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What Is 24/7 Carbon-free Energy

#2 Carbon-aware Energy Series

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SIMONE ACCORNERO

Simone has developed his cleantech start-up to become a global leader in providing blockchain-based solutions for the energy sector - attracting clients and partners such as Google and Microsoft. He is a key figure in the 24/7 Carbon-free Energy space, known for his active role in the development of new standards and guidelines for the UN 24/7 CFE Compact, the Linux Energy Foundation, and the EnergyTag initiative. Simone is also a prominent public speaker, advocating and advising leading energy stakeholders on the future of the energy system at major corporate and energy policy events.
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Published
June 1, 2022
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What Is 24/7 Carbon-free Energy

Corporate clean electricity procurement is changing. Companies are adding to their agendas stronger climate commitments leading to the development of new energy procurement strategies that maximize decarbonization impact and get credit for it. 

At the forefront of this Next Generation of corporate clean energy procurement, there is 24/7 Carbon-free Energy (CFE), one of the two Carbon-aware Energy procurement strategies that we discussed in the first article of this 6-part series. This energy strategy represents the leading figure in the dynamic duo described in the previous article, which sometimes needs to rely on the irreplaceable help of its partner: Carbon-optimized Energy.    

24/7 CFE has already been adopted by climate leaders such as Google, Iron Mountain, Mercedes-Benz, and Microsoft, while 24/7 CFE tariffs are offered by international energy suppliers, such as Engie, Vattenfall, AES, and Quinbrook, etc.

In this second article of the series,  answer the question “What is 24/7 CFE?”, starting with a summary of the challenges that characterize the current clean electricity global paradigm for then debunking some myths around this energy strategy. This article will be followed by two more articles that are going to cover the Why and How to embrace 24/7 CFE.

On the other hand, we are preparing the upcoming homolog of these articles for Carbon-optimized Energy procurement.

What makes 24/7 Carbon-free Energy so important? 

As we explained in the first article of the series, “Generation Alpha” procurement, primarily focused on solar and wind procurement to drive the rapid deployment of new carbon-free electricity capacity. In doing so, it successfully unlocked significant progress in the decarbonization of energy markets. However, the existing system now faces various challenges in achieving more ambitious targets, such as the “90% Carbon-free U.S. electricity system” or the European Union's “Fit-for-55” goal by 2030.

As explained in the first article of this series, the main problem with “Generation Alpha” procurement is that today there is a big misconception that being powered by 100 percent renewable energy implies net-zero emissions. In doing so, the current system fails to i) correctly calculate direct CO2 emissions (both location-based and market-based), ii) provide the right incentives to companies and the right price signals to the market because it disregards two key factors: when and where electricity is produced and consumed. These two factors entirely determine the decarbonization impact of a company’s procurement as well as its ability to contribute to achieving a fully decarbonized grid, during every hour of the day or even the 2030 targets set by the US and EU.

As a concrete example, imagine a company with operations in Spain buying EACs to cover 100% of its annual consumption, thus considered 100% renewable (or carbon-free) based on current GHG Scope 2 market-based sustainability reporting standards. Even if the company procures EACs according to what is today considered the most impactful procurement option - PPA with a facility located in the same country of operation -, the chart below shows how the company that procured wind energy is 100% volumetrically-matched to their demand, but only 68% percent matched on an hourly basis to carbon-free energy since wind energy produced doesn’t match the electricity demand profile of the company and the grid prevalently has carbon-intensive electricity. While instead, considering the CFE content of the grid, the share of CFE electricity spikes to 90%.

During the remaining 10% of the time - wind energy produced falls short to meet hourly demand and carbon-free electricity is not available in the grid - the company will consume carbon-intensive electricity regardless of its 100% annual volumetric match, thus not achieving zero emissions.

Therefore, any approach that allows for companies (and energy suppliers) to claim to be 100 percent renewable and net-zero emissions by using monthly or yearly average aggregated data, disregards that electricity’s carbon intensity might fluctuate substantially throughout the day depending on the location and weather conditions, and therefore, it does not provide the right incentives for companies to seek solutions to this volatility problem. 

When - The problems caused by ignoring time-synchronicity

Also called temporal correlation, electricity synchronicity defines how your electricity consumption and CFE production are matched, typically on an hourly basis. In today’s procurement decisions, this temporal component that is so critical to the physical delivery of electricity is often neglected, leading to the following issues.

