Businesses increasingly want to buy clean electricity—especially as the fast expansion of data centers powering artificial intelligence pushes technology companies’ power demands to new heights. Unchecked, these increased power demands further threaten the world’s ability to meet climate targets.1 Whether to meet environmental, social, and governance (ESG) targets, cut costs, or hedge volatility, more companies are seeking to fully address their energy-related emissions.
Companies’ voluntary purchases of clean energy have helped speed the deployment of renewable-energy sources (RES), boost renewables supply chains, and reduce renewables’ costs. Such purchases have contributed approximately 200 gigawatts of capacity from RES over the past 15 years, which accounts for about 10 percent of globally deployed solar and wind.2
But how to approach voluntary clean-energy buying and operate clean-energy assets are topics of intense debate (see sidebar “The challenges of credibility and attribution”).
One prominent school of thought suggests that companies should demonstrate that each kilowatt-hour of energy they use comes directly from clean-energy sources, often at the time and place the energy is needed—so-called 24/7 carbon-free energy matching. This approach effectively attempts to treat a company’s electricity supply and demand as separate—or “islanded”—from the grid where it is connected. While 24/7 matching may offer a seemingly simple approach to managing emissions, our analysis shows that unilaterally applying this asset-level framework leads to unintended consequences that could slow decarbonization and undermine the approach’s intent.
Our findings suggest that companies seeking the most impactful clean-energy strategy should instead make power investments using an integrated, grid-level lens that encompasses the state, power market region, or even country in which they operate.
In this article, we consider a series of scenarios that allow us to compare the actual impacts of hourly matched, company-level power strategies with broader, grid-level approaches to power purchasing and dispatch. We find that when corporate players invest in and operate clean assets (wind, solar, nuclear, and other low-carbon technologies) at the grid level, there are benefits to both emissions and costs.
Optimizing at the grid level cuts more emissions
To understand the difference in emissions between an asset-level, 24/7 power-matching approach and a grid-level approach, we considered three scenarios in which batteries support a renewable-energy portfolio to provide dispatchable, clean power (see sidebar “The scenarios we considered”):
The scenarios we considered
In our analysis, we quantified the emissions and costs in three scenarios:
- A group of ten companies, each seeking their own 24/7 clean power via an array of renewable assets and accompanying batteries. Using ten actual consumption profiles1 of approximately one megawatt (MW) of annual average power to test the batteries’ influence, we determined each profile’s emissions using marginal-emission rates.
- The same group of companies with power needs managed at the grid level to maximize the marginal price. We used the same consumption profiles, but assumed power came from the local grid energy mix and treated the battery as a single unit operated to maximize the locational marginal price (LMP). LMP is a metric that describes the incremental price of marginal power added to the grid in a given scenario.
- The same group of companies with power needs managed at the grid level to minimize marginal emissions. We used the same consumption profiles, local grid energy mix, and single battery but operated it to minimize the locational marginal emissions (LME). LME is a metric that describes the incremental emissions resulting from the marginal power added to the grid in a given scenario.
The resulting dispatch profiles of the individual 24/7-matched scenario were quite different from those optimized for the LME or LMP signals, which were broadly similar to each other (exhibit). LME and LMP profiles charge during periods of low emissions (midday sun or windy times) and low prices (overnight) and discharge during periods of high emissions and high prices (in the evening).
- 24/7 power matching. In this scenario, ten companies individually operate with 24/7 power matching using their own renewable energy and batteries.
- Economic optimization. The same ten companies manage their batteries at the grid level with the goal of maximizing the price of power sold to the grid.
- Emission optimization. The same ten companies manage their batteries at the grid level with the goal of minimizing overall emissions.
In this specific example, we found that scenario three—using batteries to minimize emissions at the grid level—cuts emissions by 380 tons3 of CO2 (tCO2) per year compared with operating renewables without dispatchable battery power (Exhibit 1). Operating the batteries to maximize the price of their power—scenario two—reduces emissions by 179 tCO2 per year. These reductions represent roughly 10 percent and 5 percent, respectively, of total emissions.4 Perhaps surprisingly, using individual battery arrays—scenario one—does not reliably cut emissions and, in some cases, can increase them.
Minimizing grid-level emissions (scenario three) leads the system to charge batteries with clean electricity when it is available and discharge it when the marginal-energy supply is relatively dirty. Maximizing price (scenario two) cuts emissions because prices tend to be highest at peak-demand times when batteries displace dispatchable, dirtier power—typically coal or gas. Using individual battery arrays (scenario one) doesn’t necessarily cut emissions because the arrays are only directed to match a company’s demand. This can, for example, lead to batteries charging when renewable energy is limited, increasing emissions.
This approach to minimizing emissions or maximizing price can be applied to any clean, dispatchable assets—nuclear, geothermal, hydrogen and other clean fuels, or gas power with carbon capture and storage, for example—that are operated as part of a gridwide power portfolio.
Looking beyond a company’s own grid
Taking an even broader view, companies can consider the power generation mix and grid emission rates in locations beyond their immediate use: The abatement potential of a megawatt-hour (MWh) depends on where the power is purchased. For example, across the United States, there is a more than twofold difference in annual average emission rates (tCO2 per MWh) between the lowest- and highest-emission power grids (Exhibit 2). Companies could choose to support clean-energy projects in states with the highest-emission grids. This would cut significantly more emissions than procuring power in the cleaner grids.
A gridwide approach reduces costs, especially for residential customers
Power markets encompass large portfolios of customers, which allows the grid to operate with less redundancy in infrastructure. If every industrial site were truly islanded, it would need the ability to produce more than 100 percent excess capacity to account for unplanned or forced outages. With a large grid, however, the risk of outages is distributed and resource planners can target just 10 to 20 percent excess capacity.
