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Wind, solar, and other clean power sources are now cost-competitive with coal and natural gas, and are still getting cheaper. In 2023, solar and wind energy grew at breakneck speed, smashing records from previous years. But worryingly, so did our global energy-related emissions, hitting a record-breaking high of 37.4 billion tonnes (Gt), making energy production the largest source of CO₂ emissions globally.

By 2050, our energy system needs to reach net-zero emissions, with 79-96% of our electricity coming from solar and wind energy. To achieve this, solar and wind energy growth needs to accelerate to 24% every year (starting now), up from its current 14% annual growth rate (Figure 1).

Companies can play an important role here. In 2022, businesses added more than 50 GW of renewable electricity capacity across the globe. But how to do this right isn’t necessarily obvious: most ‘green’ energy purchases do not create new renewable energy, and the most effective solution has historically only been available to large companies (that is, until Reel - we’ll get to that later).

Renewable energy certificates

Before we dive into ‘green’ energy purchases we need to understand the nature of the electricity grid. Think of an electricity grid as a bathtub where each source of energy is a different tap adding water (i.e., energy) to the tub*. Once added to the tub (electricity grid), these different energy sources are irreversibly mixed (Figure 2). As a company, you consume electricity from this tub (known as the grid-mix) - you cannot choose which specific electrons power your building. However, you can choose whether your electricity bill supports renewable energy sources like solar panels or carbon-intensive sources like natural gas plants.

*Important: Our bathtub analogy is a simplified version of the electricity grid. Real grids are a bit more high-tech (and involve fewer water taps)!

One of the most popular ‘green’ choices companies make with their electricity bill is to purchase Guarantees of Origin (also known as renewable energy certificates). These certificates were first created by the energy industry to give companies more agency in their electricity choices (because companies cannot un-mix the bathtub water) and to stimulate the development of renewable energy.

How they work

Guarantees of Origin (GOs) are issued to renewable energy producers for every 1 MWh of renewable power they generate. Companies then purchase these certificates at a premium, independent of the energy they represent, to reduce their carbon emissions and fund clean energy. The logic goes that by purchasing these certificates, renewable energy producers receive extra income, creating a stronger incentive for the development of new renewable energy.

But there’s a problem.

In reality, these certificates do not create new renewable energy - i.e., they are not additional. Part of the reason is that GOs are issued for every MWh of renewable energy - whether it comes from a wind farm built 15 years ago or a brand new solar park. GOs are also priced too low to send strong price signals that might otherwise stimulate renewable electricity supply (Read: The problem with ‘green’ certificates).

Therefore, because these certificates are issued for all renewable energy at prices too low to influence the market, they only certify energy that already exists without promoting the investment needed for new renewable projects. And because of the ineffectiveness of these certificates, purchasing them to ‘greenify’ your electricity consumption puts your company at risk of greenwashing. You are effectively buying from an existing tap, without adding more clean water (i.e., energy) to the bathtub (Figure 3).

An effective alternative to GOs: Power Purchase Agreements

While you cannot choose which electrons power your business, you can choose the electricity you buy. And as we see with GOs, some choices are less effective. Luckily, there is an effective alternative to GOs: a special electricity contract known as a Power Purchase Agreement (PPA).

Not only do PPAs offer predictable and stable energy costs for the companies that purchase them, but they are also additional - i.e., they create new renewable energy to match your electricity consumption. They do this by providing renewable energy developers with the revenue security they need to build new renewable energy projects - unlike GOs, which are too volatile and low-priced to ensure the bankability of new projects.

With a PPA, your company continues to consume electricity from our electricity bathtub example but now purchases electricity directly from a new renewable energy asset (a tap, in our example). This tap has been built - and this is key - as a result of your PPA (Figure 4). In short: new renewable energy is being added to the same bathtub you are consuming from. As more companies sign PPAs, the number of renewable energy taps grow, making the overall bathtub water cleaner for everyone.*

*With the assumption that the addition of more renewable energy replaces fossil fuel energy.

In a nutshell, PPAs tie your electricity purchase to the creation of renewable energy. And by signing one, your company can make genuine sustainability claims, avoid the risk of greenwashing that comes with GOs, and stabilise its electricity costs.

PPAs are a unique, win-win scenario for business and the environment and is why we believe they are crucial to meeting our climate targets. And with Reel, every company can sign a PPA - no need for in-house experts, or a dedicated energy procurement team.

Curious to learn more ? Let us know.