The 4 barriers preventing a transition to a carbon-free energy system

A 24/7 CFE strategy is more than getting 100% of your energy from a carbon-free source. It’s a movement that aims to solve growing “greenwashing” criticism.

An increasing number of companies are setting targets to purchase all of their electricity from renewable sources. This is a good thing. But many are still generally unaware of the fact that sourcing 100% renewable energy per year does not strictly imply net-zero emissions. This only holds if you source clean energy on a real-time basis. However, there are still several barriers that prevent us from adopting such a granular energy system.

Recently, SET Ventures hosted an event for the Dutch energy ecosystem with many members from across the energy ecosystem in attendance. The event's aim was to uncover what those barriers are. Out of the conversations that evening bloomed several takeaways on what is preventing a transition to a 24/7 CFE system.

This article highlights the points that group brought to light:

But first what does “24/7 carbon-free energy (CFE)” actually mean? 

A 24/7 CFE strategy is more than simply getting 100% of your energy from a carbon-free source. It’s a movement that aims to solve the growing “greenwashing” criticism around corporate procurement of clean electricity. The goal being to accelerate the transition towards a balanced CFE system by defining and implementing more accurate carbon accounting rules which are based on more granular and localised energy matching.

The current system in the EU allows energy consumers (businesses) to purchase Guarantees of Origin (GOs) on the electricity market. These act as certificates to prove that a unit of energy has been generated by an eligible source of renewable power. Thereby allowing the business to claim all the carbon reduction benefits associated with that individual unit of power.  

The system in simpler terms: 

Barrier 1: We need more granular energy matching

A GO can specify the geographic location of the electricity generation asset, as well as the type and capacity of the installation.

Bodies like CertiQ in the Netherlands, Fingrid in Finland or UBA in Germany can issue and then track a GO. They also define the amount of time to certify a balancing period (or a Production Period). Most issuing bodies define this period monthly or yearly: meaning they label the amount of energy produced by operators on the first and last day each month or year. But to be truly effective in transitioning to a 24/7 CFE system we need to get this down to an hour or even a 15-minute period.

To highlight why this is critical, let’s look at an example from SET portfolio company FlexiDAO:  

Company A chooses to implement a CFE strategy to procure wind energy that is 100% matched volumetrically to their demand. But, if they do not account for it on a short basis, say hourly, they will frequently be below this 100% threshold. On any given day the available wind energy produced might not match the hourly demand. If this is compounded by a lack of carbon-free energy sources available in the grid, then the electricity demand of the company is compensated with a mix of carbon intensive sources.

This means that the company will consume lots of carbon-intensive electricity despite its 100% annual volumetric match, thus not achieving zero emissions!

Because renewable energy sources are so prone to fluctuations, a CFE strategy that uses monthly or yearly aggregated data disregards that due to several factors, electricity’s carbon intensity might fluctuate throughout the day.

This is a real blocker for companies looking to adopt a CFE strategy. After all, if they can’t receive granular energy matching, a 100% CFE strategy won’t even be accurate in the first place. So why even bother with it? 

Barrier 2: We need better data & incentives

Energy buyers at the event and those in the market highlighted that they should be able to access data that enables them to:

1. Accurately calculate CO2 emissions based on their consumption location.
2. Assess new long-term procurement deals based on the estimated impact in CO2 reduction in a specific region.
3. Shift their electricity consumption based on the grid’s forecast of carbon-intensive sources.

A demand for 24/7 matching is for issuing bodies to provide energy producers with a “time-stamp” of the GOs they issue. Stating the precise moment that the underlying unit of energy was produced. This level of precision is allowed but not required under current EU law (however it is currently being reviewed).

The digitalisation of the power sector allows buyers to create procurement approaches that rely on more detailed energy data. This presents an opportunity for energy sellers and consultants to improve their products and solutions to better meet their customers' deep decarbonisation needs. Contracts such as 24/7 Power Purchase Agreements (PPAs) and instruments such as granular certificates are already in use and growing in popularity.

There are many 24/7 CFE applications here already and CertiQ was the first regulator globally to be publicly involved in hourly energy certificates. 5 of the 11 energy consumers and 5 of the 10 energy suppliers present at our event discussed that they are actively engaged in 24/7 CFE projects.

This shows that with widespread adoption amongst Dutch corporates, there can be a real opportunity for the Netherlands to become the recognised leader. Being the first country to implement an actionable regulatory framework with clear financial incentives for 24/7 CFE would be a huge step.

Barrier 3: Rapidly changing regulation

"For energy offtakers, CFE is the inevitable next step."

Annemarie Costeris of Microsoft stated at the event that 24/7 CFE is the inevitable next step after annual and borderless energy procurement:

“Regulation is quickly changing, and complying can’t be done overnight, so the sooner you assess the share of renewables 24/7 in your consumption, the better prepared you are to comply.”

To mitigate risk, organisations should prepare for mandatory carbon disclosure by digitising and soundproofing Scope 2 inventory management. For businesses hedging their power procurement, 24/7 CFE minimises market volatility, basis risks and allows for accurate budget planning, meaning, it also has significant financial benefits.

Barrier 4: How to get started

Moving to 24/7 CFE does not necessarily mean having to set a 2030 target. FlexiDAO CEO, Simone Accornero provided some sage advice:

“24/7 CFE is a journey that starts with getting educated and assessing your starting point or “baselining”. Afterwards, signing one supply contract with 70-80% hourly matching is already a highly impactful first step. In fact, if you procure local renewables today, then you are already doing hourly matching without even knowing it.”

Thankfully there are many tools at your disposal to overcome this barrier and begin your CFE journey. Below are some great tools offered by FlexiDAO:

• Education: FlexiDAO Academy (upcoming)
• Baselining: CFEscore
• Digitalisation & procurement: RESpring

A certification system that is more transparent can provide companies with a more accurate understanding of the sustainability of their electricity consumption. Enabling them to make smarter decisions about the electricity they consume, while allowing companies to state their sustainability goals more clearly and achieve decarbonisation.

Achieving a 100% renewable energy grid may be a challenging goal, but with the use of 24/7 matching and detailed certification, we can start solving this incredible task.

About SET Ventures:

Since 2007 Amsterdam-based SET Ventures has invested in digital technology for a carbon-free energy system by backing pioneering founders with capital, community, and insights. SET Ventures invests in companies with sustainable solutions and a strong digital DNA leading the systemic change of how energy is generated, distributed, stored, and consumed in sectors such as distributed infrastructure, energy retail, buildings, mobility, and industry as well as enabling technologies.