News and insights Blog Renewable energy buyers can advance a just energy transition. Will the standards let them?

Renewable energy buyers can advance a just energy transition. Will the standards let them?

Nearly 800 million people still live without access to electricity. Corporate sustainability standards have an opportunity to harness renewable energy demand to displace fossil fuels and build peace in fragile countries.

Written by Alex Ruelas
Published on 29 October 2024
Written by Alex Ruelas
Published on 10 October 2024

Nearly 800 million people still live without access to electricity—that is one-tenth of the global population. Close to a billion more live in underserved areas where the grid is so unreliable that it is, as the World Bank Group puts it, essentially broken. At a time when carbon emissions continue to soar, deploying renewables to alleviate energy scarcity seems like the natural path. The question is, where will the money for producing more clean energy in emerging economies come from? Voluntary renewable energy buyers could be part of that answer.

Energy Attribute Certificate (EAC) systems were created with two goals in mind: to track the production and consumption of renewable energy and to direct more money to the clean energy industry. In developing nations, EACs can be a source of much-needed climate finance. However, some of the rules for corporate clean energy procurement could prevent the market systems from fulfilling their mission. There are now growing calls for these rules to be amended to unlock the market’s full potential.

The market boundaries for renewable energy procurement

I-REC, short for International Renewable Energy Certificates, is the EAC system that operates most widely outside Europe and North America. It is currently active in over 60 countries and allows companies to credibly procure documented renewable electricity worldwide.

When sourcing I-RECs, corporate buyers follow the guidelines of international standards, such as the Greenhouse Gas Protocol (GHG-P) and RE100, which set rules for clean energy procurement. Importantly, these organizations define market boundaries. The GHG-P establishes criteria for market delimitation; RE100 applies those guidelines. Europe, for example, is considered a single market by these standards, meaning that companies in Italy can purchase wind power from Sweden.

Linda WamuneAfrica is a different story. Contrary to what happens in Europe, where there is a single interconnected grid stretching across the continent, Africa is experiencing two parallel development tracks. On the one hand, large parts of the continent remain beyond traditional gridlines. “Many people in Sub-Saharan Africa live in villages far apart,” says Linda Wamune, Program Director at Energy Peace Partners. “Running an electricity distribution line for over 100 kilometres to where practically no one is drawing power is unnecessarily expensive. It does not make commercial sense.”

In such places, where the population is sparse, decentralized grids or mini-grids—often consisting of a small solar facility connected to a nearby village—generate and provide power locally. “These small-scale systems are producing electricity and delivering it to consumers who pay for it. The only difference is the length of the cables,” Wamune explains.

Simultaneously, centralized grid lines, similar to those in Western countries, connect power consumers in urban centres and countries with one another. “Uganda, for example, has been selling power to Kenya for a long time. Kenya is also interconnected with Ethiopia,” say Wamune, who also serves as part of the GHG-P Scope 2 technical groups that will update the corporate standard.

There are, in fact, five power pools that already enable the import and export of physical electricity across African borders. However, RE100 still considers each country its own market and does not recognize cross-border procurement of I-RECs. Without the option to source certificates from neighbouring countries, it is often a struggle for companies to procure I-RECs in markets with low supply. The same is true for other world regions that face similar restrictions for I-REC imports and exports, such as Thailand, Malaysia, and Singapore in Southeast Asia.

“We should recognize how things are happening in these places. We should ask ourselves: Is it possible for countries in Sub-Saharan Africa to comply with the rules? Should we revise the criteria according to the available infrastructure?"

“We need [the standard setters] to recognize these single markets, especially where physical interconnection has already taken place,” Wamune adds. Expanding market boundaries would not only help buyers procure renewables more easily, but they could also contribute to building more peaceful, prosperous societies.

Renewables vs diesel: how EACs can displace fossil fuels and foster prosperity

What do you do when you have no power? Most likely, you turn on a generator. Households and businesses in many parts of the developing world depend on fossil-fuel backup generators to produce electricity locally—and they are everywhere. In some Sub-Saharan countries, the installed capacity of these fuel-guzzling machines is greater than that of the power plants connected to the grid. According to the International Finance Corporation, backup generators emit over 100 megatons of CO2 yearly.

