Guarantees of Origin, Renewable Energy Certificates and the Residual Mix in LCA

Guarantees of Origin and Renewable Energy Certificates

A Guarantee of Origin (GO) is an numbered electronic green label in the EU, that guarantees that one MWh of electricity has been produced from a renewable energy source. GOs are traded independently from the electricity trade. When an end-user buys a GO for electricity consumption from the grid, it is cancelled at the issuing body’s registry in the country of consumption. Most of the issuing bodies of EU member states are member of the Association of Issuing Bodies (AIB), where they jointly agreed upon the EECS (European Energy Certificate System) rules to make sure GO’s are issued and traded in the same way. This system makes it possible to track ownership, and ensures that there is no double counting. A GO is issued in a month that follows the production month of the electricity (not always in the month direct after production), and is valid for a period of 12 month to enable trading.

In the USA, a similar system exists: the Renewable Energy Certificates (RECs) [1]. This system is smaller, but seems to be a bit more elaborated than the European system, since there are two types of RECS: bundled and unbundled. Buying a bundled REC – i.e. electricity + REC – from a (yet-to-be-built) project allows your company to make the “additionality” claim, meaning that your company’s investment directly added new renewable energy to the grid to displace fossil power. Such a transaction is called a PPA (Power Purchasing Agreement). In Europe, these PPAs become also popular for (offshore) wind power and solar energy. Companies are Google, Microsoft, Air Liquide, DSM, Borealis, Philips, Akzo Nobel, Yara. The electricity and the GOs are going via different trading platforms, and are bundled in the PPA.
In fact, the ISO 22095 [2], about “chain of custody”, describes “book and claim” as a system with bundled certificates (the first paragraph Annex B.4.1).

Content

Unbundled RECs and GOs that are not tied to the underlying electricity are often used by big corporations, since they are flexible, and can be spread over several manufacturing locations in respectively the different USA states, or the EU countries (a physical connection through the grid is not required).
The advantage of unbundled RECs and GOs is that prices are low (a factor 100 lower than de electricity production price): RECs in voluntary markets cost 0.3 – 1.2 $/MWh, GOs cost 0.1 – 2.35 €/MWh (all-time high December 2018 [3], even 8 €/MWh in PPAs), see Fig 5.11a and 5.11b. The unbundled GO prices are so low since the market is overflown by GOs from hydropower, and since the hydropower is already there, the marginal cost of GOs is nearly zero.
The disadvantage that these prices are so low, is that a company cannot claim any significant “additionality”. Some NGOs call it greenwashing, since buying GOs is much cheaper than any internal project to reduce the carbon footprint of a manufacturing plant, so the unbundled GOs tend to replace internal improvement projects.
The use of unbundled RECs and GOs have a potential reputational risk for big corporations.

The prices for Solar RECs (SRECs) in the USA are much higher, see Table 5.10a, and give a realistic picture of the real extra costs of solar energy in these states [4] [5] . In fact, SRECs are bundled.

GOs and RECs in LCA

In LCA there are basically 4 approaches, related to the fact that LCA is based on physical mass and energy balances:
(1) take the production mix of the total grid, since you do not know where the electrons come from (e.g. the production mix of Entso_E in Europe)
(2) take the (mix of) nearest electrical power plants (e.g. the power plants around a big city, or the production mix of a country or state)
(3) take the consumption mix of a country (= production mix plus imported electricity mix)
(4) take the characteristics of the electricity source (mix) that is purchased, with bundled RECs or together with GOs from the same supplier (e.g. PPAs)

Note 1. The fact that, in approach (4), the electrons cannot be followed in the grid is irrelevant for the bundled RECs and GOs, since there is a 100% correlation between the input of electrons in the grid at the point of production, with the flow out of the grid at the point of consumption. The mass balance is OK (since it is part of the contract). In such a situation the buyer of the electricity can claim the source of the electricity production. In LCA, the electricity type of the bundled RECs and GOs can be taken as input for the LCIs of a manufacturing process.

