Intro to Energy Attributes
An electrical grid cannot track which consumer draws energy from which generator, so the Energy Attributes market does
When electrical power is generated and brought onto your local power grid, a magical and somewhat confounding phenomenon occurs: it becomes completely indistinguishable from all the other energy flowing through the grid. The very nature of electricity means that, unlike the flows of liquid-like charge we picture in our heads, there is absolutely no way you can track a unit of electrical power through a circuit.
Unfortunately, this also means that it is likewise impossible for a data center hooked up to a regional power grid to have any guarantee that the electrons depositing energy through their systems came from the solar farm over the hill rather than the coal plant across the state. This is a critical pricing problem because we know that many consumers value power generated from renewable or alternative energy sources differently for practical, ethical, or regulatory reasons; and without being able to differentiate and charge appropriately, renewable energy producers can’t collect the value that the market is already assigning to them.
To solve this problem, the energy industry and regulators have created a tradable asset called an “Energy Attribute Certificate” that represents the energy lost as it joins a power grid. When a power generation facility generates a full megawatt-hour (1 MWh) of electricity, they are issued a certificate that they are free to sell independent of the electricity generated. Anyone may then purchase a certificate on the open market, and then ‘redeem’, ‘claim’, or ‘retire’ the certificate to directly attribute that megawatt-hour of their electricity consumption.
Different standards of Energy Attribute Certificates exist in different regions of the world. In North America, the standard is the “Renewable Energy Credit” or “Renewable Energy Certificate” (REC), in Europe the certificates are called “Guarantees of Origin” (GO), and in Asia, Latin America, and the Middle East the prevailing standard is the “International Renewable Energy Certificate” (IREC).
These certificates are issued, validated, and redeemed by regional registry organizations, that are empowered by regional power distribution agencies or state governments. And this means that there are subtle differences across all regions, but some universal properties:
- All EACs are denominated in units of 1 MWh. (i.e: each certificate represents a specific megawatt-hour produced by an energy generation plant).
- Each EAC may be redeemed once by a person or organization to formally attribute 1 MWh of their power consumption with the properties of the specific certificate.
- All EACs cannot be fractionally retired (i.e: some must be retired in a whole number of MWh).