Achieving Corporate Climate Commitments: Risks and Benefits of Using Virtual Power Purchase Agreements and Unbundled Renewable Energy Certificates

Keyshon Bachus^1, and Yeo Howe Lim¹

¹Department of Civil Engineering, University of North Dakota, Grand Forks, USA

Cite this paper:
Keyshon Bachus and Yeo Howe Lim. Achieving Corporate Climate Commitments: Risks and Benefits of Using Virtual Power Purchase Agreements and Unbundled Renewable Energy Certificates. American Journal of Energy Research. 2023; 11(3):100-107. doi: 10.12691/ajer-11-3-1

Abstract

Energy consumption via electricity purchased by organizations makes up a large part of worldwide greenhouse gas (GHG) emissions. More than two-thirds of electricity used is by commercial and industrial users. Companies with warehouses, offices, data centers, and other facilities, and that engage in industrial processes consume significant amounts of purchased electricity to power their operations. Most organizations do not generate their own electricity or have operational control of their energy generation; rather, they purchase it from public utilities and other providers. Many organizations are making climate commitments in support of the Paris Agreement’s net-zero pledge by reducing their indirect “Scope 2” GHG emissions and promoting development of more renewable energy and less dependence on fossil-fuel-generated electricity. Depending on the locations of organizations’ facilities, renewable energy infrastructure may or may not be available. However, companies can meet their public climate commitments by obtaining renewable energy certificates in lieu of obtaining renewable energy directly to their operations. Each certificate purchased represents 1 megawatt-hour of renewable energy added to the grid. The two options for obtaining these certificates, which this study will focus on: obtaining renewable energy certificates via a contract, such as a virtual power purchase agreement or purchasing them from a broker or developer without a contract, or association with energy generated known as “unbundled renewable energy certificates.” Thus, even when companies do not consume the energy directly, their efforts do not go unnoticed by their stakeholders as they take possession of the environmental attributes via renewable energy certificates. Either option enables companies to secure renewable energy certificates and meet their climate commitments. Companies may purchase certificates equal to their total greenhouse gas emissions emitted or equivalent to the MWh value of fossil-fuel-generated energy consumed as a way to offset their Scope 2 GHG emissions generated from fossil fuels. Both options have potential risks and benefits. The second phase of this research will be to measure and identify these risks around long-term virtual power purchase agreements and unbundled renewable energy certificates. Results of the literature review show that there are substantial benefits and potential risks to organizations that use these instruments to achieve their climate commitments. The significance of this research is to identify, quantify, and measure the potential risks of unbundled renewable energy certificates and virtual power purchase agreements. The results of the research can serve as a baseline framework to be used by corporations and clean energy developers to combat climate change and accelerate their renewable energy portfolios. Understanding the risks will undoubtedly help in developing key mitigating strategies and removing the timeline barriers associated with contract negotiations, signage, or the purchase of unbundled renewable energy certificates.

Keywords:
renewable energy virtual power purchase agreement sustainability environmental，social，and governance (ESG) climate change renewable energy certificates fossil fuels greenhouse gas protocol stakeholders net zero carbon neutrality decarbonization science-based targets initiative Paris Agreement

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