Leading academic research from Princeton University, TU Berlin, and the International Energy Agency have found that sourcing carbon free energy with location and hourly matching accelerates the decarbonisation of electricity systems globally.
In Europe, as well as in the US, hourly matching is already a reality for several companies and municipalities. Google, Microsoft, Iron Mountain, the US Federal Government, and a number of US and European cities have set goals to move towards consuming clean energy produced around the clock, on the power grids where they operate.
But what do we mean by hourly matching?
What is hourly clean energy matching?
Also known as 24/7 carbon-free energy (CFE), hourly matching is a new approach to corporate energy procurement, whereby a given volume of power demand is matched with an equivalent volume of carbon-free energy generated and injected at the same time and on the same grid.
What makes 24/7 stand out from other sourcing strategies is that energy matching occurs on an hourly or sub-hourly basis. To guarantee this timely match, corporates acquire energy certificates with a time stamp of one hour or less, where possible, validated by meter and grid data.
To know more about 24/7 CFE and how it all started, read this article.
Why should a company move to hourly-matched energy procurement?
The benefits of this corporate procurement strategy are many. In our article on 5 reasons why energy buyers should move toward 24/7 carbon-free energy matching, we explain how matching your power demand with 24/7 carbon free energy can:
- greatly reduce a company’s carbon footprint and maximise sustainability efforts;
- Accelerate decarbonisation of electricity systems that businesses rely on;
- reduce price volatility in electricity markets thanks to more granular power purchase agreements (PPAs) and improve hedging benefits;
- create incentives for grid digitalisation, innovation and storage technologies development; and
- improve carbon accounting accuracy.
Such benefits can only be grasped to the fullest if more and more corporates embark on the 24/7 CFE journey. The United Nations has recognised such need with the 24/7 Carbon-Free Energy (CFE) Compact. The Compact now boasts over 140 signatories that are committed to advancing the 24/7 CFE approach to accelerate electricity system decarbonisation.
How to bring hourly matching from niche to scale?
Regulation in Europe enabling energy consumers to move toward locational and hourly matching is picking up. The EU has been spearheading the adoption of hourly matching in the Renewable Energy Directive (RED) as part of the certification rules to qualify hydrogen as renewable. In particular, the European Commission's Delegated Act for renewable hydrogen will require that, starting from 2030, grid-connected electrolysers match their electricity consumption with renewable energy produced on the same grid and in the same hour.
Following the EU example, the US has now proposed similar rules for the clean hydrogen production tax credit under the Inflation Reduction Act – points out Eurelectric’s Communication and Business Director Marianne Karu in an article published by Euractiv.
Yet, to bring more corporate buyers on board with 24/7 CFE, we need to adjust systems and processes – shows Eurelectric’s paper on Contracting principles for moving towards location and hourly clean energy matching. This starts from tailoring 24/7 CFE PPAs to the business’ procurement needs.
Before deep diving into the best practices of 24/7 CFE contracting, let’s recap what a PPA is.
What is a PPA?
Power purchase agreements, often referred to as PPAs, are long-term fixed contracts between a supplier and buyer of electricity. The energy provider is generally an electricity generator, and the buyer is often a utility. More and more, however, electro-intensive industries and other corporates have been signing up to the agreements too.
A PPA includes all the terms of the agreement such as the amount of electricity to be supplied, the (often fixed) negotiated price, who bears what risks, the required accounting, and the penalties if the contract is not honoured. As it is a bilateral agreement, a PPA can be adapted to the needs of the parties involved, so the supply contract can take many forms.
To learn more about PPAs check out our explainer!
When adopting a 24/7 CFE sourcing approach, there are several key commercial principles that should be ensured to optimise the process.
More granular data tracking and reporting
More granular data management is crucial to help energy consumers, generators and system operators know exactly what kind of energy is being produced and consumed on an hourly basis on each power grid.
Three types of data are essential to proper contracting:
Consumption dataHourly data should be sourced from a revenue meter or other acceptable measurement point. The balancing responsible party (BRP) or retailer will ensure the settlement quality over time and make it available to the buyer via a web application programming interface (API) or other accepted data transfer protocol. In some European countries, such as Denmark, granular electricity consumption data are already available through data hubs. Regulations should work towards enhancing the quality and accessibility of energy consumption data.
Generation dataProducers and energy retailers should share hourly meter data with the buyer via an API or data Grid operators verify meter compliance, aligning data with market protocols of the official issuing body in each market.
For PPAs with multiple buyers, the contract terms should clearly specify how megawatt-hours (MWhs) shall be apportioned on an hourly basis and link each portion to hourly production data.
ReportingSuppliers should track and report clean energy with the highest accuracy and precision possible, using granular energy attribute certificates (EACs) where suitable and referring to the EnergyTag Standard which outlines ways in which granular EACs can be issued.
