grid, but it wouldn’t bring any benefit to the offtaker (the purchaser of renewable energy in a solar development project) Scope 2 score.
Over the years, decarbonization gained in importance. To enable consumer empowerment and choice, the EU Guarantees of Origin energy certification scheme was introduced (GOs) in 2001 through the Directive 2001/77/EC (the predecessor of the RED I). In the following years also RECs and I-RECs were born and started to spread around the globe; the first Energy Attribute Certificates (EACs - the umbrella term for GOs, IRECs, RECs, etc.) market was born, together with several international organizations and standards to support it.
Generation Alpha (2010-2024)
As the availability and market of EAC schemes grew strong, it enabled the definition of “Market-based emissions” in 2015. This new carbon accounting methodology allows companies to meet their global aggregated annual electricity consumption with EACs. This new market-based mechanism aims to drive the rapid deployment of new renewable energy capacity by incentivizing companies to buy RES-E (renewable electricity), mainly (but not only) from solar and wind farms.
Any company can claim to be 100 percent renewable and 0 market-based GHG emissions by buying an amount of EACs that equals their consumption (in MWh) regardless of its origin and time of production. At the end of the year, companies calculate their final energy consumption and match it toan equivalent (or either lower or higher) amount of EACs purchased through brokers or suppliers for the lowest price or proceeding from plants included in their PPA contracts. EACs allow the companies to claim the environmental benefits of the underlying amount of renewable energy injected into the grid somewhere, at some point in time.
Companies began to set goals on the percentage of renewables coverage to achieve, nowadays being 100 percent renewable is a well-established best practice in corporate energy procurement. RE100 is the global corporate renewable energy initiative bringing together hundreds of large and ambitious businesses committed to 100% renewable electricity and the Science-Based Targets initiative (SBTi) also includes such a volumetric goal in its guidelines.
The legacy of first-generation corporate energy procurement
20 years of great achievements
All in all, the existing energy certification schemes have a legacy of success and keep on serving the purpose. The current system was useful for creating voluntary markets with an annual accounting instrument to underpin environmental claims and reporting in the first place, it has been able to expand the community of corporate energy buyers, enabling direct contracting of over 76,9 GW of clean energy capacity in the world between 2010 and 2020 and increasing revenue for clean energy facilities to promote further investment.
Limitations and challenges
Starting around 2020, the concept of “decarbonization impact” began to spread among corporate buyers (RE-source white paper). Buyers prefer certain renewable energy products over others, depending on factors such as the generating technology (e.g. wind and solar are usually preferred over hydro and biomass), location (e.g. purchasing EACs originated in the same country where electricity is consumed is usually better perceived) or additionality (e.g. buyers tend to prefer purchases of renewable power critical to whether a specific renewable project happens).
Although everyone agrees that any clean energy purchase is better than not purchasing anything at all, there is little consensus in the industry on what is the most impactful strategy and, most importantly, how to measure the resulting decarbonization impact.
This is due to the fact that, nowadays, there is a big misconception that being powered by 100 percent renewable (RE100) energy implies net-zero emissions. The reason why the misconception exists and why it is very difficult to objectively measure impact is mainly due to the lack of granularity in electricity tracking as well as carbon accounting systems, and the lack of modern, robust standards. The grid emission factors used today by companies for sustainability reporting are yearly averages, even though the carbon content of electricity on the grid strongly fluctuates every hour of the day and day of the year.
So, there’s a clear mismatch between current procurement practices (Generation Alpha) and achieving a fully decarbonized grid, during every hour of the day. The current system suffers from market saturation that provokes curtailment in some areas, due to the development of carbon-free projects geographically unevenly. It does not incentivize the growth of critical and complementary carbon-free generation technologies and solutions that the industry wants and needs to fully decarbonize its operations. Last but not least, this generation of clean energy buyers has insufficient energy data and attributes to use, drive impact and get credit for it on less than an annual basis, which has been proven to provide potentially misleading results in the quantification of the real impact.
Currently, companies are not properly incentivized to take the highest-impact actions and do not get full credit when they do. The lack of a scheme that incentivizes, and ultimately recognizes those efforts undermines the scalability of the full decarbonization of the grids; eventually, the majority of companies wouldn’t engage with such high-impact actions if not adequately incentivized nor rewarded.
Generation Zero (2025-2039)
To address the aforementioned challenges, many experts, the world’s leading academic institutions, and several non-profit organizations have started working on the “next generation” of corporate clean energy procurement. We define Carbon-aware Energy procurement as “Generation Zero” because it aims to seek solutions to transition the grids we all consume electricity on to zero-carbon systems in the next two decades as well as to accelerate RE deployment on the dirtiest grids today.
Generation Zero focuses on addressing two key questions:
- What is the carbon footprint in terms of direct equivalent GHG emissions associated with the electricity consumed?
