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Podcast S16E02

24/7 Renewable Energy: the lowdown on hourly energy certificates

tobyf

In this episode, we look at the world of green energy certificates, which is getting more complex. Many companies and individuals on green energy tariffs want reassurance that they use 100% renewable energy, but with the current methods of matching supply and demand over a 12-month period this is not possible. Jon is joined by Toby Ferenczi. Toby is the CEO and co-founder of Granular Energy a company building software solutions for utilities and other stakeholders to access, manage and trade time-stamped energy certificates. Toby also founded EnergyTag, an industry-led, non-profit initiative to define and build a market for time-stamped energy certificates. Prior to his current role Toby was a VP at OVO Energy, a large green energy utility from the UK where he led international expansion. His previous roles include Managing Director at the demand-response company VCharge (acquired by OVO), and co-founder at UK solar company Engensa (acquired by Hanergy).

Episode transcript

[00:00:01.450] - Jon

It's recording now. Hello and welcome to the episode. Today we're looking at the world of green energy certificates, which have got lots of different acronyms in different parts of the world. The concept is fairly simple. If I, as a customer, want to make sure I'm only using green electricity in many countries, I can sign up to a green tariff and I can use my electricity guilt free, knowing that it's coming from renewable energy sources. So the idea of green certificates, which has got many different names, guarantees of origin, renewable energy certificates, REGOs in the UK, or broadly, energy attributable certificates (EACs) is not new, but things are getting a bit more complex, as many of you may have found, with conversations with friends who are on green tariffs. I can't understand why sometimes, why their prices are high and why they're not always using energy from a wind farm, for example. So the world of energy certificates is getting more complex. I was going to say definitely more nuanced. And to help explain it, Toby Ferenczi, who is founder of EnergyTag and Co-founder and CEO of Granular Energy. Hello, Toby.

 

[00:01:25.430] - Toby

Hi, Jon. Thanks very much for having me.

 

[00:01:27.750] - Jon

Thanks for joining. So the old world we've been in with energy certificates, where I can sign up to a green tariff and I can relax guilt free because I'm using green electricity all the time, it doesn't quite work like that. Tell us a bit about the problem you're trying to solve with EnergyTag and Granular Energy.

 

[00:01:50.030] - Toby

Yeah, sure. Well, maybe just start with a very brief kind of introduction to what are energy certificates and why do we need them in the first place?

 

[00:02:03.110] - Jon

Not just so I can sit back guilt free about, oh, I'm using green lectures all the time, Toby.

 

[00:02:08.040] - Toby

Yes, well, I mean, ultimately, that's why renewable energy certificates, or guarantees of origin, as they're known in Europe, REGOs. If you're from the UK, it's actually a system that's been around for over 20 years. It's very well established as part of embedded into European legislation. And the reason it's there is so that you can make this choice as a consumer, whether you're an individual, as you said, buying a green tariff from an energy company, or whether you're a big corporate trying to buy green electricity for your industrial consumption. And it is there so that you can make a choice between electricity from clean sources or electricity from fossil fuels, which is not a simple question, but it's actually quite a complex answer because, of course, you can't physically tell whether the electricity that's powering your laptop at the moment has come from a solar farm or a core power station.

 

[00:03:14.820] - Jon

It's a bit different from buying organic food at the supermarket, isn't it, where I can go and I can see a label that I trust and I can choose organic if I want to.

 

[00:03:23.710] - Toby

Yes, and you can probably follow that apple all the way from the farm to your dinner table. When it comes to electricity, it's a bit different because all power stations are connected to the same electricity grid, so that power is going to be mixed together. But what you can do, and this is where certificates come into play, as you can digitally certify each unit of electricity as it's generated, as it comes on to the electricity system. And then as a consumer, you can claim that unit of electricity against your own consumption. And the way certificate systems work is they have a centralised registry that keeps a record of all of those units of electricity so that you can make a reliable claim without the risk of double counting. It's an accounting system, ultimately, that makes sure if you've bought that certificate, no one else has bought the same unit of electricity. And that's why these systems have become widespread. They exist in all developed electricity markets. The certificate industry was worth about $12 billion last year and is set to grow. And they are used for, as you said, all of those green tariffs. And they're also used in scope to carbon accounting, which case you don't know what that is.

