New partnerships help telecom and tech companies become green. Google leads the way in Denmark
Telecommunications and other technology compagnies can impact the environment. It’s no secret that telecom infrastructure and data centers consume significant energy. At the same time, telecommunications reduces energy consumption in that people work from home instead of driving to the office. While one of the world’s smallest countries in population and land mass, Denmark is a leading green energy provider with solar and wind power. It leads in the innovation in energy sources and well as market instruments to facilitate green energy purchase. In this research note, Strand Consult reviews these exciting developments, but cautions against hype or ”greenwashing”, the disinformation that a solution is environmentally friendly or sustainable when it is not. A key challenge is the electric grid itself, which is essentially one big pool of energy mixed from renewable and non-renewable sources, making it difficult, if not impossible for consumers to ensure that their selected set of energy is from renewable sources.
The green energy industry is facing a paradigm shift. Many green energy providers can compete without subsidies against traditional fossil fuels. Climate is a growing public policy concern, and the telecom industry will play an increasing role to support green, sustainable energy solutions. They can do this either by purchasing Guarantees of Origin (GOs) from their energy providers or by entering into power purchase agreements (PPAs) with companies that produce green energy.
The PPA is a contract between two parties; one that generates electricity (the seller) and one that purchases electricity (the buyer). These contracts can be so large and significant that a green energy provider may build a specific green energy plant for a single client or small group of clients which buy all or most of the energy produced. Locking in supply, price, and sustainable terms is the goal of many leading executive officers with responsibility for finance, procurement, sustainability, and so on. Denmark’s Better Energy A/S, a leader in the field of sustainable energy engineering, developed a PPA with Google to power a data center in Denmark powered by with five solar plants.
The policy prerequisites for these deals are modernized energy legislation and neutral tax treatment. It also requires that the country has a well-developed grid infrastructure to enable power transmission from the source to the end user. Telecommunications companies consume energy across networks around world day in and out, and they can benefit significantly from these energy market instruments such as PPAs.
Decarbonizing the energy system
Decarbonization includes a set of goals such as substitution of low/no emission power sources; improved energy efficiency; improved grid flexibility and storage; and the use of carbon capture from fossil fuels. PPAs represent the second phase of decarbonization in which the market, not the government, takes the lead in driving solutions. Corporations of their own accord chose their energy systems and build the end-to-end supply chain, notably the selection of the energy source, its distribution to the firm, and its consumption within the firm. PPAs play an important role to increase not only the percentage of renewable energy on the grid but ensuring the transparency of its neutral tax treatment compared to other sources.
Along with their commitment to green energy, companies also require transparency to energy source and policy. For example, much of the electricity that powers electric cars comes from coal, undermining the goal of decarbonizing the energy system. Moreover, many alternative energy sources are subsidized, obscuring the true cost to the consumer and delaying a legitimate competitive market for energy. A bona fide PPA should offer certification of the legitimate, sustainable source of the energy as well its forthright tax treatment.
Telecom companies are accustomed to operating under transparency obligations; consumers select their telecom provider in part based on traffic management disclosures. Telecom companies can leverage this expertise in transparency to demonstrate their commitment to sustainability. Through their purchasing power of green energy, they will help drive the decarbonization of the energy system.
Better Energy is partnering with leading technology firms to provide subsidy-free, certified green energy. In addition to Google, it inked some 300 megawatts (MW) worth of deals in 2019 with bioscience firm Christian Hansen, the retailer Bestseller, and other high-profile companies for which sustainability is important to shareholders, customers, and employers. Megawatts measure the output of a power plant or the amount of electricity required by an entire city. One megawatt (MW)=1,000 kilowatts or 1,000,000 watts. A typical coal plant has the capacity of 600 MW. The PPA signed with Google for solar energy from Better Energy’s plants is not only green, it’s the first subsidy-free green energy project in Denmark. Better Energy has plans to add 7 GW (gigawatt=1 billion watts) or the equivalent of 22 million solar panels within the coming 6-8 years.
The PPA is an important economic and financial vehicle to support decarbonizing the energy supply, building demand for green energy sources, and securing capacity and sustainability on the electric grid. Policymakers should recognize this tool and ensure that corporations have the freedom to use it to realize climate goals.
