REsurety uses Locational Marginal Emissions (LMEs) data to analyze the effectiveness of the three carbon accounting methods proposed for compliance with new production tax credits available for clean hydrogen under the Inflation Reduction Act (IRA). This analysis considers 32 electrolyzer-renewable project pairs across 3 different grid regions (ERCOT, PJM, and CAISO) using hourly emissions and generation data from 2022. Seen in Table 1 below, the results show that, due to the difference in carbon intensities on the grid based on location and timing, determining “clean” hydrogen using Annual Energy Matching often results in significant increases in emissions despite the procurement of an equivalent quantity of energy from offsite clean energy to match the electrolyzer’s consumption. Further, Table 1 shows that while Local Hourly Energy Matching can help reduce net emissions in some locations, the impact of local transmission constraints often results in significant increases in net emissions even after energy is “matched” by hour. Finally, the Annual Carbon Matching method, using LME data, can ensure low or zero net emissions and qualification for the clean hydrogen production tax credit. The Annual Carbon Matching method also helps to incentivize development of electrolyzers in locations with cleaner grids with lower existing marginal emissions and the procurement of renewable energy in locations with dirtier grids and higher existing marginal emissions, therefore maximizing the ‘greening of the grid’ impact of the IRA legislation.
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Updating Scope 2 accounting to drive the next phase of decarbonization
Authored by David Luke Oates, Senior Vice President of Power Markets Research, REsurety
Dr. Oates holds a Ph.D. in Engineering and Public Policy from Carnegie Mellon University and a Bachelor’s degree in Engineering Physics from Queen’s University, Canada.
EXCERPT: Corporations are increasingly focused on reducing their carbon footprints by decarbonizing the electric grid. While solar and wind energy development have rightly been a mainstay of these efforts, there is growing consensus that producing more clean energy alone isn’t enough. To maximize grid decarbonization, clean generation needs to occur at times and locations where its output displaces the highest-emitting resources. Consumption timing and location should be adjusted to minimize its carbon emissions via siting decisions, demand flexibility measures, and energy efficiency. And energy storage is needed to manage grid congestion and mismatches between clean supply and demand.
Effective carbon accounting frameworks can help coordinate these complex mitigation strategies by allocating emissions among the entities responsible for producing them. These accounting frameworks attempt to ensure that activities with more impact on actual emissions have more impact on carbon accounts. Given the large and increasing interest of investors, customers, regulators, and governments in corporate decarbonization initiatives, effective carbon accounting frameworks can encourage corporations to maximize their actual carbon reductions.
Orrick, Microsoft and REsurety describe the Proxy Generation PPA: what it is and why it represents a necessary evolution of the corporate clean energy buyer’s contract.
Beginning as novelty transactions dominated by socially conscious “tech” companies, corporate & industrial (C&I) renewable energy purchases now exert tremendous pull in the electricity market. Since 2013 and in the United States alone, C&I buyers have contracted for approximately 14,000 MW of renewable energy, continuing to make headlines with every purchase.
C&I buyers’ appetites for renewable energy have unleashed tremendous creativity in structuring new products. As a result, C&I buyers benefit from state-of-the-art offerings, including: direct purchases of renewable energy by C&I buyers; “green tariffs”; and intermediated deals allowing C&I buyers with smaller purchasing requirements to piggy back onto larger deals originated by financial institutions or by other C&I buyers.
This paper turns a lens onto direct purchases, the predominant form of renewable energy transaction. And, this paper further narrows its focus onto the preferred structuring tool for those direct purchases—the long-term power purchase agreement (PPA)—by exploring methods for re-tooling the PPA (1) to simplify the contracting and negotiation process, (2) to better align the interests of green power buyers and power sellers, and (3) to empower C&I buyers to use the latest risk management tools being made available to them from insurance and commodity markets.
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REsurety and Energy GPS partnered to bring you The “P99 Hedge” That Wasn’t, an empirical analysis of how wind farms with fixed volume swaps (also known as P99 Hedges or “Bank Hedges”) may be underestimating the impact of hourly mismatches in their financial model. Our analysis demonstrates that the commonly used modeling method (which ignores the hourly relationship between wind generation and power prices) results in dramatic over-estimations of project revenue.
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