 

[00:04:45.970] - Toby

And if you're an organisation and you want to report your carbon emissions, this is a way for you to reduce the carbon emissions associated with your electricity consumption, which for certain industries is extremely important. If you're running data centres, for instance, or you're producing goods like aluminium with electricity, it becomes a very important method for reducing your carbon emissions, is to buy green. In fact, probably the most impactful thing any of us can do is to choose to buy green electricity over fossil fuels. And so that's the current system.

 

[00:05:24.750] - Jon

So far, so good. And there are plenty of people like me, or plenty of corporates using green certificates, but not quite knowing that there are times when actually they're in the middle of winter's evening with peak demand, that their electricity isn't coming from renewable energy sources at that point in time. So, yeah, tell us where it breaks down and what problems you're trying to solve.

 

[00:05:50.110] - Toby

Yeah, exactly. The way current certificate systems work, and this is true wherever you are in the world, is they're based on a system of matching annual supply and demand. So, put simply, you use ten units of energy in a year and you buy ten units of clean energy certificates that were produced at any point in the same twelve month window. You are 100% renewable. And if you're a business, you can claim that those emissions from your electricity are zero carbon. Now, the problem with that is it's not reflective of today's real world availability of renewables, which sees, in some times of the day, massive overproduction of renewable energy, and sometimes hardly any at all. And it implies that you can essentially take solar energy from the middle of the summer and use it at night and winter. And so this probably wasn't an issue 20 years ago when the certificate systems were set up because there were no renewables on the grid. So you were always displacing fossil fuels and timing wasn't the problem that it is today. But now it's a real problem and it's creating distrust. You see a lot of articles about greenwashing people not really sure what these certificates mean.

 

[00:07:16.230] - Toby

By the way, as a side point, people get often very confused with PPAs and certificates often described as being equivalent. They're not actually doing very different things. PPA doesn't give you the right to say your energy is coming from that wind farm, you need the certificate. But nevertheless, PPA can be beneficial for other things which you can go into. But the simple answer is if you add a timestamp to the existing certificate system at a time stamp, these certificates, you can use that, you can suddenly say where your energy is coming from in that specific 1 hour or half hour period. And that creates greater trust because you're connecting production with consumption in real time. It's also a benefit because it sends a real price signal. One of the main problems with the current certificate systems is the certificate price the same regardless of supply and demand, regardless of time of day. There's not an efficient price signal. If you have a timestamped energy certificate or an hourly certificate, which is what we're advocating, then these actually become a revenue stream. These tickets become a revenue stream not just for more renewables and incentive. By buying them, you're incentivizing more renewables, you're also incentivizing storage and flexibility.

 

[00:08:37.290] - Toby

What you want these certificates to be cheap when clean energy is in oversupply and more expensive when it's in under supply. And then if you're a battery, for instance, you can capture the spread between the low priced hours and the high priced hours. And so this is an additional revenue stream for all of the demand response and flexible storage technologies that we need to see.

 

[00:09:02.810] - Jon

So is it predicated, Toby, on people like me as a consumer or a large corporate, an Amazon or a Microsoft wanting to know that they're using green electricity? They're actually using green electricity every hour of the year rather than on average over the year, their net is green.

 

[00:09:26.850] - Toby

Yeah, I think it's dependent on consumers wanting to reduce their carbon emissions. And one of the main ways you can reduce your carbon emissions is to choose green energy over fossil fuels and the way that system and when you're buying fossil fuels, you weren't buying clean energy either. You want to be able to have the most impact possible. And so that's why it makes so much sense to move from this annual system of annual matching, which isn't sending an effective price signal to the market, to something that's more hourly and for that matter, go more in line with the way wholesale power markets work, which are already a market for energy on a half hourly basis.

