On September 26, 2022, Microsoft Canada and Ontario Power Generation (OPG) announced an important agreement for clean energy credits (CECs). The most significant part of the deal was the fact that OPG would supply the credits from its nuclear and hydro-electric plants. Microsoft will procure the credits on an hour by hour basis to match the consumption of its data centers and other energy consuming activities.
Coming from one of the biggest of the Big Tech firms, Microsoft’s action could stimulate a major change in the clean energy landscape, with all non-emitting power sources being treated more equally and their product being more fairly valued against the CO2-intensive hydrocarbons that still dominate the energy market.
Matching consumption as it happens with clean energy allows the company to move closer to its stated 100/100/0 goal, which the company defines as 100 percent of electrons, 100 percent of the time supplied by zero CO2 sources. By shifting its own consumption pattern to meet this goal, the company hopes to move closer to a vision where all of the world’s grids achieve the standard.
The inclusive CECs that Microsoft has agreed to purchase are an expansion of the older, less inclusive system of renewable energy credits (RECs) that have played an important role in making wind and solar power development an attractive investment. Income from RECs has long given developers a return on the clean energy characteristics of their power plants and significantly increased the rate at which the power plants were erected.
Agreement has far reaching implications
The agreement between Microsoft and OPG includes collaboration on the development of a trading, tracking and accounting system using Microsoft’s Azure cloud computing platform. Scaling the system that the companies are developing will increase its climate impact enabling a broader range of providers and customers to participate in a process that recognizes value of clean energy that matches demand when it occurs.
In 2021, the global renewable energy credit market was estimated to be worth more than $12 billion and projected to grow to more than $100 billion by 2030. Though relatively small compared to the amount of capital being deployed in building renewable energy projects, REC income helps make the investment case and speeds development.
Though clean energy credits that value the environmental attributes of hydro and nuclear power are not entirely new, previous programs have been isolated to narrowly defined plants facing specific economic challenges. They were designed to provide a minimal lifeline to prevent plant closure rather than to provide investment incentives or a recognition of the higher value that clean power deserves in a world facing dire threats from climate change.
Developing a clean energy registry in Ontario
OPG/Microsoft’s agreement is a prelude to Ontario’s evolving process of creating a clean energy registry. As it is currently envisioned and described, the system is limited to purchases by Ontario businesses from Ontario suppliers.
The intent of the CEC registry is to offer Ontario industry and consumers a transparent tracking system that shows voluntarily purchased CECs that have been generated in Ontario.
Province of Ontario “Development of a Clean Energy Credit Registry”
In August 2022, Ontario posted a description of its proposed clean energy registry and requested comments. The comment period closed on September 16. The Ministry of Energy is now developing the system and expects it to be operational in early 2023. The Ministry of Energy provided Atomic Insights with a brief summary of their reasons for developing the system and the expected results once the system is operational and being voluntarily adopted.
As environmental and sustainability goals increasingly influence corporate decisions on where to invest and grow, Ontario is leveraging our province’s world class clean electricity grid by launching a voluntary CEC registry to boost competitiveness and attract jobs.
Ontario is continuing its strong economic recovery from the COVID-19 pandemic. Along with our highly skilled workforce, available tax credits, and a world-class research and development ecosystem, a CEC registry will contribute to Ontario’s attractiveness as a top destination for manufacturing investment by allowing businesses to meet their corporate sustainability goals and demonstrate that their electricity has been sourced from clean resources.
Revenue from CEC sales could also provide value for ratepayers and support the future development of new clean energy projects in the province.
This would help to keep costs down for Ontario families, support electrification and help the province reduce emissions even further.
We anticipate the Clean Energy Credit registry will be operational by early 2023.
Email to Atomic Insights from Ministry of Energy Communications Branch Oct 6, 2022
Will nuclear and hydro CEC sales help increase clean energy production?
It might be a mere coincidence, but three days after announcing that it had sold clean energy credit sale to a very large company, Ontario Power Generation announced that it was going to keep operating the Pickering nuclear power plant through at least 2026. That decision was the result of a request by its sole shareholder, the Province of Ontario.
The short extended period of operations will provide OPG with the time to conduct a reevaluation of its 2009 decision to close Pickering and replace its output with natural gas power production. That 13-year old decision came soon after the global financial crisis and the fracking boom. At the time, even the Sierra Club was calling natural gas clean. Times and the market have changed significantly.
Atomic Insights asked the OPG Media Relations Office if the Pickering announcement and the clean energy program announcement were related.
The Clean Energy Credit market in Ontario is still nascent, as is the market for credits from nuclear facilities, and will need time to develop. OPG will continue to monitor the market as it evolves, and factor any insights and value drivers that can be used into future investment decisions. We are encouraged that Microsoft, an environmentally driven large technology company, with a global footprint, is including nuclear energy in its clean power mix and recognizing the value of nuclear and hydro as clean, baseload generation required in the energy mix to drive to net zero.
