What does RE100’s Facility Age Limit Requirement Mean for your Business?
From January 1st 2023 the RE100 technical criteria now require corporate buyers to comply with a fifteen-year commissioning or re-powering deadline when procuring and claiming renewable electricity.
RE100 is a global renewable energy leadership initiative established by The Climate Group, in partnership with CDP. More than 400 of the world’s leading companies are members of the RE100 initiative and have committed to sourcing 100% of their electricity demand from credible renewable energy sources by 2030 as an interim step and fully by 2050.
The primary intention of RE100 is to emphasize procurement of renewable electricity which adds new renewable electricity capacity to grids. RE100 highlighted that older renewable electricity generation is still an important resource for the power grid, however procuring electricity from it does not directly change the grid mix. Therefore, renewable electricity procurement from old generators is less impactful. As a result, if companies are procuring renewable electricity from older generation facilities e.g., unbundled energy attribute certificate (EAC) from 20-year-old hydro power facilities, it will not count towards their RE100 goals moving forward.
In this article we look at what this significant change means for corporates sourcing renewable electricity and how it will impact procurement across the globe.
Accelerating the global transition to renewables
Energy production and use contribute to around two-thirds of global GHG emissions, putting the energy sector at the core of climate change mitigation efforts. Electricity is responsible for the lion’s share of those GHG emissions at ~65% of all energy-related CO2 emissions. The sector has the highest potential for decarbonization, presenting a great opportunity. Renewable technologies could generate more than 80% of all electricity by 2050 acroding to IRENA, with the remaining 20% generated by natural gas and nuclear. Accelerating installation of NEW renewable energy generation capacity is hence needed to ensure we meet the goals.
With more than 50% of global electricity demand coming from businesses, they are in a unique position to accelerate and shape the world’s transition to a renewable energy future. Renewable energy is cost-competitive compared to conventional energy and is fast becoming a preferred choice among businesses. A significant investment in the renewable energy sector can be directed by increasing demand for renewable electricity via businesses around the world, leading to more installed capacity. However, how businesses source renewable electricity is a crucial aspect to maximize impact and accelerate the installation of new capacity.
The RE100 Facility Age Limit Requirement
RE100 now requires members to report the commissioning or repowering dates of the generation facilities they are procuring renewable electricity from. This information should be submitted annually. In case the generation facility is older than 15 years, procurement from it will no longer be credited in the RE100 goal. We anticipate that other reporting platforms, such as CDP’s climate change disclosure program, will adopt this rule. While the Science-based Target Initiative (SBTi) doesn’t have these specific requirements at present, we predict they will align with RE100’s best practices in the future.
Companies often generate their own energy or procure via long-term contracts from the supplier, often beyond a 15-year term or through extension of a contract after a 15-year term. Such renewable electricity sourcing is impactful despite it crossing the 15-year term, as it provides long-term security to the project investors. For this reason, RE100 has identified a handful of exceptions where the facility age limit requirement, i.e. a 15-year commissioning or re-powering date limitation, is not applicable. These scenarios include:
- Self-generation (company-owned generation facilities) e.g. rooftop solar
- Long-term project-specific contracts, e.g. PPAs, which the corporate buyer has entered into as the original off-taker* for the project, and extensions of those contracts, even if they exceed 15 years in length, including:
- Physical/financial PPAs with on-site or off-site projects
- Project-specific contracts with electricity suppliers*
- Project-specific contracts for unbundled EACs*
Companies will face difficulties in following this new requirement when they either procure renewable electricity via:
- Utility green tariffs or green electricty programs. These products have low transparency on the mix of renewable energy generation facilities that they are sourcing renewable electricity from.
- Unbundled EAC (Renewable energy certificates, e.g., REC, GoO etc.) procurement, which are usually provided by brokers, and are often from large and old hydro power generators.
Going forward, the provider of these products must prove that the generation facilities are not older than 15 years at the point the green tariff/EAC is sourced, for businesses to use this against their target. This makes it impossible to offtake renewable electricity from un-specified source and un-bundled EAC route from 2024 onwards if the generation facility is older than 15 years. If an RE100 member company does not know the commissioning date of the RE facilities that they are sourcing renewable electricity from, they are able to exempt up to 15% of their total electricity consumption from the 15-year rule. This provision will be helpful in the short-term but limits the un-specified share to 15%.
The following chart shows RE100 members’ renewable electricity consumption by commissioning date reported in 2022:
Figure 1: COMMISSIONING DATES OF GENERATION FACILITIES RE100 MEMBERS PURCHASE FROM,
Reference: RE100 annual disclosure report 2022, published in January 2023
The chart shows that over the past year, RE100 member companies are mostly buying renewable electricity from new generation facilities through PPAs, and older facilities are procuring almost exclusively via unbundled EACs. The average age of the generation facility is 10 years old. From 2024 onwards, we can expect to see more transparency in the disclosures resulting from the 15-year rule.
What is the impact of RE100’s facility age limit requirement?
Additionality is the most significant driver behind this new requirement. By limiting the sourcing of renewable electricity from older generation facilities, it will reduce the available renewable energy in the market and drive new capacity installation to compensate.
Investment in new renewable energy assets will be stimulated because of the facility age limit requirement. For corporates currently sourcing unbundled EACs, cost to maintain a 100% renewable energy status will increase as EAC from older assets are comparatively very cheap. The PPA market will also see an impact, with even more corporates competing for a limited supply of new projects. However, with the PPA structure acting as an instrument to minimize price volatility in the market, over the longer term we should see benefits such as energy security and improved long-term visibility on the cost of energy.
Corporate power demand represents a major lever to accelerate global emission reduction and regulations will continue to tighten to drive this harder and fast, either through stimulating demand for new assets, or putting pressure on electricity suppliers across the globe to improve the transparency of green tariff/green electricity products. The RE100 facility age limit activates both these channels. Our recommendation to companies embarking on the transition is to remain agile and pursue the highest impact strategies for purchasing renewable electricity by adopting direct sourcing methods, such as on-site generation and long-term agreements from new RE facilities.
Don’t know where to start? Or looking to better understand how the requirements affect your RE strategy? Connect with our advisory team.
*What is meant by original offtaker and project-specific in the context of exemptions?
- The original off-taker is the company that has entered into the contract as a first off-taker of renewable electricity. For example, if the company has a 15-year PPA with a wind generator and wants to extend the contract beyond a 15-year term, it can do so with the consumption contributing towards its RE100 goal.
- A project-specific contract with an electricity supplier describes a scenario where the supplier procures from specified projects on behalf of the corporate buyer. As the contract identifies the generation facility and energy attributes and typically use longer contract lengths. It is therefore fully transparent and the corporate offtaker knows exactly which generation facilities are used in the supply at all times, meaning the supply is project-specific. If there is no transparency to the generation, it is classed as a ‘retail supply’ contract.
- A project-specific contract for unbundled EACs is where EACs are offered at a set price over a time period, separate to an electricity contract. The Republic of Korea and Japan both offer long-term unbundled EAC contracts from new projects. These contracts do not involve contract-for-difference mechanisms which exist in financial PPAs.
Shailesh leads the delivery and development of renewable energy technical services for corporates in Asia, in collaboration with the global team. He has over 10 years of experience working in the consulting and not-for-profit sectors, previously holding the role of Technical Manager (Renewable Energy) at CDP, primarily focused on the RE100 – a global initiative bringing together the world’s most influential businesses committed to 100% renewable electricity.
get in touch