 

[00:10:16.680] - Jon

So I was going to say the wholesale power markets will reflect the scarcity value of electricity in general at times of peak demand, but they won't reflect the scarcity of green renewable generation at the time of peak demand.

 

[00:10:33.570] - Toby

Yeah, that's correct. The reason we have also power markers is because they help to keep the grid in balance. The coordinate produces some consumers, but by definition, the way they're set up is their power pools. All of that power is pulled together and there's no traceability, there's no way when you buy power in the power market, there's no way of telling what came out of it. And so the idea of behind this movement towards hourly energy certificates is to kind of bring closer alignment with the way also power markets work. And the certificate systems.

 

[00:11:08.390] - Jon

Yeah, okay.

 

[00:11:09.630] - Toby

These historically separate systems, we're bringing them into alignment.

 

[00:11:13.830] - Jon

And if we think back to the establishment of the annual energy certificates, that was often developed at national level, with national legislation or at a European level, how do you go about setting up a standard or way of doing hourly energy statistics? It's a slightly leading question because I guess tell us a bit about how EnergyTag is going about it, because that's not at a national level. You're trying to work at international level, aren't you?

 

[00:11:55.210] - Toby

Yeah, absolutely. It's a great question. So I founded EnergyTag, which is a nonprofit standards body for timestamped energy certificates or granular certificates, sometimes hourly certificates, about nearly three years ago. And I started thinking about the problem very deeply because I was doing demand response startup, so optimising EVs and batteries, and that was business was bought by OVO Energy, which is a big green energy supplier in the UK. I was thinking a lot about these both energy certificate systems, but also grid balancing and how we get the grid to run on high penetrations of renewables. And so in that research, I was quite surprised to see that this certificate system still worked on this basis of annual matching. And I started asking, well, who's working on moving this to a more granular time period? Because it's sort of obvious, if you come from that energy storage demand response, that annual matching is not good enough. In kind of seeing that it was fairly not, a huge amount of progress was being made. How do you get market wide consensus for a new instrument? I created a non profit standards body and it actually was a lockdown project initially and it took off far more quickly than I thought.

 

[00:13:28.470] - Toby

We got funding from a variety of different organisations, including Google.org, and then it's got support of over 500 organisations, including the UN, some large energy buyers like Google and Microsoft and many utilities. And it's really global, it's really international. There's people from five continents involved and the standard has took two years to write by a team of certificate experts that chaired by a guy called Phil Moody, who basically was the inventor of the energy certificate systems in Europe. He was Secretary General of the AID for 20 years, which is the body that oversees the certificate systems in Europe. And so the standards actually, you can download it to Energytag.org, which is a framework for how to issue timestamp certificates in a way that is compatible with the existing certificate. So there isn't a new double counting issue. That's the standard body. But actually, the hope is that this standard gets adopted by the existing regulatory frameworks that govern the existing certificate systems. So yeah, sorry, please go ahead.

 

[00:14:49.770] - Jon

The setting of those standards, standards, rock solid, cast,iron standards are critical. If you're going to have a trade in something, you have to have absolute clarity on what you're trading, so I can see how critical those standards are. Was there anything contentious in developing those standards, or was it just, this takes time and effort and leg work and we just have to get through all of that, but actually, it's a relatively smooth process, it's just got to be done.

 

[00:15:24.610] - Toby

Yeah, it's a great question. So, luckily, I actually think it was remarkably smooth. We were quite blessed, I think, with having a team of real experts who had deep understanding and actual deep involvement in the existing certificate systems. And what we're trying to do with the standard is not change too much at all in terms of how the existing certificates work, but just add a timestamp, essentially. Energy certificates already tell you quite a lot of information. They tell you where the power came from, the location of the plant, when it was built, they just don't tell you when the electricity was produced.

 

[00:16:07.730] - Jon

Is there a where element to that as well?

