Why green electricity contracts fail to deliver green electricity

September 03, 2018 · 7 min read

Depending on where you live, your electricity retailer may have offered you a contract giving you electricity that exclusively comes from renewables. Furthermore, recently many companies have made headlines, claiming to have achieved 100% renewable power use.

How did they solve the problem that wind and solar power fluctuates depending on the time of day and the weather? Storage is still extremely rare and expensive, so how did they achieve the dream of 100% renewables?

In short, they didn’t.

The electricity that flows into your power plug is determined by which power plants are currently producing electricity on the grid you’re connected to. If local power plants can’t keep up with demand (for example when the wind doesn’t blow, or during the night when the solar panels can’t produce), electricity might even be imported. In that case, your electricity is supplied by power plants located in a neighbouring country.

In a nutshell: the origin of your electricity is determined by where you live and when you consume it.

electricitymap You can find out where your electricity physically comes from on electricityMap.

So that’s how it works in reality: it’s really hard to be 100% renewable all the time without expensive storage systems, as the wind doesn’t always blow. So how do electricity retailers beat physics? They exploit a financial instrument called Guarantees of Origin (or Renewable Energy Certificates depending on whether you’re in the EU or the US). It works like this:

Whenever a renewable plant produces a unit of electricity into the grid, its producer is awarded a certificate that is sold to the highest bidder. Whoever buys the certificate can then claim that a certain amount of renewable electricity has been produced. Here’s where the problem is: the trade of certificates is not limited in space nor in time. It means that you can buy a certificate from a region disconnected from your electricity grid (space), or from the past (!) without making sure the electricity was stored (time).

Renewable certificates ignore the infrastructure required to transport and store electricity, which are the two most important obstacles to being truly 100% renewable.

If electricity transportation costs were negligible, we would be able to always get electricity from a place where the sun shines or the wind blows. If electricity storage costs were negligible, we wouldn’t care about when the sun shines or the wind blows, as we could just store it. As transportation and storage are two of the biggest obstacles for a high penetration of renewable energy, certificates completely fail to address the real problem.

Renewable certificates give the illusion that green electricity can be separated from the rest, and sent to the lucky subscriber. Unfortunately, once electricity is produced and fed into the grid, there’s no way of controlling where it goes. It blends with electricity from all other power plants running at that time. We’re sorry to say, but the electricity you get in your power plug will always be the same, no matter what contract you are on. If the wind doesn’t blow in your region, there’s no way to be powered by wind power.

The electrons you get in your power plug will always be the same, no matter what electricity contract you are on.

So what can we do about this?

Stop buying green electricity contracts, and pick a retailer that will give you monetary incentives to consume at greener times. Better yet, buy appliances that do that automatically.

If you can, subscribe to an electricity retailer that compensates its carbon emissions by investing in carbon removal projects (carbon capture from coal power plants for example), or directly uses those offsets to replace fossil fuels with low-carbon power plants.

We’ve started to gather a list of climate-friendly electricity retailers here: Comment on the post if you want to add yours to the list.

  • Barry (Denmark): Transparent physical carbon accounting and ability to compensate carbon emissions of electricity consumption

Key take-aways

  • Renewable certificates do not guarantee the origin of electricity as you can buy wind certificates even when the wind doesn’t blow.
  • They do not drive investments to the right place as they omit to fund the transportation and storage of electricity.
  • Therefore, make sure you chose a retailer that doesn’t rely on certificates, and invests in carbon removal projects.

Still not convinced? Read-on!

First, if your head is now hurting and you want to be entertained, watch this:

Q: By buying certificates, an additional revenue stream is created for wind turbine and solar panel owners, which are thus incentivised to build more renewables. So surely it helps?

A: Most certificates represent such a small fraction of revenue that it is hard to believe it incentivises anything. This is unfortunately unlikely to change as the certificate market isn’t constrained in time or space, which creates an oversupply and won’t drive its price up.

Q: What if companies buy both the certificates and the electricity? Surely that will create additional revenue streams and incentivise further installations?

A: As electricity represents the bulk of the price, signing a long-term purchasing agreement with a wind turbine will indeed incentivise its installation. Financial support is a form of carbon compensation, and we’ve written about the carbon reduction impact of installating new renewables here.

Q: What about awareness? Surely it must be good to give consumers choice and let them engage in the energy transition?

A: Having a 100% renewable contract does exactly the opposite: it makes you believe that no matter when you consume electricity, it will be clean. It prohibits investments in electricity transportation and storage infrastructure, energy efficiency measures, or intelligent devices able to shift consumption to low-carbon hours.

This also applies to industry, where incentives to install a datacenter in an area powered by low-carbon electricity is removed, as well as the incentive to have it consume during the greenest hours.

Q: Have you tried fixing the certificate system to incorporate locality and temporality?

We have tried many things at Tomorrow in order to fix that system, and we engaged in discussions with the appropriate stakeholders. We found out that the certificate system isn’t even needed in the first place, as traceability of electricity is already possible (see electricityMap), and actions to drive down emissions are already identified (replacing coal power plants by gas turbines, implementing carbon capture, investing in storage, buying carbon credits…).

ISO 14064 and the GHG Protocol Scope 2 standards for carbon accounting both describe electricity traceability methods based on physical attributes, and do not require certificates (although the GHG Protocol has been extended to allow for dual-accounting). An open letter on the rejection of green electricity contracts was started by scientists in 2015, and their benefits have been questioned in both online media and peer-reviewed articles:

(vox.com) It’s easy to buy “green power.” Making a difference is a little harder.

(sciencedirect.com) Creative accounting: A critical perspective on the market-based method for reporting purchased electricity (scope 2) emissions

Q: Still, having anything is better than nothing, right?

A: Using certificates to track energy creates an alternative truth with obvious nonsenses:

european residual mix Even though 100% of electricity in Norway is renewable, Norwegians that are not on a green electricity contract are only 8% renewable, as most of the certificates have been sold to other customers. Source: https://www.aib-net.org/facts/european_residual_mix.

If you live in Norway and you’re not on a 100% renewable contract, only 8% of your electricity is officially renewable, as the rest of the contracts were sold out, mostly to foreign customers. This enables those customers to claim being 100% renewable as they bought Norwegian certificates, while Norwegians also claim to have 100% renewable electricity as their electricity physically is renewable. Both customers are claiming the same greenness!

Let’s stop using pieces of paper that do not reflect physical reality. If we’re serious about solving climate change, we have to stick to physics. Let’s stop this nonsense.

Written by Olivier Corradi
Founder @ Tomorrow, CEO
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