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The largest real estate landlords in the world have either committed to or are in the process of committing to net zero carbon; a truly remarkable development and something that few in the sector saw coming. However, there are such a dizzying number of guidelines out there that it can be difficult to work out what these commitments actually mean. Depending on which methodology an investor chooses to opt for, everything from the way they calculate their emissions to what they include within their target can be radically different. This means comparing net zero carbon commitments in like-for-like terms can be a real challenge.

No Clear Link between Green Tariffs and Additionality

One particular bone of contention is the way in which landlords procure their electricity. For years, conventional best practice has been to purchase green electricity tariffs from utility suppliers. However, green tariffs have had minimal impact on additionality. The UK Committee on Climate Change (CCC) indicates that “most of these green tariffs do little more than simply send a signal to their suppliers that they desire renewable electricity”. This is because the majority of renewable electricity that is being purchased via green tariffs already exists. In other words, green tariffs do not come with any ‘additionality’.

Corporate PPAs Emerging as a Preferred Solution

Because of the general inadequacy of green tariffs, Corporate Power Purchase Agreements (CPPAs), have begun to emerge as a more credible form of renewable energy procurement. Popularised by large technology firms such as Google and Facebook, CPPAs are long term electricity contracts between consumers and generators, often with a new project. By signing up CPPAs at a fixed price per MWh, landlords are indirectly funding the development of a new renewable energy project such as a solar or a wind farm. CPPAs are not perfect: the generation profile of the new renewable generation is not typically aligned with the consumption profile of the landlord. This means that the landlord will, in all likelihood, continue to consume electricity from fossil fuels. However, it does ensure that additional renewable generation comes onto the electricity grid and for this reason they are generally regarded to be far superior to conventional green tariffs.

In spite of this, none of the biggest and most influential sustainability benchmarks (GRESB, CRREM, the SBTI and RE100 to mention a few) distinguish between green tariffs and CPPAs. Frustratingly, if you sift through the guidance for these Benchmarks, there is little if any engagement within the fact that this issue even exists at all.

Fortunately, there is a general recognition amongst some factions that this needs to be addressed. For instance, in their Net Zero Carbon Framework, the Better Building Partnership refer to the need for companies to explain how additionality has been considered as part of their electricity procurement strategies. Consequently, most of the companies aligned with the BBP Net Zero Carbon approach have outlined a commitment to investigating the feasibility of CPPAs across their portfolio. Likewise, the UK Green Building Council’s Framework Definition for Net Zero Carbon buildings stipulates that all renewable electricity that is procured should demonstrate additionality. In doing so, they essentially write off the vast majority green tariffs, requiring landlords to either source a CPPA or purchase offsets to cover the CO2 associated with their onsite electricity consumption. I say ‘vast majority’ as Ofgem have indicated that three UK utilities, Ecotricity, Good Energy and Green Energy do provide some level of additionality as part of their green tariffs. That is not to say that every kWh of electricity procured via a green tariff contributes to a corresponding kWh of new renewable electricity generation, as with CPPAs. However, there is at least some additionality associated with these tariffs.

There are, of course, multiple other benefits associated with CPPAs. They allow landlords to hedge against future electricity price fluctuations, as well as providing clear marketing opportunities (For more information on corporate PPAs, please find our previous article here). It is only a matter of time before mainstream sustainability benchmarks acknowledge the primacy of CPPAs and real estate investors can mitigate the risk of such future changes by investigating their potential today. At Longevity Power we work with landlords to negotiate the sometimes confusing, sometimes illogical sustainability guidelines to source onsite and offsite renewable energy opportunities that provide our clients with genuine CO2 savings. You can find out more at www.longevity-power.com