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Corporates seek to match generation with demand

Corporate attempts to match every hour of consumption with renewable production could pave the way for grid decarbonisation

Current power purchase agreement deals do not fully match the demand profile of the customer meaning fossil fuel generation is required to fill the gap


CREDIBILITY GAP
Power purchase agreements allow companies to say they are carbon free when that is not the case

HOURLY MATCHING
A better approach is to match generation and demand by the hour—but it is hard to achieve in practice

KEY QUOTE
If you had unlimited financial means, you could easily solve this


Josefin Berg of S&P Global Commodity Insights remembers hearing about 24/7 power matching at a solar conference early in 2022. Unusually for a trade event, there was a heated debate on the subject around, Whether that is something you should aim for or not aim for, how difficult it is and what are you signing for?” she says.

The issue of 24/7 clean power matching is giving rise to a lot of questions, even though it is a subject few people have even heard of. Some of these questions could be central to the global energy transition.

In a nutshell, 24/7 clean power matching means making sure that the zero-emission energy used by a corporate power-purchase agreement (PPA) customer is exactly matched, hour by hour, with the generation provided by a supplier.

Clearly, this kind of power matching happens as a matter of course on the wider grid. Grid operators must make sure generation matches demand not only on an hourly basis but every minute of every day. However, the grid operators can do this by calling upon a range of dispatchable assets, including the coal plants and gas peakers responsible for the bulk of the electricity system’s emissions. It is to avoid these resulting emissions that PPAs exist in the first place.

Around the clock Corporates are trying to source power to match their demand to the minute


As companies have woken up to the importance of boasting green credentials, demand for clean energy procurement has soared. Businesses looking to reduce their carbon emissions usually start by looking at their energy supplies. Perhaps the most obvious way to secure a completely renewable energy supply is to install on-site generation and storage assets such as rooftop solar panels and batteries for self-consumption.

This may be an option for some smaller commercial and industrial firms, but not for large corporations with high energy demands and geographically dispersed real estate assets. Instead, these companies have traditionally resorted to carbon accounting, purchasing enough clean power to make up from the dirty power they buy from the grid. To do this, the businesses originally relied on energy attribution certificates or EACs.

CERTIFIED GREEN

An EAC certifies that a given unit of energy has been produced renewably. Since 2009, the European Union has backed a form of EAC called a Guarantee of Origin. A company using, say, 50 megawatt-hours of electricity a year could buy Guarantees of Origin for that amount and effectively claim to have sourced all its electrical energy from low-carbon sources. Guarantees of Origin or EACs, as the generic equivalent globally, are extremely powerful tools for monitoring and reporting on renewable energy,” says Bruce Douglas of Eurelectric, a European electric utility association.

Around a decade ago, large corporations began to realise they could go one better by procuring renewable energy directly from a project developer. This allowed the offtaker not only to claim their annual energy consumption was being met with an equivalent amount of low-carbon electricity procurement, but also to negotiate a fixed price for the supply over several years.

Thus, the corporate PPA was born. The amount of renewable energy capacity given over to such PPAs has soared in recent years, particularly in Europe. Businesses there have gone from procuring barely 100 megawatts of PPA-based power in 2013 to 18.5 gigawatts (GW) in 2021, according to figures from RE-source, a European platform for corporate renewable energy sourcing.

Ultimately, these PPAs are still essentially an accounting tool, with the amount of grid supplies consumed and clean electricity procured balanced out at the end of a year. Whether a company procures via EACs or a PPA, there is no real link between the clean energy it buys, which could come from anywhere in the world, and the electricity it uses, which is sourced from the local grid.

PPA PROBLEMS

In recent years, this has become a problem for some large energy users, starting with the technology giant Google. The search engine behemoth has technically been carbon neutral since 2007, when it started to completely cancel out its greenhouse gas emissions using offsets.

By 2017, the company claimed to be the first large corporation in the world to run all its global operations off renewable energy. It buys a lot, with PPAs for more than 7 GW of wind and solar power output around the world. This has led to challenges. We started buying a lot of power in areas where we were not connected to the grid,” said Google’s Caroline Golin at the Power Summit event organised by Eurelectric in July 2022.

We were buying a lot of wind in the places where wind was accessible and we were buying a lot of solar in the places where solar is accessible,” she adds. We didn’t necessarily have a data centre there. That created problems on some grids.”