The same logic applies to deploying clean, flexible resources on the grid. Serving a hypothetical set of ten companies using 99 percent clean power as an aggregated load costs approximately 22 percent less per MWh than serving loads individually (Exhibit 3). When acting as part of the grid, companies need 36 percent less generation capacity and 41 percent less battery capacity than if they act individually.
In one of our more intriguing findings, we observed many instances where batteries were operating against each other: One site would be charging while another was discharging, creating waste through overbuild and unnecessary battery cycling (see sidebar “Batteries charging batteries”). In fact, such charging-related battery storage losses were 22 percent lower when the system was optimized at the grid level versus when individual customers were trying to manage their own energy.
Batteries charging batteries
When each battery asset in a set of ten clean assets was dispatched individually, we saw several instances where the batteries worked against each other. In these cases, one battery was discharged while another was charged, causing losses in the system. This somewhat unexpected finding illustrates one of the inefficiencies of 24/7 matching (exhibit).
Looking at cost across customer classes, we find that generating clean power for a mixed portfolio of customers is 5 percent less costly to serve overall than a situation where commercial and industrial (C&I) loads are treated as if they are served separately from residential loads, all with the same clean power (see sidebar “How we did our analysis”).
The savings come from the difference in load volatility over time: Because it incorporates a broader range of electricity use patterns over a day and throughout seasons, the combined portfolio is more stable than the residential loads alone, allowing the grid to operate more efficiently. If C&I customers effectively isolate their load from residential customers in order to meet strict 24/7 clean-power matching, utilities are left to procure resources for a more volatile and higher cost-to-serve load pattern, which could drive up prices for residential customers (Exhibit 4). Residential customers could pay 26 percent more when isolated than they would as part of a combined grid load.
How to maximize the impact of your clean-power strategy
Decision-makers in the private sector have a number of levers available to minimize their power emissions. Companies might consider the following approaches when developing their emission reduction strategy.
Invest in cleaner generation for the grid at large
The clear conclusion from our analyses is that procurement and dispatch decisions made for the broader grid rather than individual customers cut more emissions, use power more efficiently, and lower costs. This approach benefits both participants and market operators. To maximize emission abatement, companies should dispatch their clean power using metrics such as locational marginal emissions (LME) or locational marginal price (LMP) across the grid. When buying energy, the greatest near-term emission impact would come from a company’s investments in areas where clean energy would displace high-carbon-intensity power sources that aren’t likely to decarbonize, even if the power doesn’t directly supply a given company’s operations.
Managing power at the grid level instead of via 24/7 power matching is also better “grid citizenship.” Too many companies trying to match their power use with RES on their own can put unexpected strain on the grid. For example, if everyone buys RES at levels high enough to cover their needs, these resources will be larger than necessary for the overall grid, and a flood of excess power will likely arrive at the grid along with other RES resources, leading to grid congestion and curtailments. In one of our scenarios, RES curtailment was about 47 percent lower when the loads were managed at the grid level instead of individually.
Conversely, there may be times when companies will not be able to match their load with RES and must turn to the grid, often at (net) peak demand. Investing in grid-level solutions and letting the grid operators manage dispatch and reliability avoids these problems—especially because many power markets are already working to make the grid more stable in response to increased RES in the system.
Cut and manage power demand
Companies should first look for opportunities to improve their energy efficiency, as many energy efficiency measures are low cost or offer a cost savings. Beyond this, companies could invest in demand-side flexibility—investing in behind-the-meter batteries and thermal storage, fuel switching, smart building management, production management, and other approaches that shift demand to times when renewables are available, as reflected in low LMEs. This can lower peak loads across the grid and allow utilities and grid operators to reduce the amount of fossil generation capacity needed.
As companies expand their operations footprint, they should consider building in regions where the grid already has commitments to decarbonize. This will ensure future emission reductions. Supporting economic development in areas where policymakers’ approaches align with a company’s plans can reduce strategic uncertainty and offer support for decarbonization policies.
Build capabilities and implement with flexibility
To develop a strategy and execute it effectively, companies need a specific set of capabilities, including developing high-quality emission reporting, setting clear targets with a framework for regularly evaluating them, and continually revisiting where effort and capital are deployed. Rapidly changing markets and regulations mean optimal strategies are likely to change frequently.
Partnerships with other companies to aggregate loads, with grid operators to improve transparency and help with grid management, and with regulators and policymakers to advance clean-energy policy and carbon accounting standards can further enhance the impact of a company’s actions and allow companies to participate as true grid citizens.
Above all, act now
While goals such as “net zero by 2050” can be a helpful target to encourage action, the trajectory matters: Steadily eliminating emissions over time leads to less warming than waiting to cut them all.5 The urgency for carbon reduction in the near term cannot be lost.6
Many larger companies, especially tech players, are considering precommercial, high-cost (and potentially very high-impact) resources such as nuclear, geothermal, long-duration energy, and clean hydrogen.7 While these longer-horizon investments will be important to abate the last 20 to 30 percent of carbon emissions and achieve a cost-effective, fully decarbonized grid in the coming decades, these investments should be in addition to, not instead of, near-term decarbonization action—such as deploying wind, solar, and storage in the dirtiest times and places in the grid.
Companies have a large role to play in decarbonizing the power sector. They are mobilizing vast sums of capital that, if invested thoughtfully, can bring significant emission reductions and societal benefits. Grid awareness—as well as decisive action and a willingness to form partnerships—will be especially important for companies seeking to make the biggest impact.