Figure 5.11a. The average unbundled ‘voluntary’ REC prices during 2012 – 2018 (US$/MWh), from [1]

Figure 5.11b. The average GO prices during 2020 (euro/MWh), from [3]

Note 2. In the case of unbundled RECs and GOs, it is important to distinguish between two issues:
(a) for the country it is only important that there is no double counting (which is the case): it is not important by whom that electricity is used, as far as there is no import and/or export of GOs. LCAs on the level of a whole country can use the data of all RECs and GOs, since the mass balance within a country is correct under such a condition (and the issue of “additionality” is not relevant here).
(b) for a company, however, it is not known what kind of electricity it gets from the grid, e.g. at night in the case that it has bought the unbundled GOs of solar power. Any claim that its products have been made 24/7 by 100% solar power is incorrect (when they have no day/night electricity storage system). Therefore the use of unbundled RECs and GOs is not correct in LCA, since the mass balance is not correct. See also ISO 22095 [2] about unbundled certificates in the last paragraph Annex B.4.1.

The Residual Mix of a country

The Residual Mix of electricity from the grid is defined as the leftover once the consumed GOs are taken out from the total production mix. See the GHG Protocol Scope 2 Guidance [6]. The basic idea is that companies (and consumers) that do not purchase the GOs or RECs, get this Residual Mix from the grid.
However, the calculation of the Residual Mix in a country is still highly inaccurate. The reason for this inaccuracy is that there is a time delay between the trading of electricity and the trading of the

corresponding RECs and GOs. The RECs and GOs are created in the month after the month of the production, or later, and the trading has a maximum delay of 1 year for GOs, and 21 month for RECs. It is mathematically not correct to subtract data from those two different trading systems, because Solar and Wind power have heavy fluctuating production characteristics, and the unbundled hydropower GOs are issued irregularly [3] .
Concluding: the Residual Mix should not be used in LCA.

The issue of double counting.

The issue of double counting can easily described by the situation in Norway. Norway has 98% sustainable energy, of which 97% is hydropower.
The authorities (AIB) make sure that a hydropower plant cannot issue more GOs than they produced electricity. So there is no double counting from that point of view.
However, most of the Norwegian people (85%) do not buy GOs, since they assume that they already have sustainable electricity from the nearest hydropower plant. So the hydropower plants cannot sell the GOs to their real users, and will sell these GOs abroad in the EU for extra profit.
In fact, this situation leads to a kind of double counting: the benefit of the hydropower is physically sold to the Norwegians, but other Europeans claim the benefit of this power by buying the GOs.
The weird thing is that such an administrative system of unbundled GOs will conclude that the

Norwegians use a lot of fossil fuels and nuclear power, to correct for the exported unbundled GOs:
Website [7] shows the consequences of the unbundled GO trade for Norway: (a) The country produced in 2018, physically, 2% fossil electricity, (b) the country used 14% unbundled GOs (the rest can be sold abroad to get extra revenues), leading to a Residual Mix of 86%, (c) that Residual Mix is assumed to be the European Electricity Mix, so the own population has 58% of 86%, is 50%, administrative fossil electricity.
In the text it is suggested that Norwegians can avoid this Residual Mix by buying GOs. Although this is true from the formal administrative point of view, the argumentation feels rather strange to the Norwegian public, since they feel that they use 98% sustainable electricity (the physical reality).

State	SREC min (US$/ MWh)	SREC max (US$/ MWh)
Maryland Massachusets New Yersey Pensilvania Ohio Washington DC	70 270 220 18 5 410	80 295 234 30 20 450

Table 5.10a. Solar REC prices during the period March 2020 – March 2021 (US$/MWh)

General remarks

1. A group of insiders of companies that are involved in the trading decided to start the EnergyTag [8] project, aiming at an hourly registration (of PPA contracts), to eradicate the time shift problem, as well as the problem of taking yearly averages of the heavy fluctuating reality [9]. Such an improvement is a way to enhance the credibility of GOs.

2. Because of the increasing public awareness on the importance of electricity emissions, the EU countries will be forced to implement “full disclosure”, to provide the consumer with information of what they buy. However, only Austria, Switzerland and the Netherlands have “full disclosure” at the moment. It is unclear when the other countries in the EU will follow.
In countries with “full disclosure”, LCA practitioners can get reliable specifications of the electricity that is supplied to the system under study.
Note that there is no Residual Mix left in countries with full disclosure.

3. The current general practice in LCA to use the consumption mix (=production + import) from the existing LCI databases like Ecoinvent, Gabi, and Idemat, hardly improves the accuracy of LCA calculations, since: (a) the specific imports from specific countries is fluctuating considerably year after year (b) the source of the import, i.e. renewable or fossil, is still not clear, see Table 2 column “untracked” of the AIB report [10].