In parts of the United States, We overloaded the grid with too much wind and then had distribution issues. There were areas where we were running significantly on coal, even though we were claiming we were 100% renewable,” she said.

As these impacts started coming to light, Google’s executives asked themselves: Why aren’t we decarbonising the grid even though we’re buying up all this wind and solar? The reality is, when the wind doesn’t blow and when the sun doesn’t shine, we’re still running on something. We ended continuing to run on gas [and] coal,” Golin explained.

NOT 100%

This mismatch means that even if a company is buying the equivalent of all its energy through a renewable PPA, it cannot reduce its carbon emissions to zero. Modelling by Technische Universität Berlin (TU Berlin) shows that if a company sourced 100% of its electricity through renewable PPAs in Ireland in 2025, it would end up covering only 80% of its hourly demand with carbon-free energy.

In Germany, which has a cleaner grid thanks to interconnections with France and Denmark, the level would be higher, but still no more than 90%. Globally, according to a study by McKinsey & Company, the level today is likely to be between 40% and 70%.

In a bid to overcome this problem, Google set what it said was its most ambitious sustainability goal to date: that by 2030, it would aim to operate entirely on carbon-free energy, around the clock, at its data centres and offices worldwide. It was joined by others in September 2021 with the launch of the 24/7 Carbon-free Energy Compact, a United Nations-backed initiative to advance power matching policy, procurement, technology, market mechanisms, data and transparency.

The Compact now has more than 80 signatories, including companies such as Acciona, AES, Centrica and EDP and organisations such as the African Circular Business Alliance, the City of Des Moines in the US and the Government of Iceland. 24/7 carbon-free energy means that every kilowatt-hour of electricity consumption is met with carbon-free electricity sources, every hour of every day, everywhere,” says the United Nations.

It is both the end state of a fully decarbonised electricity system, and a transformative approach to energy procurement, supply and policy design that is critical to accelerating its arrival,” it adds.

MATCHING CATCHES

Yet despite mounting interest, 24/7 power matching remains problematic in practice, with only very large organisations having the capacity to act as off-takers and just a handful of energy suppliers able to meet demand. The issue is not the availability of renewables such as wind and solar, which were installed at record levels in 2021.

Nor is it the ability to trace where renewable energy comes from. Companies such as FlexiDAO of Spain and Powerledger of Australia use blockchain technology to track renewable energy production. In Europe, meanwhile, Guarantees of Origin have evolved into so-called granular certificates, which carry time and location stamps. Granular certificates are the building block of 24/7,” says Douglas of Eurelectric.

The problem is that having traceable, certifiable renewable energy supplies on an hourly basis is only useful while the sun is shining, or the wind is blowing. In this respect, 24/7 power matching narrows companies’ procurement focus on times when renewable energy is not available—but cannot yet stop these times from happening.

It is very important to recognise that exploring 24/7 PPAs is not about getting to 100% 24/7 power-matched or carbon-free energy today,” says Eloise Moench of FlexiDAO. Whereas most corporate energy buyers may be able to reach an 80% or 90% 24/7 carbon-free energy target with their current PPAs, the renewable energy technologies needed to reach 100% are not commercially viable right now.”

STORAGE STRUGGLES

The models developed at TU Berlin illustrate the scale of the challenge in achieving clean energy power matching around the clock. The researchers looked at whether adding batteries to their Irish grid scenario would help.

Small amounts of battery storage could allow a company to meet up to 90% of its hourly demand with carbon-free energy and without a significant increase in cost. To meet 98% of hourly demand, the company would need to pay a 38% premium over current, annually matched rates. To cover the last 2%—roughly one week a year—would more than double the cost.

If you had unlimited financial means, you could easily solve this. The storage is there, it’s just not feasible—no one would pay that money for it,” concludes Christoph Wan-Hörbelt of Ørsted Wind Power Germany.

The TU Berlin team modelled two other scenarios, both involving technologies that are not currently available at scale. In one, batteries were complemented with long-duration storage in the form of low-carbon hydrogen stored in caverns, which was assumed to have a cost of €2.50 per kilowatt-hour.

This significantly improved the picture, theoretically allowing a company to meet 98% of its hourly demand with carbon-free energy at a 20% premium over annually matched supplies. Meeting 100% of hourly demand would involve a 34% cost uplift. Things were even better in a model that included a dispatchable form of carbon-free energy. For this, the researchers chose to add advanced geothermal to the mix.

