Google and Microsoft joined forces with energy companies to start exchanging hourly credits for electricity zero carbon emissions next year, a critical step in its quest to eventually feed your data centers without fossil fuels that emit greenhouse gases.
The tech giants, along with Constellation Energy Corp. and AES Corp., are helping develop a platform to trade so-called granular certificates (carbon-free energy credits for specific locations at specific times) as futures contracts on the Intercontinental Exchange, according to to LevelTen Energy, the energy trading platform developer leading the initiative.
Tech companies could buy clean energy credits for the hours and seasons they need, and also sell additional credits they don’t need. Ultimately, anyone will be able to buy or sell credits and the goal is for the contracts to help increase the production of carbon-free energy at the times when the grid needs it most.
This will help boost investments in clean energy directly into the networks used by data centers and other corporate buyers, allowing them to pay a premium for carbon-free energy during specific hours of the day and times of the year, said LevelTen CEO Bryce Smith.
Companies are willing to pay premiums to create incentives to ensure zero-emission energy. available carbon during hot summer afternoons or after sunset. Those premiums would decline over time with the new supply, said Mason Enmett, senior vice president of public policy at Constellation Energy Corp, the largest U.S. producer of carbon-free energy thanks to its nuclear power fleet.
“We need to send price signals for clean energy generation at all hours of the day and in all places“said Smith. “There is no doubt that the demand is in the multi-gigawatt range and it is yet to be determined how quickly we will be able to increase the coupling between buyers and sellers.”
Until now, major energy buyers, such as technology companies that operate data centers, have purchased clean energy credits annually. Those credits tend to be independent of location, time of day, or even year. In practice, that means a large energy user on the east coast that relies primarily on a grid that uses fossil fuels in 2023 can offset those emissions using solar energy credits produced in Nevada in 2023.
However, traditional renewable energy credits like that have not lived up to their promise of displacing energy from polluting fossil fuel plants. In many places it is already cheaper to build wind and solar farms than coal and gas plants. That means that purchasing renewable energy credits rarely incentivizes the creation of clean energy sources to displace dirty ones..
Purchasing tranches of hourly credits for specific locations could help address this issue, although it will depend on how the market is structured to ensure that purchases actually result in a reduction in emissions.
Last week, the United States joined a United Nations pact to match every hour of energy use with carbon-free sources. Putting a value on credits per hour will create incentives to build that clean energy where and when it is needed most, members of the new group said in a statement shared with Bloomberg Green.
Alliance members plan to launch two types of quarterly auctions to sell credits as seasonal slotswhich will be traded as futures contracts on the Intercontinental Exchange, along with hourly spot contracts, said Jason Tundermann, LevelTen’s chief operating officer.
Like any other bagged product, These contracts can be traded until expiration or, in this case, until a homeowner withdraws the credits to put toward their clean energy goals. There will be three groups of credits: those generated by wind, solar and battery projects; those of nuclear and hydroelectric energy; and those linked to independent storage, Tundermann said. Over time, the latter could include green hydrogen produced from certified clean energy sources.
LevelTen, formed in 2016, operates the largest platform for executing power purchase agreements for renewable projects. The market has helped reduce the time it takes for renewable energy developers and corporate buyers reach agreements that last between 10 and 20 years and as little as 18 months.