What are RECs & other Energy Attribute Certificates (EACs)?
December 7, 2021
Energy Attribute Certificates (EACs) follow a lifecycle and have a maximum lifetime of one year. They are used for documenting and tracking the exact location where the renewable energy is produced.
There are several EAC markets like the Guarantees of Origin system in Europe and the Renewable Energy Certificates (RECs) in the USA. These certificates can be traded on those secondary markets but not across different EAC schemes.
OVERVIEW
How Energy Attribute Certificates (EACs) work?
What types of Energy Attribute Certificates are available?
How to start a reliable sustainability strategy?
The “Birth” of Energy Attribute Certificates
How to cancel the process of Energy Attribute Certificates?
How can Energy Attribute Certificates be transferred?
Our software RE Wave helps your business to close EACs
Energy Attribute Certificates are contractual instruments with information about the electricity consumption. E.g. the type of power plant or the location where the renewable electricity has been produced. There are several EAC markets like Guarantees of Origin in Europe, Renewable Energy Certificates (RECs) in the USA etc.
For corporate buyers or public institutions, the key question in terms of sustainability is:
“How to reduce our global footprint on power markets?”
The simple answer is: “It’s all about certificates!”
This slogan means that electricity consumption can be proved to be emission-free by so-called Energy Attribute Certificates (EAC). These certificates are virtual documents providing a renewable energy buyer the opportunity to document and track its electricity consumption. Therefore, the main purpose of these certificates is to enable buyers to transparently report their sustainability efforts. These can be reported in terms of electricity consumption and the progress or even achievement of the underlying climate targets.
These certificates are crucial for corporates to prove that the green electricity consumed is not only delivered from a “grey” market. It comes from a specific renewable energy asset which can be precisely identified through those certificates. The following most relevant information is communicated by Energy Attribute Certificates:
The specific location of the renewable energy assets,
The particular renewable technology (e.g. solar or wind),
The total volume of green electricity consumed which is represented by the sum of received EACs,
The particular date / period of consuming green electricity from this particular site
Watch our SustaiNews video about Energy Attribute Certificates
What types of Energy Attribute Certificates are available?
The map shows that a lot of markets are already covered by certificate schemes. However, in the utility sector, access to Energy Attribute Certificates is limited. Utilities are still generating the majority of their electricity output from fossil fuels and nuclear power. This problem becomes even worse for developing and emerging countries. Their online renewable energy assets are much more limited compared to advanced electricity markets in the USA, Europe, Australia or parts of Asia.
Moreover, the map shows the different Energy Attribute Certificate systems which are coexisting with each other. Under some schemes like the Guarantees of Origin in Europe, these certificates can be transferred across different countries.
Transferability is the most relevant aspect of these schemes for the majority of our clients. It is necessary to elaborate on how an Energy Attribute Certificateis created and devalued. Therefore, it becomes already obvious that the EAC follows a timely limited life cycle starting from its issuance until its devaluation.
How to start a reliable sustainability strategy?
There are four basic ways of transferring EACs:
Purchasing them without an underlying electricity delivery (Unbundled EAC),
Purchasing via a Utility Power Purchase Agreement or Green Tariff / Green Premium (Bundled EAC),
Purchasing via a Corporate Power Purchase Agreement,
Purchasing them via directly investing in the renewable energy asset
Unbundled EACs are certificates that can be acquired on secondary markets independent from a contractual framework for electricity delivery. This is the easiest way for procuring green certificates. However, the buyer cannot relate its electricity consumption to a particular renewable energy source nor can they influence the energy transition. Click here to read more about unbundled EACs.
Utility PPAs or merchant PPAs are Energy Attribute Certificates bundled in power purchase agreements provided by utilities. These are directly related to the virtual or physical delivery of the electricity by the utility or energy trader under this contract. In fact, a merchant PPA enables the buyer to relate its electricity consumption to a certain “Green Contract”. However, it is not possible to directly ensure that a new renewable energy plant is built, particularly for this contract.
Corporate PPAs are Energy Attribute Certificates which are bundled in power purchase agreements with buyers like corporates or public institutions. These are directly related to the electricity amount virtually or physically delivered by the owner of the renewable energy power plant. The buyer can transparently prove that the certificate is directly related to its own consumption from a particular renewable energy plant. Therefore, the corporate buyer or public institution can directly influence the fulfilling of its climate targets. Here they have a direct impact on the global energy transition.