Certificates: green transition or green transaction?
Telecom operators can also purchase Guarantees of Origin (GOs) directly associated with the new power plants. When telecom operators buy electricity and GO certificates directly from green energy producers, they can ensure that they are helping to displace fossil fuels with renewable energy – a green transition. For example, Better Energy’s PPAs and certificates of origin are site-specific which represents solar energy directly traced to new solar plants, not green energy commingled with energy from carbon-based sources,
When purchasing mixed energy from the grid, many are under the illusion that they are addressing climate change when they are not. They are shuffling, not switching. The certificate system of GOs divides green power sold by a power producer into two separate products: electricity and environmental attributes (benefits). The physical electricity is sold as KWh, and the green attributes are sold as certificates.
Certificates can be traded and re-traded electronically on the global market, like financial assets. A company pays a broker, and brokers pass some of the money the company that generated the green energy. In theory, this money should help get new energy built. However, the traded market prices are so low that the money is not enough to finance new green energy. Moreover, certificates can be from older power plants. Certificates can change hands without causing any new renewable energy to be added or produced – a green transaction, but no transition.
Telecom operators may have the best intentions when they purchase certificates, but their impact will be limited to none unless they do the due diligence. They likely need to set up a PPA.
Double jeopardy for taxpayers
Certificate trading in this secondary market also puts citizens at risk for paying twice for the same green energy. When renewable energy projects are subsidized by the government, the money comes from taxpaying citizens. If companies purchase certificates from these subsidized projects and then turn around and charge consumers extra for the “green” products they produce with this energy, the same citizens pay twice. The subsidies/citizens are the reason that new renewable energy gets built and added to the grid, not the companies.
The complex certificate market can be misleading and needs overhaul. The challenge with green certificates is that they don’t all represent carbon reductions, and they don’t all drive change or represent new green energy. There is no way for buyers to tell the difference. Most renewable energy certificates traded on the market are produced by older or existing power plants, for example, hydropower stations in Norway or older generation wind turbines that are already running profitably.
If an older power source is in operation, the owners or brokers will certainly be happy to get money from the green certificates, but it won’t lead to more green power. The buyer won’t add anything to the grid that hasn’t already been there. The buyer is thus trading marketing rights, not changing the grid. It a donation – not a net new impact.
Location, location, location
It is important to understand that shopping in other geographic locations or across market zones does not save money or reduce emissions in the local energy mix. If the buyer’s PPA trading points and the project’s actual delivery points are in different markets (or in a market with zonal pricings), and the PPA payments are based on the price in the project’s market, the buyer is exposed to basis or locational risk. Even more experienced buyers do not realize that in markets with zonal pricings, there is locational risk.
Signing PPAs for projects in other countries does not make the local energy mix any greener. It was critical to the Google agreement in Denmark, for example, that the new power plants be built in the same geographic grid area as Google’s new Danish data center.
The electricity that flows through the local power lines is determined by which power plants are currently producing electricity on the grid. If national power plants cannot produce enough electricity to match demand, electricity gets imported. In the case of Denmark, a lack of solar power at certain times means that the country must import electricity. Thus, the source of electricity is determined by location and time of consumption.
Strand Consult´s research shows that large energy consumers like telecom operators and data centers are physically connected to a local grid, so the carbon footprint of their operations depends on the current mix of renewable and non-renewable energy that is flowing through the local lines. If companies are physically located in Denmark, and they sign PPA contracts or purchase certificates from Norway, this doesn’t change their local energy mix. The physical energy they consume has not changed. The only way a telecom operator can lower the carbon emissions of its operations is to improve efficiency, generate energy on site, or add more green energy to the local grid. Virtual trading does not change physical reality.
New phase in the green transition
Telecom operators can be leaders in sustainability practice, provided the right policy framework. Telecom operators are hungry for ways to become fully renewable in the energy they use and hungry to deliver climate action with measurable results. These companies can have great impact in transforming our energy system with the right green energy products and the right policy framework. Denmark is one ambitious country using climate policy for competitive advantage and geopolitics.
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