by Lucas Grimes, CRS; and James Critchfield, U.S. EPA Green Power Partnership
Aggressive expansion of clean energy is critical for the U.S. to achieve its climate and energy goals. A major prerequisite for this transition is customers’ ability to procure clean energy. Customers who have access and choose to purchase clean energy are not only driven by economic incentives, but by a sincere desire to make a difference. Recently, clean energy markets have seen a renewed focus on impactful procurement and a proliferation of different impact strategies. This blog is the first in a series which will address questions about impactful clean energy procurement.
Meet the Energy Attribute Certificate (EAC)
Impactful clean energy procurement comes down to the customer having a preference and selecting for attributes from specific electricity generation sources. Energy Attribute Certificates (e.g. RECs, GOs, I-RECs, etc.) are a tool used in the market to convey and track all the attributes associated with a MWh of electricity generation and are inherent in all clean energy procurement strategies. For any clean energy use claim to be credible, the generator or retail supplier must contractually convey to or retire the energy attributes for the customer. This is true across all purchasing options (e.g., owned generation, unbundled RECs, physical PPAs, or VPPAs). A narrowing of the customer’s scope of procurement to select for EACs that contain certain attributes focuses demand on specific resources that convey those attributes. This enables organizations to develop procurement strategies for maximizing impacts that are important to them by purchasing specific attributes.
Strategies for maximizing impact can be understood in terms of “what customers buy” and “how customers buy it.” Below are a few examples of voluntary green power procurement strategies and their commonly associated impacts.
What Customers Buy (i.e. where the EACs come from)
- Voluntary purchasing. Ensures that generation is a result of consumers’ purchases and not a legal mandate.
- New facilities. Ensures there is continued demand for newer supply.
- Sustainable resources. Creates demand for a variety of clean resources and stimulates new sustainable technologies.
- Avoided grid emissions. Prioritizes purchases in grid regions with higher marginal or average emissions intensity.
- Buying local. Encourages usage of local generation or changing the local grid mix through the development of new incremental capacity.
How Customers Buy It
- Building new generation. Creates new capacity.
- Purchasing in quantities large enough to enable specific new capacity. Helps to secure financing for specific projects.
- Entering long term contracts. Helps to secure financing for specific projects.
- Purchasing more. Sends stronger demand signal to encourage new supply.
- Time matching (e.g., 24/7 CFE procurement). Supports supply generating at the time of energy consumption.
Voluntary Procurement is Impactful Procurement
A key component of impactful purchasing is the voluntary nature of the purchase. Voluntary purchases are those that are not mandated by local, state, or federal legislation, but are the direct choice of the consumer to purchase clean energy that goes above and beyond what is required to be delivered to consumers by law. This concept is often referred to as regulatory surplus. Without regulatory surplus, a voluntary consumer’s purchases or development of clean energy will only make it easier for regulated entities to meet their compliance obligations or help states meet existing targets. For consumers who wish to make a difference and have an impact, it is essential to ensure that purchases are surplus to regulation.
When consumers make a choice to voluntarily purchase clean energy, they are utilizing their purchasing power to create demand signals on top of mandates. Purchases can either be direct investment in new projects that are not used for compliance or indirect contribution to aggregated voluntary consumer demand. Both impact market supply because, in aggregate, all demand leading up to the last increment that forces a new clean energy resource to come online makes it possible for that final increment to happen. The demand signal that drives new capacity is not only the demand of the newest purchase, but the demand of all purchases before it.
Multiple Opportunities for Impact
The value of a voluntary market that supports a variety of purchasing options is illustrated when some strategies lead to contradictory purchasing decisions (e.g., buying local vs. maximizing avoided grid emissions). The design of the voluntary market provides the flexibility for all buyers to make progress in line with the options that are available to them. Many of the strategies for maximizing impact through clean energy procurement can be implemented together. In fact, existing best practice in the voluntary market already reflects several including facility age, regulatory surplus, and environmentally beneficial resources.
Ultimately, different procurement paths are appropriate for different companies at different times and in different markets.
Even for some of the most advanced buyers, there are strong reasons to follow a portfolio approach using multiple procurement options, including utility green tariffs, unbundled RECs, PPAs, time-matched procurement and projects that provided additional co-benefits, such as using diverse suppliers or investing in marginalized communities. By trying new strategies with portions of one’s procurement, a portfolio approach helps to balance costs and minimize risks as well as encourage innovation and experimentation.
Takeaways
- When working to maximize impact, it is important to think about both what customers buy and how customers buy it.
- Selecting for certain attributes or purchasing more attributes can increase or customize the impact of customers’ purchases.
- All voluntary procurement of clean energy impacts overall clean energy supply.
- The voluntary market can support many different pathways to impact when consumers have access to the full range of supply pathways.
Lucas Grimes is CRS’s Manager, Policy. James Critchfield is Director of the U.S. EPA’s Green Power Partnership