Diesel is also linked to violent conflict. In conflict-affected countries and communities, conflict actors often control local diesel markets, further contributing to the destabilization of the region. This is why the non-profit Energy Peace Partners created the Peace Renewable Energy Credit (P-REC), a quality label affixed to an I-REC that supports small-scale clean energy installations in areas where diesel generators often provide a dirty, conflict-linked source of power. “We want to leverage climate solutions and innovative finance to support and promote peace in fragile regions,” says Linda Wamune.

P-RECs are issued in the I-REC registry. They verify the origin of 1 MWh of renewable electricity and allow buyers to claim the use of clean energy. When a company commits to buying P-RECs, it unlocks the funding that helps make a small-scale renewable energy project financially viable.

In other words, P-REC revenue can be the difference between building—or not building—a clean energy facility, which can provide better lighting, power local hospitals and schools, and enhance commercial activity. Financing these off-grid production facilities can simultaneously improve the living standards of local communities and push diesel generators out of use.

P-RECs main article 2

By creating P-RECs, Energy Peace Partners aims to turn growing corporate demand for renewables in low-income countries into high-impact climate finance. However, restrictions imposed by standards on cross-border procurement of certificates remain a barrier.

“Companies often hesitate to buy P-RECs across borders because they are uncertain whether the standards will recognize these purchases toward their carbon accounting,” says Doug Miller, Director of Market Development at EPP. “Consider a case where a company has Scope 2 emissions in a country like Côte d'Ivoire, which has not yet authorized I-REC issuance. With greater flexibility, that company would have an incentive to procure clean energy anywhere across the West African Power Pool.”

EPP has partnered with 15 other non-profits to create the Leapfrog Alliance, which advocates for increasing flexibility around market boundaries for procurement that optimizes for expanding clean energy access impact. They argue that such flexibility, designed properly, would further incentivize companies to support high-impact solutions.

“If the boundaries are extended, they would open the market for buyers who might not have consumption in a given country but do have it in a nearby one,” Wamune points out. This effort could go even further and facilitate the decarbonization of global value chains.

Using P-RECs to address off-grid Scope 3 emissions

It is no secret that many supply chains begin in Africa. “A number of raw materials, be they agricultural commodities or mining products, are sourced from across the continent,” Wamune says. Extracting primary commodities demands electricity, and in remote mining locations, diesel is still the most reliable energy source.

Moreover, value chains often end in developing countries. Mobile phones are a telling example. While minerals essential to building devices are often sourced from African nations, the continent is also a significant consumer of these products. In 2022, there were 415 million smartphone subscriptions in Sub-Saharan Africa.

According to the GHG-P, mobile phone manufacturers should consider the energy consumption of the devices they produce as part of their Scope 3 emissions, under the Use of Sold Products category. In countries where distributed diesel generation exceeds grid capacity, that consumption likely comes from fossil fuels. The question is: how can companies credibly reduce emissions from off-grid consumption at either end of their value chains?

P-RECs offer an alternative. Issued from decentralized renewable facilities, they allow companies to claim the environmental benefits of clean energy while directly displacing off-grid diesel generation. A recent study by Wood Mackenzie estimates the displacement opportunity to be in the range of 30-40 GW by the end of the decade. The standards could help unlock this potential.

Making rules for a just energy transition

By adapting their guidelines to local contexts, corporate energy procurement standards could advance supply chain decarbonization. They could also speed up the energy transition in regions that have contributed little to global climate change and allow developing nations to strengthen emerging markets.

Photo credit- African Parks  -1“We need to incorporate this new kind of approach into the rules,” Wamune adds. “We should recognize how things are happening in these places. We should ask ourselves: Is it possible for countries in Sub-Saharan Africa to comply with the rules? Is there enough [renewable electricity] for companies to buy? Should we revise the criteria according to the available infrastructure?”

From multi-year droughts to heatwaves and extreme precipitation, Sub-Saharan Africa already bears a disproportionate burden from climate change. The World Meteorological Organization estimates the cost of climate adaptation in the region to be between US$30-50 billion annually over the next decade, around 3% of the region's Gross Domestic Product.

At the same time, Africa faces a unique challenge: to leapfrog the fossil energy system and provide electricity to millions of people who still live without it. Corporate sustainability standards have an opportunity to serve this purpose. “We are calling for criteria that allow for social impact procurement, where companies allocate a portion of their budgets to projects that provide unelectrified communities with access to clean energy,” Wamune emphasizes. “Almost 800 million people still do not have access to electricity. We have a chance to bridge that gap.”

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