Nate Lash on granularity and the future of renewable electricity claims

1. Why has granularity become such a key topic in renewable electricity markets?

For the past decade, renewable energy procurement was defined in annual time increments. Meaning, corporates could buy an equivalent amount of renewable power to match their annual electricity consumption, regardless of when in the day or year that renewable power was generated. This created a fundamental disconnect between the claims being made (‘100% renewable electricity’) and the realities of the market.

The Greenhouse Gas Protocol (GHG-P) aims to address this disconnect by requiring companies to more accurately report their consumption of renewable electricity. The expectation is that this will provide more transparency for stakeholders on the true renewable electricity share in a company’s operations.

2. Do you see hourly matching becoming the new benchmark for renewable electricity procurement or will annual matching continue to play a role?

Hourly matching is an important step for transparency and benchmarking renewable electricity procurement. It is as close as possible to demonstrating the true share of renewable electricity under the book-and-claim system in renewable electricity.

However, it is important to remember that companies have traditionally had varying priorities when deciding how and what to buy. For many organizations, concepts like additionality or emissionality, where new renewable energy is added to the most carbon-intensive grid, were the driving force in setting procurement priorities.

There will continue to be varying opinions on the most impactful way for corporates to reduce emissions and positively impact the climate. We should not discourage action for the sake of perfection. I believe companies see renewable electricity as an important part of their corporate strategy and inherently want to do the right thing for their stakeholders. Our industry needs to recognize that decisions are not made in a vacuum and that each company has unique challenges that must be accounted for when considering procurement. As a result, annual matching will continue to play a role for corporates who may have different priorities or commitments to their stakeholders.

3. What is the biggest misconception around granularity and hourly matching today?

The biggest misconception around granularity is that organizations are not required to achieve 100% hourly matching, but to measure and report  the percentage achieved.

This presents a potential departure from the standard that has been set historically, whereby many companies claim to have achieved 100% renewable electricity in their operations.

As a result, it may require a fundamental reset in what is communicated to stakeholders as far as their emissions and climate goals are concerned.

Ultimately, it is up to each buyer to decide what is an achievable share of hourly matched renewable electricity in their operations globally based on their budget, priorities and availability in the market.

While this may be difficult for some organizations to navigate initially, it presents an opportunity for corporates to better distinguish themselves in the market. Under an hourly matching reporting, we should celebrate those companies that achieve full renewable electricity coverage while continuing to work with those that are not yet able to, so that they can understand the barriers they face and proactively address these constraints.

It is also important to highlight that the GHG-P proposal includes new deliverability requirements which would fundamentally alter renewable electricity procurement in large markets such as the US and Europe. While this has been less hotly debated than hourly matching, it could profoundly change the procurement strategy and costs for large energy buyers. There can be a tenfold difference in renewable electricity costs across regions in the US, driven by supply dynamics, state policy and concentration of demand. If this proposal were to materialize, it could have a bigger impact on buyers than the hourly reporting requirement.

4. What do you see as the biggest challenge to scaling granular energy markets?

In many markets there is a structural imbalance in renewable electricity production and consumption. The availability of baseload generating or ‘around the clock’ clean electricity can be quite high for some markets like France, with a high share of nuclear generation, or low in markets which are land constrained or resource scarce, like Singapore.

Yet, the likely aim of GHG-P in instituting this reporting requirement is to encourage corporates and the renewables industry to invest in assets that enable a higher share of 24/7 matching. This can be by increasing the share of wind in a solar-dominated generation mix, adding batteries for time shifting or even new nuclear or geothermal generation. This thinking mirrors the earlier evolution in power markets, whereby corporates who signed long-term power purchase agreements (PPAs) were able to provide bankability to developers and get new assets built. This concept spurred investment in 100s of GW of new renewable generation globally. The hope is that the same corporate pull can reshape the renewable electricity market in this next wave of investment linked to granular matching.

What remains to be seen is whether corporate demand alone is sufficient to spur the required investment needed to provide a higher share of around the clock renewable electricity. Take battery energy storage (BESS) as an example. Historically, a 10-or 15-year corporate PPA was sufficient to get a solar project financed and built. It is unlikely today that a corporate offtake could alone support a new investment in BESS. The business case is more complex and likely beyond the capacity of most corporates to be the sole source of revenue for project developers.

As we know, limited renewable electricity in off-peak hours or in the winter months is the biggest challenge to scaling 24/7 clean power. This is not a new insight to the Greenhouse Gas Protocol working groups nor to the market. The hope though, is that corporates can play a similarly meaningful role in helping to scale and accelerate the investment needed to make it a reality.

We are already seeing some evidence of companies spurring such investment, with the first solar plus BESS PPAs signed by corporates, namely hyperscalers. It is important that as industry we find ways to democratize these solutions by making it as easy as possible for the majority of energy buyers to access.

5. What role does STX play in this ecosystem?

Moving from an annual to hourly matched system is not something that can happen overnight. It requires the entire industry to move in tandem across the value chain, starting from the utility meter all the way to the registries that certify the renewable energy certificates.

What’s more, many buyers have global operations and want to maintain a standard of accounting and reporting for renewable electricity. It is very unlikely that not all markets will move at the same speed.

Navigating this complexity is something that STX has over 20 years of experience in. It is our role to simplify the journey so that companies can focus on their core operations while maintaining ambitious climate and renewable energy goals.

For example, STX offers standardized products which guarantee a minimum percentage renewable electricity for a company’s operation. We handle procurement, portfolio management and retirement of the renewable electricity certificates across markets. This reduces operational and compliance burden for buyers.