- What is the carbon impact in terms of avoided equivalent GHG emissions of the electricity purchased?
These two questions enable new and more transparent choices and empowerment for buyers. Coupled with the quest for data granularity, they allow to accurately quantify carbon reductions, which in turn provides buyers with more direct and quantifiable tools to choose energy products that clearly meet quantifiable decarbonization target parameters, rather than technology type, additionality, etc. whose difference in decarbonization impact is still widely debated among market experts.
Generation Zero is today widely considered to include two procurement strategies: 24/7 Carbon-Free Energy (CFE) AND Carbon-optimized Energy procurement
These two strategies have been often presented as alternatives (see Princeton’s white-paper) or conflicting superheroes, like Superman and Batman, while we believe they should be a dynamic duo, Batman and Robin.
For this reason, at FlexiDAO we purposely decided to write 24/7 CFE AND Carbon-optimized procurement, instead of OR.
24/7 Carbon-free Energy is well defined by the United Nations 24/7 Carbon-free Energy Compact as the end state of a fully decarbonized electricity system:
“24/7 CFE means that every kilowatt-hour of electricity consumption is met with carbon-free electricity sources, every hour of every day, everywhere. It’s both the end state of a fully decarbonized electricity system, and a transformative approach to energy procurement, supply, and policy design that is critical to accelerating its arrival.”
24/7 CFE focuses on the concept of “deliverability” - the temporal and geographical requirement needed for the power generated by a carbon-free electricity project to physically reach the point of consumption.
The objective of 24/7 CFE is to:
- bring electricity and direct emissions accounting closer to the physical reality of the grid,
- minimize the footprint to zero, carbon-free electricity can flow to the consumption site 24 hours a day, 7 days a week.
- achieve the ultimate state of a fully decarbonized electricity grid engaging with local policy makers and regulators to overcome existing market and regulatory barriers
In saying that, 24/7 CFE is Batman, the hero we need to make sure that anytime and anywhere a switch is turned on, carbon-free electricity is available. However, at the most difficult times, Batman needs Robin. It does so, not only as a sidekick, but to create the aforementioned, mighty dynamic duo. Carbon-optimized Energy procurement is Robin.
Carbon-optimized Energy procurement acknowledges that in today’s economy, businesses have extremely complex and global supply chains, franchised organizations, or simply operate in countries where policy and market instruments are yet not suited for 24/7 CFE (e.g. many states in the US with regulated electricity markets). To circumvent these issues, yet still having options to take action now, carbon-optimized procurement looks at the “emissionality” impact, enhanced by the use of granular datasets for electricity and its related emissions. Emissionality represents the capacity of an electricity purchase to displace CO2-intensive generation plants out of the generation mix of a specific grid. In other words, it is a quantitative measurement that compares the impact of carbon-free electricity projects and purchases on driving down emissions. Therefore carbon-optimized procurement helps companies operating in those tricky markets and corporate structures mentioned above providing a framework to really and accurately assessing decarbonization-driven investments and purchases by quantifying carbon reductions.
The objective of carbon-optimized procurement is to:
- define a clear and standardized framework to calculate avoided emissions (location-based - market-based ≠ avoided emissions)
- maximize the volume of avoided emissions by procuring carbon-free electricity at times and areas with high emissions to overcome market and structural barriers while pursuing high-impact investments
Together, 24/7 CFE and Carbon-optimized Electricity procurement enable much deeper reductions in CO2 emissions from electricity consumption than 100 percent renewable annual matching. They replicate the transformative impact that voluntary procurement has had on wind and solar for a set of advanced, power generation and utility-scale energy storage technologies that can make the broader transition to 100% 24/7 Carbon-free Electricity more affordable and readily achievable by jointly sending important investment signals to promote further investment in clean energy in areas and times where the grid is particularly relying on CO2-intensive generation. On top of that, they represent key drivers in creating a forcing function for policy and market changes across grids globally.
Moving towards Carbon-aware Energy procurement
Current practices for corporate energy procurement, and the current way to measure its structural decarbonization impact, have achieved impressive results in the development of clean electricity markets. Nevertheless, numerous academics and other internationally recognized organizations of all kinds are calling for the adoption of new energy approaches; the latest scientific findings show that more attention should be paid to the precision in the accounting of the emissions related to the production of electricity. The transition to Carbon-aware Energy Procurement strategies will unleash a new era of consumer clean energy choice which will ensure impactful electrification of our society.
Subscribe to our newsletter if you want to keep on reading this 6-part series dedicated to the next generation of corporate clean energy procurement. The upcoming parts will help you discover the benefits of the aforementioned strategies and, ultimately, how to implement them in your company.
*Supporting documents from world leading academic and non-profit institutions: