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Energy attribute certificates

Author

Shel

Many electricity generators feed power into the grid, each using different energy sources such as coal, solar, wind, or gas. Because all this electricity is mixed together in the grid, consumers cannot directly know exactly where their electricity comes from. The grid blends all electricity from various sources, so when you turn on a light, you can’t say for sure whether that energy came from a solar farm or a gas plant.

Suppliers and consumers have increasingly demanded information about the sources producing their energy, and ‘attributes’ about that production i.e., characteristics such as the GHG emissions, local air pollutants, nuclear waste quantities, etc.

Contracts and other contractual instruments are used to transact energy and convey information about energy generation facilities throughout an energy supply system, separately from the underlying energy flows. Suppliers or their customers may be able to make claims about the source and attributes of energy they have purchased. These contractual instruments are necessary in order to allocate attributes of production, including GHG emissions, to individual users. A range of contractual instruments may be used to convey these attributes directly or indirectly to consumers, including:

  1. energy attribute certificates

  2. direct contracts such as PPAs

  3. supplier-specific emission rates

Of the three, energy attribute certificates underlie most transactions and attribute claims. They can be used alone or can be bundled with other contractual instruments.

Energy attribute certificates are a category of contractual instruments that represents certain information (or attributes) about the energy generated, but does not represent the energy itself. Historically, most certificates have been generated from renewable energy resources, driven by the demand for these resources.

Energy suppliers are required to disclose to consumers the fuel mix and related environmental attributes associated with delivered supply. Energy attribute certificates have been used to track energy from production to the supplier, in order for a supplier to contractually demonstrate the source of energy that is delivered to customers. In some countries, consumers are required to make a choice about their electricity product, and information about the electricity product, including its resource mix, CO2 emissions, and other environmental effects such as radio-active waste is available on electricity bills.

For example, the EU electricity market liberalisation enabled customers for the first time to choose their electricity supplier. This prompted the need for more standardized supplier disclosures about their energy supply and its attributes, allowing consumers to compare suppliers on metrics beyond just cost. The EU instituted requirements for all electricity suppliers to disclose their fuel mix to customers, along with the CO2 quantity and radio active waste. The Guarantees of Origin (GO) has been used as the basis for suppliers to calculate and disclose the energy source and attributes associated with supply.

The US energy attribute certificate is known as a Renewable Energy Certificate (REC). RECs certify that one megawatt-hour (MWh) of electricity was generated from a renewable source and fed into the grid, enabling the REC owner to claim the environmental benefits i.e. the reduced carbon footprint of that clean energy.

The creation of a certificate that conveys an energy attribute claim means that the underlying power, sometimes known as the null power, can no longer be considered to contain the energy attributes, including the type of energy and its GHG emission rate. If the energy certificate is sold to a third party separate from the electricity, users of the null power electricity cannot claim to be buying or using renewable energy in the absence of owning the certificate.

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Source: GHG Protocol Scope 2 Guidance

The path from issuance to retirement of certificates is as follows.

  • First, certificates are generated. Generally, they are produced for one unit of generation (a MWh). Energy generators generally produce a certificate directly through registering an account in a registry or other tracking systems. Generators report production data (MWh) to the tracking system as well as data about energy attributes, which should meet measurement and verification protocols required by the system. Each certificate has a unique tracking number. Entities that wish to participate in the market and trade and own certificates must also register with a tracking system and open one or more accounts. Trading can occur, but each certificate can reside in only one account at a time, to avoid double counting.

  • Second, in some markets, these certificates undergo third-party certification and labeling. A third party may certify certificates based on an established standard that specifies what energy can produce certificates, an audit procedure to verify retail transactions, and other consumer protection features.

  • Finally, certificates are sold and retired by the supplier. They can be combined (bundled) with a contract for energy (e.g PPA) or sold separately. Certificates may be traded several times between the initial buyer and suppliers, or through open exchanges. For most certificates, the final purchaser or claimant will be an energy supplier or utility, or an end consumer. If the certificate serves a regulatory purpose, the claimant (usually an electricity supplier) will submit and retire the certificate to regulatory authorities to substantiate delivery of specified electricity to its customers as required by law. If the certificate serves a voluntary consumer claims purpose, the claimant will retire the certificate in order to facilitate a claim on behalf of its consumers (if a supplier) or itself (if an energy consumer).

If a company buys energy attribute certificates, they are paying to support renewable energy, even if the actual electrons they use come from a mix of sources. Energy attribute certificates are used in the market-based method to reduce emissions.


Footnotes

  1. A generator is an entity that owns or operates an energy generation facility.↩︎

  2. An energy supplier, also known as an electric utility, is the entity that sells energy to consumers and can provide information regarding the GHG intensity of delivered electricity.↩︎

  3. An energy generation facility is any technology or device that generates energy for consumer use, including everything from utility-scale fossil fuel power plants to rooftop solar panels.↩︎

  4. A Power Purchasing Agreement (PPA) is a contract between a renewable energy producer and a buyer, typically a utility or a large corporate, that specifies the price and quantity of electricity to be delivered over a long period, typically 10-25 years. It provides a predictable income stream for the renewable energy project and helps the buyer secure a steady, often cheaper, supply of green energy.↩︎