 

[00:16:10.670] - Toby

Well, yeah, you already have the where when you buy the existing certificates, you know the location, so you can already choose as an energy for your energy supply, can already choose exactly where it buys its electricity from or energy certificates from, but it can't choose when the electricity was produced because the data isn't there. So it's really like it comes down to adding this missing data field, I think. Consensus, it's not out of the ordinary to do this whole process. Actually, the existing energy certificate system started out as a voluntary initiative. It was actually started by industry coming together to create a way to choose green energy. And it was only after six years that it became regulators, realised what was happening and said, yes, we should regulate this. And then the regulation is actually quite different depending on where you go in the world. But most actually, a lot of environmental products start out as voluntary markets. A similar thing happening in the voluntary carbon markets, where it starts out voluntary and then regulation comes in to standardise the market. But you often need the voluntary market there first, because there's no point regulating something until it exists.

 

[00:17:27.660] - Jon

Yeah. So if you think of all the work that needs to be done to get everything in place for EnergyTag - and I know these things are always they're never done. There's always evolution and further work to be done. But at a point where you think – great - the market for this can begin if zero is I've got all the work ahead and ten is all the work has been done. Where's EnergyTag on that zero to ten score?

 

[00:17:51.810] - Toby

Yeah. Well, in terms of EnergyTag’s work, which is thanks to some great work by the EnergyTag team, Killian Daly, who's general manager in Brussels, he runs the day to day activities. The first version of the standard is now published, which means that registries or the bodies to issue these energy certificates can follow the standard and they can be audited by EnergyTag to issue the certificates in a compliant manner. In a compliant manner, exactly. And that is now sort of starting to happen and we'll still see the first certificate issue over the next twelve months. There's now a need which explains my personal journey for a whole range of new tools and software to make this easy. Because if you say to someone. Right. We're taking the existing certificate system. Which works on an annual basis and you're going to hourly. Which means many more certificates to deal with and then you'll rather than try to match on an annual basis. The existing stocks are traded largely over the phone at the moment and you want to start matching supply and demand in 30 minutes windows that needs some new tools. So that sort of explains why I decided to co found Granular Energy.

 

[00:19:24.110] - Jon

You're basically taking what was one annual requirement for certificates into 8760 requirements for certificates and that's a very different challenge.

 

[00:19:41.310] - Toby

Exactly. And we're expecting people to match each hour their consumption with production from renewable sources.

 

[00:19:51.870] - Jon

So what might some use cases be? I mean, one might you mentioned companies like Microsoft and Google. I guess they might want to show that their data centre every single hour is only using green electricity, some use cases that Granular Energy is looking to sell.

 

[00:20:11.530] - Toby

Yeah, well, first of all, just quick intro to Granular Energy. What we do is we provide software largely to energy companies, so utilities, energy suppliers, to make it really easy for them to access and allocate hourly certificates to their consumers and then as a second step, to then trade these certificates with each other. So if you imagine you're a utility and you've got lots of customers that all want these hourly because they all want what's sometimes called 24/7 clean energy, they want to show in each hour of the day their energy is coming from clean energy sources. And you as an energy company have contracts with a variety of wind farms from solar farms or batteries, hydro power stations. The platform first enables you to allocate these hourly certificates very easily in an automated way to your end customers, depending on what they've requested. And then you'll see which hours you have too many and which hours you don't have enough. So you can sell the hours of the certificates that are in oversupply and you can buy short the hours where you don't have enough. And we have a partnership in the UK with Nord Pool, who's the power market operator, and Electron, the settlements body and various others, to build the world's first spot market for his hourly certificates, which creates that intraday price curve for these certificates that then enable storage to play.

 

[00:21:56.530] - Jon

I was going to use the word replicated, but that's the wrong word. In the same way an energy retailer has to manage the depending what part of the world you're in, 15 minutes, half hour, 1 hour matching of supply, what their customers are using and what they're buying for electricity, it's exactly the same thing. But for hourly green certificates.