Advanced geothermal technologies aim to tap into the heat stored deep in the Earth’s crust and use it to produce electricity as and when needed. The concept has great potential but is also still at the research and development stage. Assuming an overnight cost for advanced geothermal of €10,000 per kilowatt, the TU Berlin team found it would be possible to match hourly demand with carbon-free energy at practically no extra cost compared to today.

BIG IMPLICATIONS

Tom Brown, who led the research at TU Berlin, says the model achieved similar results for other early-stage low-carbon dispatchable technologies, such as advanced nuclear and gas with carbon capture and storage. Dispatchable technologies can limit this cost rise at 100% [hourly matching], but who knows if these technologies will actually appear at the cost levels their promoters think they will by 2030?” he says.

This research has several important implications for the wider energy transition. The first is that if 24/7 power matching with 100% clean energy is not possible within corporate PPAs today then it may not be possible for future decarbonised grids unless new technologies are developed.

This is significant because decarbonised grids will be needed to enable the electrification and decarbonisation of sectors such as industry and transportation. Given that the Intergovernmental Panel on Climate Change has set a target of net-zero greenhouse gas emissions by 2050 and a halving by the end of this decade, there is not much time left.

Eurelectric’s Douglas says the industry body is confident European grids will be fully decarbonised by 2040, but Europe will likely be ahead of most other regions worldwide and achieving this goal will not be easy. European distribution and transmission system operators will need to invest €400 billion by 2030, says Douglas, to accommodate 750 GW of new wind and solar capacity, along with infrastructure for vehicle electrification and demand response.

The 750 GW is equivalent to 80% of the total generation capacity installed in Europe today, he adds. Fortunately, a second implication of corporate attempts to achieve 100% clean energy hourly power matching is that the work could be very useful in highlighting where technology research and development spending should go.

Partial solution Having rooftop solar will not always mean a company is using renewable energy to power its operations


GRID CONSIDERATIONS

It is clear, for instance, that batteries can only play a limited role in helping to decarbonise grids around the clock. This would seem to partly justify efforts in Europe and elsewhere to support the development of low-carbon hydrogen. Based on the research from TU Berlin and elsewhere—Princeton University, supported by Google, has modelled similar scenarios in the US grid—it would appear more work is also needed on dispatchable technologies.

However, enthusiasm for these more speculative technology options must also be tempered by their potential for failure and the long lead times they could require for commercialisation. Furthermore, the price sensitivity of the models based on carbon-free dispatchable technologies indicates that the most sensible way of achieving hourly power matching might be through a portfolio approach rather than a single technology.

Clean energy portfolios will also need to consider the availability and impact of demand response. If one of the problems in matching hourly supply and demand all year round is that there is a week with little solar or wind power, it might be possible to avoid the high cost of dealing with that period simply by transferring operations elsewhere.

Proponents of 24/7 power matching say the concept is valuable not only because it helps PPA customers to improve the credibility of their emissions reduction plans but also because it will help stimulate further research that will benefit the grid. Another advantage is that it could help corporations to further hedge against power price variations, by eliminating periods when energy cannot be sourced through a renewable PPA.

ANOTHER APPROACH

However, as Berg of S&P Global noticed, it is also true that not everyone is in favour of meeting every hour of demand with carbon-free energy. Critics of 24/7 power matching believe that if the aim is to cut carbon emissions as quickly as possible then money invested in trying to meet the most challenging periods of demand would be better spent on bringing clean power to dirtier grids.

In this alternative approach, called emissionality, You don’t focus on getting that last ten to 20%, but you focus a little bit more on bang for buck on emissions reduction,” says Brown at TU Berlin. Let’s build the wind and solar in Poland or Mongolia, where they have a dirty coal fleet, rather than trying to be lily-white angels for our own consumption.”

Emissionality makes a lot of sense and may indeed be a better focus for investments today, but with it you don’t support the technologies which you will need later,” Brown says. I think it’s totally fine that both approaches are being pushed in the corporate sphere,” he adds.

Wan-Hörbelt of Ørsted says: The work needs to be done, no matter what, until we have reached 100% renewable energy in the system. We do need to go through this period of learning.” •


This article was first published in the Autumn/Winter 2022 special print issue of FORESIGHT Climate & Energy with the headline All day, every day” TEXT Jason Deign ILLUSTRATION Luke Best PHOTO Chuttersnap