Email response to Atomic Insights from Kim Lauritsen, OPG VP – Energy Markets Oct 6, 2022
If the closure decision had not been changed, Ontario’s greenhouse gas emissions would have quickly increased by 2.1 million metric tons per year.
Though it is an exciting development for clean energy, the decision to keep operating Pickering still needs approval.
OPG requires approval from the Canadian Nuclear Safety Commission (CNSC) for its revised schedule. The CNSC, which employs a rigorous and transparent decision-making process, will make the final decision regarding Pickering’s safe operating life. OPG will continue to ensure the safety of the Pickering facility through rigorous monitoring, inspections, and testing.
It is unlikely that the deal with Microsoft will be an isolated occurrence. There are dozens of other large companies, some in the same data center operations business as Microsoft, that have made pledges to power their operations with clean energy that matches demand at the time it exists.
Objections from critics
Despite all of its claimed and potential benefits, the deal has not received universal approval. Critics, some of whom are habitually opposed to nuclear and large hydro, have provided several reasons for their opposition.
- The arrangement rewards existing power plants whose power is already under contract for something they are already doing. It does not automatically result in additional clean energy.
- Allowing OPG’s large volume of clean energy, roughly 27 GWe, into the offset market would flood the market, reducing the value of RECs and PPAs for renewable energy sources like wind and solar.
- There has been no commitment from OPG and no requirement from Ontario that the income from CECs would be directed to development of new clean energy sources
- Using income from selling CECs to reduce electricity bills would subsidize customers and cause them to use more electricity, presumably from burning natural gas.
- Sales of clean energy credits to customers outside of Ontario would reduce the cleanliness of Ontario’s power production. It would be double counting to claim a clean grid while selling the attribute of cleanliness to a third party.
Note: Above points have been compiled from several sources that have offered different versions of similar objections. The Atmosphere Fund (Bryan Purcell), Environmental Defense (Lana Goldberg), The City of Ottawa (Mike Fletcher) and Climate New Network Energy Mix (Clifford Maynes).
The objections have a varying degree of validity.
Subsidizes actions that would have been done anyway
Though it’s true that Ontario’s hydroelectric dams and nuclear power plants were built several decades ago, it is less true that their electricity production already exists. Every kilowatt hour they produce is a new kilowatt hour that did not exist and is immediately consumed.
Recent history in both Canada and the United States shows that nuclear plants that do not generate sufficient revenue are vulnerable to being shut down. When that happens, they stop creating new clean kilowatt hours. Convincing large companies like Microsoft to pay more for electricity that is worth more because it is clean helps keep those old plants operating.
The objection has more validity for plants that are under contract, but electricity sales contracts generally cover only a moderate period of time. When the contract expires, CECs should be part of the new negotiation.
New CECs will flood the REC/PPA market
The new CECs will initially tip the supply-demand balance in favor of customers. Said another way, they will reduce market prices. But the availability of clean energy credits that can be combined with both firm and variable sources of clean energy to match demand as it occurs could increase the size of the customer base enough to overcome the effect, eventually making all clean energy worth a higher price for customers.
No commitment to use CEC income for more clean energy projects
Ontario is not yet requiring OPG to use the income from CECs to expand its clean energy generation, but the province has requested the extension of Pickering and is strongly supporting OPGs program to build small modular reactors (SMRs) and micro modular reactors (MMRs).
Those programs will be more cost effective in jurisdictions where clean energy fetches a higher price than dirty energy. Big companies and governments are presumably aware of the fungibility of money and the emptiness of promises to use a certain category of income for certain designated purposes.
Using CEC to reduce customer costs
The objection to using income from CECs to reduce costs for consumers reveals something almost sinister among those who object to the program. In today’s market, electricity customers, a group that includes every resident, are stressed by inflationary pressures.
Those pressures are especially worrisome for products like electricity whose use cannot be avoided. With lower electricity prices, customers are likely to celebrate lower monthly bills and shift the dollars to food, medicine and rent. Using more electricity is probably much lower on their list of items they want to buy.
Potential for double-counting if sold outside province
There are good reasons for concern about the effects of CEC sales to customers located outside of Ontario. Claiming cleanliness of Ontario’s grid while simultaneously selling the attribute of clean electricity outside of Ontario is a double-counting tactic that was pursued under the SPEED program in Vermont. It is a practice that must be avoided. As currently described Ontario’s clean energy registry is limited to customers in Ontario from suppliers in Ontario, but this part of the plan deserves careful tracking to make sure it isn’t changed in ways that degrade the program.
Bottom Line: A credible, well structured clean energy registry that allows participation in a technology neutral fashion accessible to both new facilities and established facilities helps clean energy fetch a higher price than dirty energy. It is an important incentive for companies and outside investors to direct their money to systems that reduce emissions and fossil fuel dependence.