 

[00:22:17.600] - Toby

Yeah, exactly. It works in a similar way, but it's kind of a parallel market. If you are already trading power, as most energy companies are, it's actually quite intuitive and it doesn't add to your workload because you're interacting in a very similar way. But what it does do is create an additional price signal for clean energy to be delivered when it's most needed and some use cases, as you said, the early demand for this has really been led by the Data Centre community, by Google and Microsoft, who have set hard targets to get to what they call 24/7 clean energy by 2030. Meaning each hour of the day, they need to see that their energy is coming from clean energy sources going one step beyond the current annual matching process. In the same way those companies kind of led the way with PPAs 15 years ago, they're leading the way with the 24/7 clean energy movement. It is really a movement now. So the UN has a programme called the 24/7 Clean Energy Compact to promote this concept of hourly sourcing of clean energy. Currently got 70 signatures and it's growing, so big corporates are signing up and there are more and more use cases.

 

[00:23:46.890] - Toby

So, for instance, in the UK rules about producing hydrogen, green hydrogen, there's actually a requirement that you match the electrolyzer with renewables on an hourly basis, and that's to prevent gas turbines coming on to run electrolyzers at certain times of the day, which would actually create more carbon emissions than if you were just doing using blue hydrogen.

 

[00:24:13.930] - Jon

You got to make sure it's really green hydrogen and not brown hydrogen.

 

[00:24:18.730] - Toby

This applies to anywhere where you care about the carbon content of the electricity that you're consuming, which is basically all of electrification. Electrification doesn't really make sense in most cases unless you're using zero carbon electricity. So how do you ensure that when you're connected to the grid that your energy is really zero carbon and this is basically the new standard.

 

[00:24:47.350] - Jon

Slightly philosophical question. Is there a risk you end up with a market of customers that really care and customers that don't care? I guess you could have that with the way with annual energy certificates, couldn't you as well?

 

[00:25:04.430] - Toby

Yeah, I think that's absolutely a question for that. And the way the system works today in the UK is that if you're not buying those clean energy certificates, you get the residual mix, which is basically what's left after the certificate, the green energy has been taken out of the system. I think that ultimately this is a way to harness the consumer demand for clean energy to send a price signal. And you have seen historically certain consumers and corporates being a step ahead of government in terms of their ambition. And this is a method that allows you to take that ambition and drive real impact.

 

[00:25:54.630] - Jon

That will send price signals into markets that will increase the value of green power, particularly when there's not much of it around.

 

[00:26:03.990] - Toby

It doesn't take much for this to be a slight premium on green energy that can actually have a real difference because the hours when it's most needed, you could see some quite strong pricing there and then that being said, once the instruments are available to be used by policy makers, then there's all sorts of ways in which governments can adopt them to incentivize the right behaviours. So, for instance, if you wanted to create a local energy market, you could just use these certificates to say everyone who consumes these certificates in a local area match with their consumption in a specific hour, benefits in some way from either reduced grid costs or other sorts of things. And in the US they have something called RPS standards for Renewable Portfolio Standards, which is actually a requirement on the utilities, the energy companies to buy these certificates. So there is sort of some of the certificates for voluntary reasons, others are bought for compliance reasons. And there the idea there are several discussions, I just got back from a couple of conferences at the States and people were openly discussing the idea of moving to 24/7 or hourly renewable portfolio standards which would create a compliance like essentially compulsory purchasing of these hourly certificates.

 

[00:27:29.050] - Jon

So, Toby, I can see, I can see long term, well, short term, this is gathering momentum in lots of ways that you described. I can see really clear use cases that you described, Google, Microsoft, Amazon wanting to show that they're 24/7 green electricity powered. How quickly can this happen? So let's bring out the talking new energy crystal ball. And I'm going to set the dial this week to shorter term rather than longer term, because longer term you can take your view and say it will happen. But if we set the data three years time, so this time of year, in 2025, where will we be at with hourly green certificates?

 

[00:28:24.540] - Toby

Yeah, it's a great question. I think the tricky one, the timing of this is the big question, just to say, in my view, this will absolutely happen. I haven't spoken to anyone who doesn't say when you suggest adding more temporal granularity to the certificates, it seems what like everyone agrees it's logical. The long term vision is that the existing statistics will all just transfer from an annual base system to an hourly matching based system. What is that adoption rate? I would say in three years time, I think that the hourly certificates will be widely available to be bought by people who want to buy them and match with them, see where their energy is coming from in each hour.