Finally, direct investment happens in case the owner of the renewable energy plant is also the energy buyer. In this case, the institution is producing its own renewable energy (e.g. rooftop solar) and is able to directly influence the amount of green electricity produced. We talk about onsite production when the renewable energy asset is located directly on the site where the electricity consumption occurs. Offsite production is when the plant is located on another site and the green electricity is delivered by using grids.
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The “Birth” of Energy Attribute Certificates
The following graph shows how an Energy Attribute Certificate is created:
Once the power plant is operational, the Special Purpose Vehicle owned by the seller (developer / independent power producer) submits an application to the EAC Authority to include the power plant in the EAC Register.
After the authority confirms that the power plant is included in the register. After that, the SPV is allowed to receive an Energy Attribute Certificate for every single Megawatt Hour (MWh) produced.
The Balancing Responsible Party (Transmission System Operator or Distribution System Operator) counts every MWh delivered through the grid connection point.
The Balancing Responsible Party forwards this data to the EAC Authority.
After a verification process, the EAC Authority (e.g. Bundesumweltamt in Germany) uploads the Energy Attribute Certificate on the corresponding SPV account in the register. Now the certificate is issued.
How to cancel the process of Energy Attribute Certificates?
Once the EAC is registered, the owner can devalue / cancel the certificate. This can happen in two ways:
Intentional: The EAC owner submits an application to the EAC authority to cancel the EAC and delete it from the EAC register.
Not Intentional: Since the green energy certificate normally has a lifetime of one year, they are canceled from the register automatically unless the owner does not apply for devaluation intentionally. Therefore, it is largely impossible to store Energy Attribute Certificates for a long-term period.
After the Energy Attribute Certificate is devalued, it is not transferable anymore. This isn’t possible in order to avoid the problem of “double using” these certificates. This limited lifetime is necessary to induce a continuous demand from green electricity consumers and proceed on the energy transition accordingly. The subsequent graph summarizes the devaluation mechanism for the case that the EAC owner devalues the certificate intentionally by using the German example. This could be transferred to several other European EAC markets according to the EAC map shown above.
How is an Energy Attribute Certificate canceled and from whom:
The EAC owner applies for cancellation at the EAC authority. The EAC authority reviews and assesses the correctness of the information contained in the application. E.g. the location of the renewable asset or used technology.
In case the application is approvable, the authority provides a confirmation towards the EAC owner.
The applied number of EACs is then devalued / retired from the EAC register.
The EAC owner is allowed to use the canceled EACs for reporting purposes such as a sustainability report.
Besides the creation and devaluation of EACs, their transfer among different market participants is very important for end-consuming buyers and for the renewable energy sellers.
How can Energy Attribute Certificates be transferred?
The transferability of renewable certificates is the main fundament for electricity consumers to directly or indirectly influence the global energy transition. However, the tranferability of EACs is limited according to specific EAC areas.
It is necessary that a particular country has implemented an EAC scheme. In this case, these certificates can be transferred within this country directly or indirectly. This transfer can happen between the supply side and the buy side depending on national laws.
Based on this requirement, the question may evolve if these certificates can be transferred across countries. This is for example essential for international companies having their electricity consumption in various countries. In this situation, renewable certificates are purchased and registered in country A but canceled and unregistered in country B. This is possible within a particular EAC scheme but not across all schemes.
E.g. it is not possible to procure an EAC for 1 MWh in Spain and devalue it in the United States. Both countries belong to a different Energy Attribute Certificate scheme according to the map shown above. Spain belongs to the European Guarantee of Origin Scheme. We define RECs as the national Renewable Energy Certificate Scheme from the USA.
However, the Association of Issuing Bodies promotes a standardized system, the European Energy Certificate System “EECS”. This allows the devaluation of a green energy certificate in Germany which was issued in Spain.
For transferring these certificates between renewable energy sellers and buyers, there are four major ways of procurement. These differ especially in terms of contractual structures and the buyer’s direct impact on reducing their indirect greenhouse gas emissions (GHG). These GHG emissions are also called scope 2 emissions. The graph below summarizes the four alternatives according to these two dimensions.