Economic issues

The lack of incentives in buying carbon-free electricity for specific hours leads to the absence of market-driven incentives in creating solutions able to produce carbon-free electricity during times of “high demand vs low supply”, as the market price of the “carbon-free” attribute of the purchase is not affected. Due to this, when considering a long-term investment like a PPA, or the construction of a new production asset, there is still no incentive in choosing critical and complementary carbon-free generation technologies according to the expected synchronicity between production and consumption. 

From a PPA buyer’s perspective (a.k.a. offtaker), the lack of synchronicity between production and consumption often leads to a high risk of being exposed to unpredictable price changes, due to wholesale market volatility, and therefore a higher risk premium on the agreed strike price. (WBCSD, 2021)

Besides these straightforward issues, the lack of relevance of temporal correlation in today’s procurement decisions also leads to almost non-existent incentives for energy storage assets, demand-response, and energy efficiency. 

Environmental reporting issues

Recent studies have demonstrated, among other key findings, that annual accounting could lead to up to a 35% difference between location and market-based CO2 emissions reporting. Another famous study from Stanford shows that by 2025, the use of yearly averages in California could overstate the greenhouse gas reductions associated with solar power by more than 50 percent when compared to hourly averages.

Where - The problems caused by ignoring geographical correlation

Geographical correlation defines how your electricity consumption and carbon-free production are matched in terms of location (i.e on the same grid). Physical electrons are impossible to track, however, there is a difference between sourcing your electricity from your local grid/country, and not doing so. 

As in the case of the temporal correlation, also the geographical correlation is often neglected in standard procurement decisions, leading to the following issues. 

Economic issues

The lack of geographical boundaries for EACs  (within the same standard - RECs, IREC, and GOs - it is possible to buy and claim EACs from different regions, e.g. between Texas and Alaska) fails to provide price signals and incentives to build new carbon-free production assets in areas with lack of CFE. EACs are generally bought from the cheapest source possible (in Europe, that is the case with Norwegian hydroelectric power) regardless of their locations. 

The effect of having a demand which is driven by geographical correlation can already be seen in the European market, where GOs are usually bought at 0.4-0.8 €/MWh, with the cheapest option (Norwegian Hydro) selling for 0.2 €/MWh. But prices for “national” GOs can go up as in the case of the Netherlands, where the country's awareness and interest in this topic bring prices of Dutch wind GOs up to 6-7 €/MWh due to the request of local energy buyers to receive ONLY local GOs. 

Nevertheless, although undoubtedly good for the project developers and grid decarbonization, higher GO prices driven by lower liquidity due to sophisticated demand (e.g. “national GOs) are not rewarded in today’s accounting standards and leadership programs like RE100 and Science-based Targets, hence buyers are less incentivized to purchase them.

Lastly, the lack of importance of the geographical correlation also leads to a little incentive for companies to consider alternative and more complex options (compared to purchasing EACs) for carbon reduction, such as on-site generation, which instead should be seen as the first option to be explored by energy buyers to reduce their impacts on the environment.

Environmental reporting issues

The average citizen, newspaper, NGO, etc. can easily understand that, although allowed by the market and reporting standards, purchasing EACs - for example - from Norway to cover consumption in Spain, for sure does not have a positive impact on local communities and Spain’s energy transition. This practice greatly increases the risk of being accused of greenwashing, especially within the context of 24/7 CFE. While purchasing electricity from high carbon intensity locations is a very valid procurement strategy (see “Carbon-optimized procurement” in the previous article), it is extremely important to carefully and accurately define the claims that it enables. Since 24/7 CFE focuses on direct emissions and not avoided emissions, the geographical correlation becomes a critical cornerstone for credible, transparent reporting.

24/7 Carbon-Free Energy (CFE): definition and characteristics

The United Nations 24/7 Carbon-Free Energy Compact defines 24/7 CFE as: 

“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.”

Other definitions can be found in the literature. We propose the following one, from the latest publication by Princeton University's ZERO LAB:

“24/7 carbon-free electricity procurement is to match a buyer’s electricity demand, hour-by-hour, 24/7, with corresponding clean electricity generation from within the same electricity grid region as the buyer’s operations.” 

