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 Guarantees of Origin in Europe, Renewable Energy Certificates (RECs) in USA etc. EACs can be traded on those secondary markets but not across different EAC schemes.
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
For electricity-consuming corporates or public institutions, the key question in terms of sustainability is how to reduce their global footprint on power markets (Scope 2 Emissions)? The simple answer is: “It’s all about certificates!”
How Energy Attribute Certificates (EACs) work?
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 an electricity-consumer like a corporate the opportunity to document and track its electricity consumption from renewable energy assets such as wind or solar parks. Therefore, the main purpose of these certificates is to enable electricity-consumers to transparently report their sustainability efforts in terms of electricity consumption and the progress or even achievement of the underlying climate targets.
This is crucial for corporates to reliably prove that the green electricity consumed is not only delivered from a “grey” market but comes from a specific renewable energy asset which can be precisely identified through those EACs. The following most relevant information is communicated by EACs:
- 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
What types of Electricity Certificates are available?
Global markets for Energy Attribute Certificates Source: Think RE GmbH, © Think RE GmbH
The map shows that a lot of markets are already covered by certificate schemes. However, in the utility sector, access to EACs is limited since utilities are still generating the majority of their electricity output from fossil fuels and nuclear power. This problem becomes even worst for developing and emerging countries where the percentage of renewable energy assets being online is much more limited compared to advanced electricity markets in the U.S., Europe, Australia or parts of Asia.
Moreover, the map shows the different EAC systems which are coexisting to each other. Under some schemes like e.g. the European EAC scheme (so-called Guarantees of Origin), these EACs can be transferred across different countries.
The transferability is the most relevant aspect of these schemes for the majority of our clients. However, before entering into this topic in more detail, it is necessary to elaborate on how an EAC is created and devalued. Therefore, it becomes already obvious that the EAC follows a timely limited life cycle starting from its issuance until its devaluation.
Issuance of Energy Attribute Certificates - The “Birth” of an Energy Attribute Certificate (EAC)?
In order to answer this question, the subsequent graph shows how an EAC is created.
- Once the renewable energy power plant is operational, the Special Purpose Vehicle (SPV) owned by the developer / independent power producer (IPP) submits an application to the EAC authority for including the power plant in the EAC register (Step 1).
- After the EAC authority has confirmed that the power plant is included in the EAC register, the SPV is allowed to receive an EAC for every single Megawatt Hour (MWh) produced (Step 2).
- The Balancing Responsible Party (Transmission System Operator or Distribution System Operator) counts every MWh delivered through the grid connection point (Step 3)
- and forwards this data to the EAC Authority (Step 4).
- After a verification process, the EAC Authority (e.g. Bundesumweltamt in Germany) is uploading the EAC on the corresponding SPV account in the register and therefore, the EAC is issued (Step 5).
How is an EAC created and from whom? Source: Think RE GmbH, © Think RE GmbH
Cancellation Process of Energy Attribute Certificates?
Once the EAC is registered, the owner of the EAC can devalue / cancel the certificate. This can happen in two ways:
Intentional: The EAC owner submits an application to the EAC authority for cancellation the EAC and deleting it from the EAC register accordingly.
Not Intentional: Since the EAC has normally 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 EACs for a long-term period.
Once the EAC is devalued, the EAC is not transferable anymore in order to avoid the problem of “double using” these certificates. Especially 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 EAC intentionally by using the German example (that could be transferred on several other European EAC markets according to the EAC map shown above).
How is an EAC cancelled and from whom? Source: Think RE GmbH, © Think RE GmbH
- The EAC owner applies for EAC cancellation at the EAC authority (Step 1). The EAC authority reviews and assess the correctness of the information contained in the application such as the location of the renewable asset, used technology etc.
- In case the application is approvable, the EAC authority provides a confirmation towards the EAC owner (Step 2).
- The applied number of EACs is then devalued / retired from the EAC register (Step 3).
- The EAC owner is allowed to use the cancelled EACs for reporting purposes such as a sustainability report (Step 4).
Besides the creation and devaluation of EACs, their transfer among different market participants is most important part for end-consuming offtakers as well as for developers / producers (IPPs) of renewable energy.
How can EACs be transferred?
The transferability of EACs is the main fundament for electricity consumers to directly or indirectly influence the global energy transition. However, the transferability 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 between the supply side and the buy side depending on national laws.
Based on this requirement, the question may evolve if EACs can be transferred across countries. This is for example essential for international companies having their electricity consumption in various countries. In this situation, EACs are purchased and registered in country A but cancelled and de-registered in country B. This is commonly possible within a particular EAC scheme but not across those schemes.
An example of how an EAC CANNOT be transferred Source: Think RE GmbH, © Think RE GmbH
For example, it is not possible to procure an EAC for 1 MWh in Spain and devalue it in the United States since both countries belong to a different EAC scheme according to the map shown above (Spain belongs to the European Guarantee of Origin Scheme and the U.S. uses the National Renewable Energy Certificate Scheme called REC).
However, the Association of Issuing Bodies promotes a standardized system, the European Energy Certificate System “EECS”, that allows to devalue an EAC in Germany which was issued in Spain.
For transferring EACs between developers / producers (IPPs) of renewable energy assets and energy buyers, there are four major ways of procurement that differ especially in terms of contractual structures and the buyer’s direct impact on reducing their indirect greenhouse gas (GHG) emissions (so-called Scope 2 emission). The graph below summarizes the four alternatives according to these two dimensions.
An example of how an EAC CAN be transferred Source: Think RE GmbH, © Think RE GmbH
Legend: EAC = Energy Attribute Certificate, GO = Guarantee of Origin, REC = Renewable Energy Certificate (USA), SPV = Special Purpose Vehicle
Steps of a reliable Sustainability Strategy
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 but the buyer cannot relate its electricity consumption to a particular renewable energy source nor can the buyer influence the energy transition.
EACs which are bundled in power purchase agreements provided by utilities (so-called Utility PPAs or Merchant PPAs) are directly related to the electricity amount virtually or physically delivered by the utility or energy trader under this contract. In fact, a Utility 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.
Ways for procuring Energy Attribute Certificates Source: Think RE GmbH, © Think RE GmbH
EACs which are bundled in power purchase agreements with electricity-consuming Off-takers like corporates or public institutions (so-called Corporate PPAs) are directly related to the electricity amount virtually or physically delivered by the owner of the renewable energy power plant. The Off-taker can transparently prove that the certificate is directly related to the own electricity consumption from a particular renewable energy plant which is commonly built based on this particular agreement. Therefore, the corporate Off-taker or public institution can directly influence the fulfilling of its climate targets and has a direct impact on the global energy transition.
Finally, EACs can be delivered in case the owner of the renewable energy plant as well as the Off-taker is the same institution. In this case, the institution is producing its own renewable energy (e.g. roof top solar) and is able to directly influence the amount of green electricity produced. The renewable energy asset can be located directly on the site where the electricity consumption occurs (Onsite production) or the plant can be located on another site and the green electricity is delivered by using grids (Offsite production).