Clearly defined products
Another crucial step is to clearly state the type of product that will be delivered under the 24/7 contract. As these types of agreements are not industry standard at the moment, it's crucial the two parties fully agree on what the seller is delivering to the buyer. In standard PPAs, products can include energy and environmental attributes and data reporting requirements, however these will be required on a more granular basis for 24/7 arrangements.
The matching methodologies may vary depending on the buyers' needs. For example, generation could be matched to forecasted load, predetermined load blocks, or actual hourly consumption, which can be done by tracking the origins and consumption of clean and renewable energy. Energy suppliers can use or develop software to match hourly production and consumption. Wherever possible, granular EACs should be redeemed after hourly matching.
There are usually three main energy procurement agreement structures:
24/7 Attribute Purchase Agreement:
This is an agreement under which the seller provides the buyer with granular (hourly) EACs that are unbundled from the corresponding generation. The granular EACs could be provided to match a pre-agreed consumption profile, or the seller could provide the buyer with time stamped EACs from a single project as they are generated.
24/7 Power Purchase Agreements (PPAs):
Under this agreement, the seller provides the buyer with both clean energy and granular EACs to match a pre-agreed consumption profile. Typically, the seller will use a portfolio of generation assets to provide this service, as combining different clean energy technologies together helps increase the percentage of hourly matching achieved under the agreement.
24/7 Energy Supply Agreements:
This is an arrangement that provides hourly EACs on top of a retail supply agreement between buyer and seller. The retail energy provider typically provides power to one specific consumption site (or group of sites). They will track the buyers' hourly consumption at these sites and provide the buyer with hourly EACs to match their load. The hourly EACs could be sourced from projects that are part of the retail energy providers’ generation asset portfolio or from other projects that are on the same electric grid.
Additional considerations in these agreements would be whether to include demand-side resources (e.g., load shaping and load shifting), and incorporate energy storage technologies to better match periods of variable wind and solar production. Products are still in their early stages and should evolve in line with supportive regulations to ensure improvements in the percentage of hourly CFE matching.
Hourly CFE guarantees:
Hourly carbon-free energy guarantees are a way to ensure that the buyer is receiving the hourly carbon-free deliveries it has contracted for. This type of guarantee is similar in concept to a performance guarantee, which aims to ensure the level of performance under the contract is commensurate with buyer expectations.
We suggest five ways to better guaranteeing hourly matched energy sourcing:
- Contractual Guarantees: supplier and buyer co-establish a commitment to a minimum percentage threshold of hourly CFE matching
- Pricing Mechanisms: bonus for supplier when the percentage threshold of hourly CFE matching is exceeded; discounted for buyer when percentage is not met
- Allocating Risks and Rewards: buyer and supplier agree to a transaction that balances affordability, risk aversion and risk appetite for both
- Performance Reviews: regular meetings to discuss trends, challenges, opportunities and best practices to increase hourly matching
- Flexibility: allowing adjustments and adaptations to accommodate changing conditions or unforeseen challenges
How to get businesses started on the journey towards 24/7 CFE energy procurement?
There are several practical initial steps buyers can take to move toward hourly matching.
Understand your hourly power consumption
Every business has a certain percentage of already hourly matched clean energy. The first question therefore should be what is the business’ starting point? Companies should start by understanding their hourly electricity consumption and profile over the year. This will also help them calculate their hourly CFE rate based on the power grid where they operate, as well as any existing clean energy contracts.
Today there are many services that can assist energy buyers in this task, as shown in Eurelectric’s 24/7 buyers’ journey. Energy retailers already have access to the necessary data and can provide this service. In principle, the availability of immutable transactions will help to ensure the integrity of the data and prevent fraud.
Determine what hourly matching score you are aiming for in your procurement strategy
Higher hourly matching more rapidly decarbonises the buyer’s energy consumption and increases its greening effect on the grid it feeds from. Talk to your retail energy provider or other energy suppliers to understand the options in the market and how they can help improve the baseline score. Service providers can also help buyers understand how different generation assets will likely impact the hourly matching score.
Assess what kind of commercial structure works best for your specific needs
Large energy consumers may be interested in agreements that provide both electricity and hourly EACs (such as a 24/7 PPA) since increasing hourly matching reduces exposure to volatile wholesale power prices, as shown in our study on 24/7 CFE hedging study. Other buyers with existing retail energy supply arrangements or those unable to sign PPAs may rely on their retailer to provide them with a 24/7 supply arrangement or may decide to purchase unbundled hourly EACs to match their hourly demand on the same electricity grid.
Want to learn more about 24/7 CFE? Get in touch with Augustin Chabrol at email@example.com