In the previous article we used Batman as a metaphor for 24/7 Carbon-free Energy:  the hero we need to make sure that anytime and anywhere a switch is turned on, carbon-free electricity is available. 24/7 CFE focuses on the questions: “What is the carbon footprint in terms of direct equivalent GHG emissions associated with the electricity consumed?” or, seen as society as a whole, “How do we transition the grids we consume electricity on to fully decarbonized systems?”. It does so by introducing the concept of “deliverability” - the temporal and geographical requirement needed for the power generated by a renewable energy project to physically reach the point of consumption.

As a result, 24/7 CFE requires energy buyers to adopt more refined, transparent, and ambitious procurement decisions based on a few key requirements for demand to exercise a strong and positive influence on the transition towards fully decarbonized grids.

Production site eligibility

To be eligible to be considered as 24/7 CFE procurement, production and consumption MUST occur in the same electricity grid. At the time of writing this, the standard considers the interconnected TSO/ISO regions as the accepted geographical boundaries. In the future, boundaries could become even more restrictive and go down to individual bidding zones or even transformer grids to specify the level of quality of 24/7 CFE (i.e. the closer the sink is to the source, the better the 24/7 CFE is).

A production asset is eligible only if it is recognized as a CFE source, meaning that its operational CO2 intensity (excluding its lifecycle assessment) equals 0 kgCO2eq/kWh. This includes, but is not limited to, solar, wind, hydroelectric, nuclear, biomass, and battery storage

Time synchronicity certifications

24/7 CFE introduces the need for a revised certification scheme concerning the traditional EACs, called Granular Certificates (GCs) or T-EACs. GCs are, by nature, intrinsically linked to EACs and cannot exist without them. They are the natural evolution of the current EAC scheme and they provide additional information on the exact time of CFE production. 

To claim a certain 24/7 CFE achievement, an energy buyer/supplier needs to demonstrate that it has purchased a volume of GCs/T-EACs (via PPA, green tariff, or unbundled OTC transactions - read the upcoming article of the series for more information) whose timestamps effectively match its consumption hourly pattern and which respect the eligibility criteria explained above

Hourly CO2 emissions reporting

By knowing the location and the time of both production and consumption of electricity, it is possible to perform hourly CO2 emissions reporting, This process is based on the same concept of traditional reporting methodologies (calculation of GHG Scope 2 location-based and market-based emissions as explained in the introductory article), but using real hourly emissions factors instead of yearly and applying more strict eligibility criteria to GHG market-based emissions calculations addressing the deliverability of purchased GCs/T-EACs.

Hourly CO2 emissions reporting is not a threat to current Scope 2 sustainability reporting standards, but rather a complementary enhancement that aims to provide the most transparent and comprehensive analysis on the impact of electricity procurement.

The first key performance indicator for 24/7 CFE was proposed by Google: the so-called CFE Score, which “measures the degree to which each hour of our electricity consumption on a given regional grid is matched with CFE on an hourly basis”. This is calculated using both the CFE under contract by Google, as well as CFE coming from the overall grid mix. Other leading energy buyers might define their key performance indicators until no-profit organizations such as the United Nations 24/7 Carbon-Free Energy Compact will collaboratively implement a standardized reporting framework.  

24/7 CFE journey - don’t be afraid to start

Instead of replacing existing sustainability best practices, 24/7 CFE procurement aims to introduce additional KPIs and refine the existing ones. 

Pursuing a 24/7 CFE goal will not worsen a company’s Scope 2 reporting, on the contrary, it will provide various benefits as explained in the upcoming article of the series.

Similarly, it doesn’t necessarily mean an increase in electricity bills, at least not within the first miles of the 24/7 CFE journey, as Chris Pennington (Director of Energy and Sustainability at Iron Mountain Data Centers) pinpointed during our latest webinar.

Therefore, speaking of journeys, as you can see from Google’s results, being 24/7 CFE all year round (or 100% 24/7 CFE) is not quite an easy task for the time being (using a euphemism), and it shouldn’t be the source of great distress. A 24/7 CFE strategy is meant to be intended as an incremental approach, made of constant improvement, which we will discuss in more detail during the third and sixth articles of this series.

In the next article, we are going to dive deep into the reasons why 24/7 CFE represents the Next Generation of corporate clean energy procurement, as it represents the leading strategy within the Carbon-aware Energy procurement approaches. What are the benefits for the private sector? What does 24/7 CFE represents for energy providers? What does this entail for the energy transition in terms of structural benefits? Stay tuned, and subscribe to our newsletter.

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Published
June 1, 2022
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