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New Group Trading Hourly Power Credits Forms in Bid to Clean Up the Grid

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(Bloomberg) —

Google and Microsoft Corp. joined forces with energy companies to start trading hourly credits for zero-carbon electricity next year, a critical move in their pursuit to eventually power their data centers without greenhouse gas-emitting fossil fuels.

The tech giants, along with Constellation Energy Corp. and AES Corp., are helping to develop a platform to trade so-called granular certificates — zero-carbon energy credits for specific locations at specific times — as futures contracts on the Intercontinental Exchange, according to LevelTen Energy, the energy transactions platform developer leading the initiative that’s dubbed the Granular Certificate Trading Alliance.

The tech companies would be able to buy clean energy credits for the hours and seasons they need — and also sell extra credits they don’t. Ultimately, anyone will be able to buy or sell credits and the goal is for the contracts to help build up carbon-free energy production at times when grid needs it most. 

This will help drive clean energy investments directly on grids that data centers and other corporate buyers are using by allowing them to pay a premium for zero-carbon energy for specific hours of the day and times of the year, said LevelTen Chief Executive Officer Bryce Smith. Companies are willing to pay premiums to create incentives ensuring there is zero-carbon power available during blazing hot summer afternoons or after the sun sets. Those premiums would diminish over time with new supply, said Mason Emnett, senior vice president of public policy at Constellation Energy Corp., the largest US producer of carbon-free energy thanks to its nuclear power fleet. 

“We need to send price signals to clean energy generation in all hours of the day in all locations,” Smith said. “There is no doubt that the demand is in multiple gigawatts and it’s TBD how quickly we can ramp up the matching of buyer and sellers.”

Thus far, major power buyers like tech companies operating data centers have procured clean energy credits on an annual basis. Those credits include basic details about when and where that zero-carbon energy was generated, among them the energy market, month and year. In practice, that means a large power user on the East Coast that relies mainly on a grid using fossil fuels in 2023 can offset those emissions using solar power credits produced in Nevada in 2023.

Traditional renewable energy credits like that, though, have failed to deliver on their promise to displace power from polluting fossil fuel plants. In many places, it’s already cheaper to build wind and solar farms compared to coal and gas plants. That means purchasing renewable energy credits rarely incentivizes the buildout of clean power sources to displace dirty ones.

Buying hourly tranches of credits for specific locations could help address this problem, though it will depend on how the market is structured to ensure purchases actually result in lowering emissions.  

Last week, the US joined a United Nations compact to match every hour of power usage with carbon-free sources. Putting a value on hourly credits will create incentives to build that clean energy where and when its needed most, Granular Certificate Trading Alliance members said in a statement shared with Bloomberg Green

Alliance members plan to launch two types of quarterly auctions to sell credits as seasonal strips, which will trade as futures contracts on Intercontinental Exchange, along with spot hourly contracts, said Jason Tundermann, LevelTen’s chief operating officer.

Like any other commodity on the exchange, these contracts can be traded until expiration — or in this case, until an owner retires the credits to bank them for their clean energy goals. There will be three buckets of credits: those generated by wind, solar and battery projects; those by nuclear and hydro; and those tied to standalone storage, Tundermann said.  Eventually, the latter may include green hydrogen produced from certified clean energy sources.

LevelTen, formed in 2016, operates the largest platform to execute power purchase agreements for renewable projects. The marketplace has helped reduce the time it takes renewable developers and corporate buyers to reach long-term power deals from solar and wind projects down to as little as eight weeks from at least 18 months. 

(Corrects Mason Emnett’s name in paragraph 4 and description of credits in paragraph 6. Previously updated to include name of new group in paragraphs 2 and 9 and corrected the last paragraph with timeframes for renewable developers and corporate buyers to reach deals.)

To contact the author of this story:
Naureen S Malik in New York at nmalik28@bloomberg.net

© 2024 Bloomberg L.P.

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