As the race to net-zero accelerates, corporate entities with decarbonization targets are putting increasing pressure on utilities and energy suppliers to improve their supplier specific carbon emission factors and residual mix factors. This demand is driven by the need for better management of Scope 2 emissions (indirect emissions from purchased electricity), which is critical for companies aiming to achieve their sustainability and decarbonization goals. In this post, we will explore the sources of emission factors, the calculation of utility residual mix, and the complexities of allocating energy attribute certificates (EACs) to accurately enable green claims. We also delve into the challenges utilities face in managing and publishing transparent data, and the importance of preventing double counting. Ultimately, we are examining how new green electrons might, or might not, contribute to a greener grid mix and what this means for corporate offtakers and utilities.
Emission Factor Sources for Corporate Offtakers
The Greenhouse Gas (GHG) Protocol classifies emissions into three scopes. Scope 2 emissions, which pertain to indirect emissions from purchased electricity, are a significant focus for companies striving to reduce their carbon footprint. There are two primary approaches to calculating Scope 2 emissions, as outlined in the GHG Protocol, and many corporate customers quantifying their carbon footprint will account for Scope 2 emissions in accordance with both methods:
- Location-based Method: This approach uses grid mix and annual average data specific to the location, without accounting for contractual instruments or attributes. In the United States (US), the primary source for this data is the Environmental Protection Agency’s (EPA’s) Emissions & Generation Resource Integrated Database (eGRID). Notably, eGRID is slated for significant updates, including granular emission factors starting in 2025.
- Market-based Method: This method uses utility-specific factors, contractual instruments, and EACs which includes Renewable Energy Certificates (RECs). Under this approach, having utility or energy supplier-specific factors is desirable, especially when the supplier has a cleaner residual mix than the grid average. It’s important to note that the GHG Protocol for Scope 2 emissions is currently under review and updates are expected.
Customers Putting Pressure on Utilities
Corporate demand for cleaner emission factors is rising. Companies are increasingly requisition and requiring their energy suppliers to publish utility-specific emission factors, highlighting the importance of a cleaner residual mix for improving Scope 2 emissions. Accurate and transparent data from energy suppliers is crucial, enabling corporate offtakers to report their market-based emissions accurately and meet their sustainability targets. It is important to note that energy suppliers do not always have a number at their fingertips to provide to customers, and thus sometimes energy consumers are stuck with using location-based factors.
Calculating the Utility Residual Mix
Utilities face significant pressure to provide increasingly greener emission factors and residual mix, which the EPA defines as representing “ the emissions and generation that remain after certificates, contracts, and supplier-specific factors have been claimed and removed from the calculation.” The process of calculating supplier-specific emission factors and appropriately allocating energy attributes to customer offtakers versus the utility itself can be cumbersome, particularly for utilities with many generating assets, off takers, and operations in multiple energy markets and geographies with varying regulatory considerations, such as Renewable Portfolio Standards (RPS). Managing this data in a traceable and transparent manner that can be published for end users is challenging. Furthermore, preventing double counting of EACs is essential to maintain data integrity and transparency. Ultimately, utilities feel providing supplier specific factors to customers can invite risk for the energy supplier when the number is utilized to enable claims by their customers, particularly if the data is disparate or has not been audited for reasonable assurance.
The Role of Renewable Generation
Renewable generation allocated to energy off takers, facilitated by green tariff programs, Power Purchase Agreements (PPAs), and virtual PPAs (vPPAs), plays a crucial role in the accounting of green electrons. Ensuring that new green electrons contribute to a greener residual mix to apply broadly to all customers, particularly those not entering into green tariffs and contractual commitments, is challenging. Despite the increase in renewable generation, the residual mix may not necessarily become greener. This is because much of the renewable generation brought on by utilities and energy suppliers is often spoken for through green tariff programs, PPAs, and vPPAs. Consequently, new green electrons may not trickle down in the way that customers not participating in such programs would hope, resulting in emission factors that may not increase in greenness and move the needle towards offtakers’ Scope 2 decarbonization targets.
EAC Allocation
Proper EAC allocation, including allocation of RECs and other attributes, is a critical piece of the puzzle for both offtakers taking a market-based approach and suppliers looking to appropriately account for their emissions and residual mix. To make the claim of utilizing clean energy and the corresponding carbon benefits of such, the EAC is essential.
For utilities that both generate their own RECs and EACs and/or purchase EACs through brokers or in the spot market, there may be many different data sources for EACs and purchase or generation, including registry data. Retirement of the EAC and appropriate attribution of the retirement to a designated party must also be tracked in tandem with the EAC inventory. Different contractual instruments and green tariff programs may require varying cadences of EAC retirement.
Simultaneously, corporate off takers may have many different contracts across their operating footprint served by multiple utilities and energy suppliers, and in tandem to tracking emissions, the offtaker must also track contract performance and ensure they receive the appropriate attributes to allocate to specific portions of their emissions and operations. Accurate EAC allocation is crucial for transparency and accuracy, ensuring that the reported emissions accurately reflect the green attributes of the consumed energy to the appropriate party while preventing double counting or false claims.
Looking Ahead
The push for cleaner emission factors and a greener residual mix is crucial for achieving global sustainability goals. Utilities must improve data transparency and ensure accurate and traceable allocation of energy attributes to meet the growing demand from corporate customers. Corporate pressure plays a significant role in driving cleaner energy practices, and as new green electrons enter the grid, the journey towards a greener residual mix continues. In tandem, corporate off takers must assess their long term energy procurement strategy and consider PPAs, vPPAs, and green tariffs to contractually lock in claimable green energy supply for their Scope 2 decarbonization goals under a market based approach – they cannot solely rely on their utility and greening of the grid to meet their targets. By working together, utilities (and other energy suppliers), clean energy project developers, and corporate off-takers can pave the way for a more sustainable future.
