October 31, 2017
BRUSSELS INSIDER #1 by Clare Taylor
Corporate renewables sourcing: EU ponders rules to ensure it’s not just buying green stickers
October 31, 2017
Corporate buying of renewable energy has been growing rapidly in Europe. The European Commission welcomes this trend and notes “we are only at the beginning”. But the systems under which green certificates are issued are controversial and they are different across the EU. Reforms are under discussion in Brussels to ensure that the system is not just selling “green stickers” to enhance corporate reputations, while providing a windfall to incumbent renewables producers.
According to a report published in April by WWF, Ceres, Calvert and CDP (formerly the Carbon Disclosure Project), 63% percent of Fortune 100 companies have set clean energy targets. Ten percent have set renewable energy targets, and almost half of those have committed to power 100 percent of their operations with renewable energy – among those, Wal-Mart, General Motors, Bank of America, Google, Apple and Facebook.
Hosted by international NGOs The Climate Group and CDP, the RE100 initiative has convened more than 100 major companies committed to procure 100% renewable electricity, together accounting for 150 TWh of yearly consumption.
The number of business models available to meet this demand is growing rapidly: at an event on 10 October in Brussels, Michael Liebreich of Bloomberg New Energy Finance (BNEF) named fourteen different options (on-site owned, on-site leased, on-site PPA, near-site private wire, self-owned off-site, back-to-back wheeled PPA, synthetic PPA, mini-utility, multi-buyer PPA, multi-seller PPA, proxy revenue swap, cross-border PPA, green electricity purchase, guarantees of origin).
However, the three main options are:
- investing in onsite production
- investing in offsite production through a power purchase agreement (PPA)
- buying equivalent guarantees of origin (GOs) or renewable energy certificates (RECs), tradable certificates that represent proof that electricity was generated from a renewable energy
GOs (or RECs) can be, but are not always, linked to PPAs. The majority of corporate PPAs are for offsite production, predominantly wind energy, and the delivery of renewable energy is notional and not physical. In this context, the GOs issued for the offsite PPA provide corporate purchasers with the evidence of their investment into renewable electricity generation.
Within the corporate grouping aiming for 100% renewable electricity, the approaches differ – Microsoft, for instance, has achieved 100% already, mainly through purchasing RECs, although it is now shifting towards other options, while Google is hoping to hit 100% before the end of 2017, with PPAs the largest component thus far.
New source of growth
Figures from Bloomberg New Energy Finance (BNEF) show that new corporate PPAs soared from an average of 500 megawatts a year around the turn of the decade, and almost all of this in the U.S., to a peak of 5.3 gigawatts in 2015. PPAs accounted for almost half of the 4GW of renewable energy installed in 2016 in the US.
In Europe the volume of corporate renewable PPAs almost tripled in 2016, with over 1 GW of capacity contracted. This is up from 74 MW just four years ago, with a majority of PPAs in wind energy.
Corporate sourcing of renewables could be a major new flow of capital and finance into Europe’s renewable electricity infrastructure, and the potential of the corporate PPA sector is recognized in Brussels.
Speaking at an event in Brussels on 11 October, Mechthild Wörsdörfer, Director of renewables, research and innovation, and energy efficiency at the European Commission said: “We see corporate sourcing of renewables as a really important driver of the energy transition,” but emphasized: “we are only at the beginning of this development. The latest data from Bloomberg New Energy Finance suggests that corporate PPAs in place supplied around 6000 GWh of electricity in 2015 and 2016. This amounts to 0.5 percent of electricity consumption of the corporate sector”.
Among the challenges to growth in European PPAs cited by Michael Liebreich are: low wholesale prices, feed-in tariffs, pricing volatility and trust in certificates such as GOs. “We need a robust harmonised Guarantees of Origin system in and around the EU: no national specificities,” said Liebreich.
Changing the GO system
Here is where the story gets complicated. The GO system as it currently works in Europe is controversial. The European Commission has proposed a number of changes to the system in the Clean Energy package currently under negotiation and they are being hotly debated in Brussels right now.
The Renewable Energy Directive of 2001 mandated EU Member States to develop a system for renewable electricity guarantees of origin (GOs): electronic attribute tracking certificates, issued to energy producers for every 1 MWh of renewable electricity generated. GOs are tradable. Current prices are around €0.30/MWh. However, ‘premium’ GOs that are said to represent “additionality”, because their issuance finances new wind projects, can achieve prices of up to €3/MWh.
In 2016, the GO market had an estimated value of €120 million per year across the EU, of which €100 million was income for generators of renewable electricity, according to estimates by Jaap Jansen, a researcher at the thinktank Centre for European Policy Studies (CEPS).