4. Most of the LCAs are made for benchmarking of future product or system innovations. These LCAs are “ex-ante”, i.e. we look at future events based on possible predictions, in contrast to ex-post where we look at what happened in the past. For such ex-ante LCAs it is not right to take LCIs from the past (e.g. a country mix that is based on the past). We should estimate the future market mix of electricity. In doing so, we should take into account that for solar and wind power, the actual operating time is

not much more than 45%. For the other 55% we must take energy storage into account (e.g. 15% – 25% energy losses for pumping storage, or 5 – 15% for local Lithium batteries) [11]. For more complex situations, see (Olinda et al. 2021) [12].

5. The Hydrogen industry will probably also introduce a certification system, to distinguish between grey, blue, and green Hydrogen. The market characteristics similar to PPA, so it is likely that the RECs and GOs will be bundled with the physical delivery

6. A bit of a chaos is to be expected in the near future with regards to CO2 certificates. since all kind of CO2 offsets are sold with a certificate. Offsets, however, are not accepted in LCA, since LCA is based on physical mass and energy balances. Therefor, financial and administrative transactions (like CO2 emission allowances and CO2 offsets) without a direct physical link to the mass and energy balance of the project chain, are not part of LCA.

The conclusion of the abovementioned text is, that the approach on GOs and residual electricity in the GHG Protocol [6] is not reflecting the real situation in Europe. This GHG is misleading, and should not be followed, until all EU countries have a full disclosure system based on a one hour registration (which is not likely in the coming 10 years).
It is amazing that the PEF project follows the GHG Protocol [12], without a good analysis of the real situation (just following the commercial interest companies) . The JRC of the EU had a wide consultation in science at the time the LCA Handbook was written, however, the recent PEF and OEF projects focus the consultations on “major producers and relevant European associations”, introducing commercial interest of companies, consultants, and software developers for tools. The result is that PEFCRs and OEFCRs have many flaws.
The PEF and OEF project should adhere to the well documented proposals of the EnergyTag [8] project, see their recent publications. For the time being the approach of (Olindo et al. 2021) [13] might be followed.

References.

[1] https://leveltenenergy.com/blog/additionality/intro-renewable-energy-certificates/

[2] ISO-PC308_N0153_ISOFDIS_22095_clean_reference_file_as_submitted_to_ISOCS_on_April_17th_2020.pdf

[3] Guarantees of Origin in 2020 – Seemingly higher demand but ever lower prices | Commerg

[4] https://www.srectrade.com/

[5] https://www.paradisesolarenergy.com/blog/your-guide-to-solar-renewable-energy-credits

[6] GHG Protocol Scope 2 Guidance, an amendment to the GHG Protocol Corporate Standard, 2015

[7] https://www.nve.no/norwegian-energy-regulatory-authority/retail-market/electricity-disclosure-2018/?ref=mainmenu

[8] Home • EnergyTag

[9] https://www.vattenfall.se/foretag/miljo/24-7-matching/

[10] AIB_2018_Residual_Mix_Results_1.1.docx (aib-net.org)

[11] https://www.worldenergy.org/assets/downloads/ES_Five_Steps_to_Energy_Storage_-_ENGLISH.pdf

[12] PEFCR on Photovoltaic Power Systems of Electricity Generation version 1.2, and on High Specific Energy Rechargeable Batteries for Mobile Applications version 1.1

[13] Olindo, Schmitt, Vogtlander. 2021. Electricity in LCA: inconvenient uncertainties in leading databases, and the need for extra calculation rules. Cases: calculations on battery electrical cars and hydrogen from electrolysis. Sustainability 2021, 13, 5250. https://doi.org/10.3390/su13095250

Further readings

Brander M, et al. Creative accounting: A critical perspective on the market-based method for reporting purchased electricity (scope 2) emissions. 2018 Energy Policy 112 29–33

Hamburger A. Is Guarantee of Origin really an effective energy policy tool in Europe? A critical approach. Society and Economy 41 (2019) 4, pp. 487–507 DOI: 10.1556/204.2019.41.4.6

Hufen JAM. Cheat Electricity? The Political Economy of Green Electricity Delivery on the Dutch Market for households and small business. Sustainability 2017, 9, 16; doi:10.3390/su9010016

Jansen J. Does the EU renewable energy sector still need a guarantees of origin market? 2017 CEPS Policy Insights.

Norderstam L, et al. Corporate greenhouse gas inventories, guarantees of origin and combined heat and power production – analysis of impacts on total carbon dioxide emissions. 2018 Journal of Cleaner Production 186 203-214

Guarantees of Origin, Renewable Energy Certificates and the Residual Mix in LCA

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