The revision of the Greenhouse Gas Protocol may reduce demand for PPA deals for solar companies, but there is a chance that deal volume will return as more certainty returns.
According to BloombergNEF, corporate PPA deals are down 10% by 2025, and JP Cerda, CEO of online Energy Attribute Certificate (EAC) and PPA trading platform Renewabl, told pv magazine the reason could be proposed changes to the Greenhouse Gas Protocol.
Cerda argued that the upcoming update to the scope 2 guidelines, which govern how companies account for the renewable electricity they consume, has introduced enough uncertainty to put a dent in companies’ PPA activities. Proposed changes to the GHG Protocol include a more granular approach to carbon accounting, potentially imposing new hourly matching obligations on companies.
“Companies are more or less waiting for the final decision on the protocol to see what rules will be imposed on them,” he said.
How clean energy claims are made has proven controversial in recent years. Under the standard approach, companies make clean energy claims by annually matching their consumption with certificates for renewable energy generation. This has come under fire as it paints an unrealistic picture of how much energy from renewable sources was actually used.
Despite criticism, annual matching PPAs have played an important role in supporting the deployment of renewable energy sources. For the better part of a decade, the dominant PPA model was signing long-term PPAs that helped bring new projects to market. A major energy buyer, such as a multinational technology company, could commit to a 15-year deal that offered the revenue security that could make a new wind or solar project financially viable.
As the share of solar and wind power plants in the power generation mix has changed in mature markets, the case for generous carbon accounting to support deployment has arguably weakened. At the same time, companies are wary of being accused of greenwashing.
“Companies are less interested in additional measures and more wary of regulations that ensure they do not engage in greenwashing,” Cerda explains. According to Renewabl’s CEO, regulatory compliance and financial hedging is gaining ground over complementary demand as a demand driver in the PPA market.
Matching per hour
Temporal matching is the central question in the revision of the GHG protocol. Most companies meet scope 2 obligations by purchasing energy attribute certificates – instruments such as RECs and GOs, or through PPAs – on an annual basis.
A proposed shift to hourly matching would force companies to demonstrate that their consumption at a certain hour of the day is covered by generation certificates for that same hour. It would mean that companies that run heavy loads at night would no longer be able to cover their activities with certificates from solar power plants that generate electricity in the afternoon.
A granular approach to energy certificates would more accurately reflect the reality of clean energy consumption, but the infrastructure to support hourly matching is still catching up, according to Cerda.
“[Some] The issuing bodies are not yet producing hourly certificates,” he said. “It’s really difficult to know which hour to buy.” In addition to the certification gap, there are also higher prices to consider. Companies that need coverage for the evenings and early mornings can compete for certificates during hours with the least renewable generation, and therefore a higher premium. Achieving 100% hourly matching currently entails higher costs than the current annual matching regime.
However, Cerda sees things changing. Renewabl’s CEO suggested that the higher costs are partly due to the immaturity of the market and need not be an inherent feature of timely carbon accounting. As the certificate infrastructure develops, he argued, and demand signals improve, prices should normalize.
“The focus and purpose of hourly matching is not to make things more expensive,” Cerda said. “It actually makes things fairer in the long run.”
Rather than moving from an annual matching system to one that requires 24-hour matching, Cerda suggested that companies should take a phased approach to compliance. Rather than aiming for 100% matching per hour from day one, companies could try establishing a baseline score that they can work to improve — “70% is the new 100%,” Cerda said.
What comes next?
Offtakers aren’t the only ones affected by potential changes to the GHG protocol. Solar developers in particular could face a more challenging environment.
Cerda argued that the PPA market is already oversupplied with solar power generation in several European countries. As a result, negative price events have become routine in Germany, Spain and increasingly elsewhere. “Right now, it doesn’t make sense to build more solar because there’s an excess of solar,” he said.
According to Cerda, hourly matching could serve as a better demand signal for developers. If companies need to demonstrate hourly coverage and their consumption does not peak during the day, they will need to purchase wind energy, energy storage and hybrid solutions rather than simply purchasing more solar certificates. The idea is that this will shift investments to what the electricity grid actually needs – for example, solar power plants with co-located energy storage will become standard.
Immediate competition is also increasing, Cerda revealed. Major producers – especially offshore wind companies – are starting to sell certificates that mimic the production profile of other technologies. Cerda said a wind farm with excess generation can currently sell solar-shaped certificates to meet buyer demand. This introduces major competition for solar developers in wind-rich markets such as the United Kingdom.
Ultimately, energy storage will be the engine of change, according to Cerda. Co-located solar plus storage offers flexibility: the ability to shift generation to the hours that business buyers actually need. Batteries also create a new opportunity for certificate trading: a storage operator can absorb excess certificates in oversupply hours and effectively resell coverage in shortfall hours, effectively acting as a temporary liquidity provider in the certificate market.
“Battery storage is a key element for this hourly transition,” Cerda said.
Decision time
The near-term prospects for the solar PPA will depend on when and how the GHG Protocol publishes its revised guidelines, Cerda said. Renewabl’s CEO expects the market to recover once the uncertainty disappears.
“Every time there’s new legislation or something new, there’s always a panic for a few months and then people realize there’s nothing to panic about, and then the markets go back to normal,” Cerda said.
Phased implementation could be the best outcome for solar energy. Cerda argued that implementation could start with the larger buyers with deeper pockets taking the lead – the hyperscalers and big tech companies already account for around half of all corporate PPA volume. This would give the certification infrastructure and the broader market more time to develop.
Uncertainty may remain, but the direction of travel seems clear. Buyers want better-matched energy, storage is becoming more important rather than optional, and standalone annual solar PPAs are harder to sell than before. When the new rules of the GHG Protocol finally come into effect, Cerda expects that the markets will not wait long to trade.