In a paper published in July, Jansen noted: “The GO system has been criticised for lacking environmental credibility and having little impact. […] [It] enables suppliers who want to launch renewable electricity products, and corporations seeking to make their electricity demand more renewable, to do so in a legally correct and cheap but environmentally questionable way, which leads to little or no extra generation of renewable electricity.”
Jansen’s analysis distinguishes between two systems of GOs that are currently in operation in Europe. The first, which is used in countries the Netherlands and Ireland, allows the marketing of GOs issued on renewable energy that at the same time is supported by subsidies or feed-in tariffs. Under the second system, which is used for example in Germany, issuing GOs on “supported” renewable energy is prohibited.
Current EU legislation leaves the choice of system up to the EU member states. This means that multinationals considering entering into a PPA with a renewable energy project developer in the Netherlands or Ireland can procure GOs at very little additional cost. In fact, they are largely subsidized by the final energy consumers in the country concerned, according to Jansen.
If the same multinational corporation enters into a similar PPA in Germany, the corporation would have to pay the full, non-subsidised cost of its claim to the GOs associated with the PPA.
Hence, companies looking to source renewable electricity will have a clear preference for acquiring GOs through PPAs in the Netherlands and Ireland, for example, and not in Germany. Unless a clear choice is made at the EU level for the second system, says Jansen, corporate PPAs with renewable energy project developers in the EU will trigger very little additional renewable energy.
In part due to the link with PPAs, “the GO issue is probably the most important issue for corporate sourcing,” says Giorgia Concas, senior policy advisor at industry association SolarPower Europe, in an interview with Energy Post. However, “the corporate sourcing GO debate is tied up in a much bigger GO debate, which includes avoidance of overcompensation for producers, greenwashing and lack of transparency on the part of suppliers towards consumers,” she adds.
“Every Member State has gone about these issues in different ways and they are now less enthusiastic about changing their system to achieve harmonisation in Europe. That’s a pity, because the lack of consistent rules across Member States prevents corporates from investing in solar and renewables,” says Concas.
Ole Lofsnaes, Associate Director at the Federation of Norwegian Industries, is among those campaigning for reform of the system, and is advocating for limited issuance of GOs. He agrees with Jansen’s analysis, and argues that the GO system should be either a tracking system for renewable electricity, or a source of revenue for new renewable capacity, but not both.
“GOs only serve as “proof” of the investors’ commitment, but are otherwise of little value”, he says. “Triggering investment is not the GOs’ ultimate purpose. GOs can become a meaningful instrument, but not in their current form. We need to ensure that we are doing more than simply selling green stickers.”
The Commission proposes that Member States issue GOs for all renewable electricity, and also proposes an auctioning system, whereby GOs issued for subsidised renewables are auctioned by the Member States and the revenues used to “offset the cost of renewables support” (Art. 16.2).
However, many amendments have already been tabled against the auctioning system proposals. According to Dirk Van Evercooren, president for the Association of Issuing Bodies (AIB) for the GOs: “the proposal to auction GOs for supported production is clearly not compatible with the development of new capacity in PPAs: it would prevent investors from claiming the greenness of the electricity their investment produces.”
Understandably unwilling to forgo the extra revenue from GOs, renewable energy producers are advocating for GOs to be issued to all renewables generation. They would like to account for the difference between supported and unsupported renewables in the pricing of the GOs.
In an interview with Energy Post, Pierre Tardieu, chief policy officer at industry association WindEurope, says: “One of the concerns around GOs is the lack of additionality; however, in addressing this we should not fundamentally undermine the GO system.”
With regard to the windfall for renewables producers, Tardieu explains: “If the issue is double compensation by way of support mechanisms such as the feed-in tariff (FiT), then the value of the GO can be factored in when setting the FiT level. If the support mechanism is in fact market-driven [i.e. through PPAs], then the income by way of GOs could be regarded as market dynamics.”
SolarPower Europe has proposed an idea which they call GO+, which would create a subset of GOs issued for new projects. “I think it is fair to say that corporate sourcing with GOs currently offers almost no additionality – no new renewables capacity added to the system. That is why we have put forward our GO+ idea to create a subset of GOs from new(er) projects,” says Concas.
According to SolarPower Europe, GO+ is a ‘market-driven’ solution to address the additionality issue: a requirement for more labelling on the GOs to distinguish certificates that are issued to new generation capacity.
Negotiations on the new rules are ongoing, and the Commission’s proposals certainly look set to formalize the GO system, and even extend it to green gas. Says Tardieu: “We need to bear in mind the end goal – legislation that ensures you can use GOs and that deals appropriately with overcompensations from GOs.”
The European Parliament will vote on the new rules for PPAs and GOs as part of the revised Renewable Energy Directive on 28 November.