 

[00:29:22.350] - Jon

Across Europe, North America?

 

[00:29:23.550] - Toby

Europe, North America, and quite actually, lots of developing countries have recently in the last five years, adopted these certificates. And some of them are actually already talking about almost leapfrogging and going straight to this hourly certificate system. They will be there on a voluntary basis and I think we'll be in the middle of that kind of exponential growth in terms of the demand and the usage of these certificates. And there will be line of sight, at least to the point when this will be the old system will have moved on and everything will be hourly.

 

[00:30:08.970] - Jon

Biggest challenge to getting to that point in three years time.

 

[00:30:14.370] - Toby

Yeah, it's a good question. I think there's a general question around the whole energy crisis and high prices for energy. What does that do to the net zero agenda? If you're a manufacturing business that uses a lot of electricity, your main concern right now is how do I stay in business, particularly in the UK, let alone how do I reduce my carbon emissions and how to be green? I think that whole kind of net zero, how much does climate and the net zero agenda stay on the table?

 

[00:30:53.590] - Jon

So you and I and most of our listeners know that the answer to that is accelerating the uptake of renewables.

 

[00:31:00.410] - Toby

Exactly.

 

[00:31:01.160] - Jon

Short term tactical policy responses aren't always in line with the long term answer.

 

[00:31:06.130] - Toby

Exactly. So what I think could really help is that these certificates are actually seized by policymakers as a way to reform the way energy markets work to accelerate investment in clean energy. And I think some policymakers that we've spoken to recently are starting to see that opportunity of how they can use the existing certificate systems to enhance deployment of clean energy.

 

[00:31:39.160] - Jon

Yeah. Okay, so challenge. I said one challenge, but I'm going to ask you for a second challenge. Challenge around the political environment and the response and focus of policymakers and regulators today. Second challenge, second thing that would you think you've got to focus on or get right, be that EnergyTag or Granular Energy, to reach that vision of three years time?

 

[00:32:05.730] - Toby

Well, I think we have to kind of continue to strive to make this simple and easy and that's really what Granular Energy we're trying to do is we've taken this existing concept of certificates, which already not everyone is buying green energy today with the old system and we've made it, on paper at least, that bit more complex. What we're showing is that using technology, we can actually make the implementation of this very simple, even for a utility company that has a lot to deal with. We've actually shown that by using our platform, they can create a 24/7 clean energy offer very quickly.

 

[00:32:54.210] - Jon

And simple and easy, I guess, can apply. That needs to be applied to everything from enabling an energy retailer to do this to communicating to customers what this means.

 

[00:33:08.220] - Toby

Absolutely.

 

[00:33:12.790] - Jon

I can see a risk of complexity and I would imagine there needs to be a laser focus on keeping things clear and implementable.

 

[00:33:22.690] - Toby

Absolutely. This is just trying to convince people that it's better to buy clean energy over fossil fuel energy. And we can tell you where your energy has come from throughout the day.

 

[00:33:37.180] - Jon

Yeah. Without trashing what customers thought they were getting and doing over the last year in terms of.

 

[00:33:47.410] - Toby

That is a process, but we're going through that anyway because there are lots of people questioning the existing system. Why we're here is that challenge of the existing system was there already with the solution.

 

[00:34:03.490] - Jon

Well, Toby, that's been a fascinating discussion. I think I can see how it can be a huge enabler for us to get to a renewable or closer to 100% renewable electricity system, which will be critical not just to reduce emissions from electricity today, but the electrification of use, as you've said, of transport and of heat that we'll see over the next year and decade. So thanks very much, Toby. Thanks for joining.

 

[00:34:37.470] - Toby

Thank you so much for having me. I really enjoyed it.

 

[00:34:39.830] - Jon

And thanks for everyone for listening. We hope you found that interesting. It's got you thinking about the green electricity tariffs that you might be on and what you might be moving to in the next year as EnergyTag gathers more momentum. Thanks again and look forward to welcoming you back to next week's episode. Goodbye.

 

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