- Businesses seek credible sustainability mechanisms to meet, and report on, their emissions targets
- Distributed Renewable Energy Certification (D-REC) is using Energy Web technology to verify buyer’s emissions reduction claims
The D-REC Initiative, co-led by Powertrust and South Pole, and the Energy Web Foundation (EWF) have worked together to develop a distributed renewable energy certification mechanism (D-REC) which gives businesses a way of purchasing renewable energy that can be accurately tracked to reduce emissions and monitor the progress of their scope 2 and 3 targets.
Scrutiny over the sustainability claims of businesses is growing, along with the call for more open disclosure of corporate carbon emissions. In turn, the demand for new technologies which provide ESG managers and auditors with accurate data they can report on is rising. The innovation of D-RECs, enhanced by the open-source Energy Web technology stack and aligned with the principles of the International REC (I-REC) Foundation, promises to deliver the precise data that buyers of green energy are requesting.
Rising demand for transparent sustainability data
Since few businesses have the ability to generate enough electricity from renewable sources located at their facilities for their consumption, they often procure clean energy through the purchase of energy attribute certificates (EACs). The actual climate impact of purchasing EACs is subject to debate, however, and an increasing level of scrutiny has recently been placed on these purchases in order to minimise misleading or inaccurate carbon claims.
Regulators, too, are taking a harder look at EACs: the shift to mandatory climate disclosure is in response to growing distrust of the unsubstantiated carbon offsetting and decarbonisation claims made by a variety of corporations related to their EAC purchases. In some cases, companies have been found to overstate how much their environmental investments reduce emissions.
With growing distrust in the last 12 months triggering initiatives such as the 2022 Non-Disclosure Campaign report, published by the Carbon Disclosure Project, financial institutions are increasingly alert to criticisms of EACs and many have called on companies in their portfolios to disclose their climate impact.
Moreover, in March 2022, the US Securities and Exchange Commission drafted a proposal to request that emissions data be included in corporate financial reports. In the UK, the Transition Plan Taskforce published a disclosure framework that will mandate disclosure of net-zero journeys. Meanwhile, the EU’s Corporate Sustainability Reporting Directive is developing a plan to compel organisations to report not only on the impact they have on society and the environment, but also the impact sustainability has on them.
Rules on carbon disclosure – once a voluntary exercise – are tightening, and more questions are being asked about the data businesses are disclosing. But many businesses have a hard time tracking the relevant data in the first place.
The data problem & the D-REC Solution
The uncertainty around emissions claims can be attributed in large part to the inaccessibility of reliable data and the opacity of processes. Historically, the transparency needed to understand the climate impact of investments — be it the purchase of EACs or of other instruments like carbon credits — has not always been available to businesses.
Commonly, an EAC represents 1 MWh of renewable electricity that a buyer can factor into their emissions data. The issue is that this transaction is more opaque than its simplicity suggests. Just because EACs have been purchased, it does not follow that additional renewable electricity is being generated, or that the grid has been further decarbonised as a result. The buyer receives no further data beyond the amount of green energy they have procured.
The D-REC, however, offers an alternative option in the EAC market that tackles this data challenge head-on.
D-RECs are unlike other EACs in that they receive data directly from the renewable energy system as electricity is generated, using remote monitoring and an automated verification system. In practical terms, this transparency means that D-REC owners can track the generation of this clean energy from source through certification. The robustness of this is further enhanced by Energy Web’s EW Origin module, which allows the seamless integration and use of the Energy Web Chain as a (distributed) ledger for D-RECs.
More than this, D-RECs can operate further afield than the current traditional EAC market is able to. The D-REC was designed to support attribute certification in emerging economies where energy systems don’t primarily rely on utility-level, grid-connected renewable energy generation, but rather run on small-scale, distributed and often off-grid power generation. It was built specifically to cater to the nature of such energy systems and thus can certify renewable energy generation that powers off-grid communities, where the emissions reductions come hand-in-hand with traceable, heightened social and economic impact.
As well as being traceable for investors, the D-REC is also an extremely high value tool for decarbonisation. This is because, without off-grid distributed renewable energy, the communities they support would remain dependent on diesel generators and kerosene for energy. This has a profoundly stronger effect on reducing emissions than EACs that certify renewable energy added to the varied energy mix on a national grid. Even grid-connected distributed renewable energy assets can provide additional value beyond large-scale utility systems, whereby these assets can reduce reliance on unstable grids. This increases resilience, whilst often offering cost savings to the energy off-takers and replacing fossil-fueled back-up solutions.
The D-REC has the versatility to satisfy the prominent demands on the majority of corporate ESG manifestos, and, with its easy verifiability, it directly provides attribute buyers with data they can then audit for disclosure. The appetite for EACs has rapidly increased in recent years – so too has the argument that their climate impact is overestimated. Out of this, the D-REC represents a solution to these arguments and an enhanced option on the voluntary market for the private sector to not only reduce their carbon emissions but to support the energy transition where it matters most.
-Ends-
About D-REC:
D-REC is a new type of energy attribute certificate that bridges corporate sustainable finance from multinationals to the distributed renewable energy sector in emerging markets. This catalyses new capital to provide access to affordable clean energy (SDG7). By focusing on distributed renewable energy projects in communities with energy poverty, D-RECs go further than traditional renewable energy certificates, as they provide a direct link to positive social development, and clean energy additionality.
The D-REC Initiative is led by South Pole and Powertrust, with support from Shell Foundation, Good Energies Foundation, Signify Foundation, GIZ-develoPPP, the UK’s Foreign, Commonwealth and Development Office (FCDO), International Finance Corporation (IFC), British International Investment (BII), USAID and the Swiss Agency for Development and Cooperation (SDC). D-REC will become a fully independent not-for-profit entity in 2023.
For more information, please visit https://www.d-recs.org/