Virtual power purchase agreements (vPPAs) are a common mechanism for large energy users to invest in clean power. These financial contracts allow companies to support renewable energy projects without directly owning or operating the physical assets (for a more detailed explanation, check out our vPPA explainer video). While vPPAs offer numerous benefits, they also come with inherent risks that need to be carefully considered.

At Verse, we specialize in empowering large energy users to make informed decisions about buying clean power. This blog explores key risks associated with vPPAs, providing you with the knowledge to navigate complexities and optimize your investments.

Market Price Risk: The Double-Edged Sword of Energy Prices

The first and most significant risk is Market Price Risk. This occurs when a company’s contracted annual renewable generation volume doesn’t align with the company’s annual energy consumption. The greater the mismatch, the greater a company’s exposure.

This risk can manifest in two primary ways:

• If market prices are higher than expected, and a company’s load over the year exceeds the generation it has purchased, the company may need to buy additional energy at high prices to meet its needs.
• Conversely, if market prices are lower than anticipated and the company’s load over the year is below the generation it has purchased, the company may find itself selling excess energy at market rates below the contracted energy price.

To mitigate this risk, it is important to conduct thorough market analysis and scenario planning. At Verse, we use advanced forecasting models to help our clients understand potential market exposure, price scenarios, and their implications on energy portfolio performance.

Shape Risk: When Generation and Consumption Don’t Align

Next is Shape Risk. This risk arises when a company’s contracted hourly renewable generation volume doesn’t match the company’s hourly energy consumption.

Wind and solar power generation are highly dependent on weather conditions. For instance, solar power is only generated during daylight hours and can be affected by cloud cover. Wind power depends on wind speeds which can be highly variable. This leads to fluctuations in the amount of power generated over time.

The power output from wind and solar resources often doesn’t align with the demand profile of the energy consumer. For example, solar power production peaks during midday. But a company may need electricity in the evening, when solar generation is low or nonexistent and market prices are often high.

If the energy consumer’s short position coincides with high market prices, that can create more financial risk for its clean energy portfolio.

Managing Shape Risk requires a deep understanding of both your company’s energy consumption patterns and the generation profile of the renewable asset. Verse helps clients analyze these patterns and select vPPA structures that best align with their energy needs.

Basis Risk: Navigating Geographic Disparities

Basis Risk arises when the prices used to settle virtual power purchase agreements differ from the actual prices where the energy is consumed.

For instance, if a company based in Houston enters a vPPA for a wind farm in West Texas, the settlement price for the generation at the ERCOT West trading hub can vary significantly from the settlement price for the company’s consumption at the ERCOT Houston load zone. This discrepancy can lead to greater financial uncertainty than if the PPA were settled in the same region as the load.

To address Basis Risk, it’s essential to carefully consider the location of both your energy consumption and the renewable asset. Verse’s analytics platform helps clients evaluate different geographic scenarios and their potential impact on energy portfolio performance.

Volumetric Risk: When Mother Nature Has Other Plans

Volumetric Risk occurs when actual generation from a variable renewable resource does not equal the forecasted generation.

This is typically a result of variability in energy generation due to factors beyond human control, primarily weather conditions. Solar farms, for example, produce less energy on cloudy days, while wind farms generate less during periods of low wind. This variability can significantly affect the revenue generated from the vPPA.

Mitigating Volumetric Risk often involves diversifying your renewable energy portfolio across different technologies and geographic regions. Verse’s expertise in portfolio optimization helps clients build resilient clean energy strategies that can withstand the unpredictability of weather patterns.

Time Basis Risk: The Importance of Timing

Time Basis Risk occurs when the market used to settle a vPPA (for instance, the real-time market) differs from the market used to settle a company’s load (for instance, the day-ahead market).

This timing difference can erode the hedging effectiveness of the vPPA and introduce financial volatility for the energy portfolio.

For example, let’s assume that a company has a retail agreement that settles in the day-ahead market. Simultaneously, it has a vPPA with a solar project that settles in the real-time market. There’s a forecasted heat wave that results in high day-ahead prices, say $200/MWh, that are applied to the load.  But the heat wave doesn’t materialize, and real-time prices at which the vPPA settles are much lower, say $50/MWh.

Even if the contracted vPPA volume perfectly matched the load consumed (in aggregate and by hour), this timing mismatch would have resulted in $150/MWh in extra costs.

Managing Time Basis Risk requires a nuanced understanding of both energy market dynamics and the relationship between day-ahead and real-time markets. Verse’s advanced analytics tools help clients model these temporal variations and select vPPA structures that balance forecasted costs and risk.

Empowering Informed Decision-Making around Virtual Power Purchase Agreements

While virtual power purchase agreements offer a powerful tool for large energy users to invest in clean power, they come with a complex set of risks that need to be carefully managed. By understanding market price risk, shape risk, basis risk, volumetric risk, and time basis risk, companies can make informed decisions about vPPA pricing and allocation of risk.

At Verse, we’re committed to helping our clients navigate these complexities with confidence. Our sophisticated software and expert services provide the insights and analysis needed to make informed decisions about clean energy procurement. We help you model different scenarios, evaluate risks, and design vPPA strategies that align with your specific energy needs and sustainability goals.

As the clean energy landscape continues to evolve, staying informed and adaptable is key to success. Whether you’re considering your first vPPA or looking to optimize an existing clean energy portfolio, Verse is here to guide you every step of the way.

Ready to take the next step in your clean energy journey? Contact us for a personalized consultation on how we can help you navigate the risks and opportunities of vPPAs. Together, we can build a cleaner, more sustainable energy future.

If you’re at all involved in corporate clean energy or sustainability, you may have heard of a mechanism called a virtual power purchase agreement. But what does it entail?

A virtual power purchase agreement (vPPA) is a financial contract between a renewable energy generator (the seller) and an organization or corporation (the buyer). The PPA is “virtual” because the energy generated by the renewable resource is not delivered to the buyer, but rather sold into the local wholesale electricity market.

Click the image below to watch a quick video or read the blog below.

Virtual Power Purchase Agreement Cash Flows

In the contract, the buyer and seller agree upon a fixed price for electricity generated by the renewable resource, known as the strike price. The buyer pays the seller the fixed strike price for clean energy.

The seller delivers clean energy to the local wholesale market at the market price, which can vary by the hour and sometimes even more frequently. The seller then sends the buyer the market price. But because the wholesale market is always moving, the market price and strike price often differ.

When that happens, the seller may owe the buyer money, or vice versa. The two parties settle the difference every month with what is known as a settlement payment.

For instance, if the seller receives $36/MWh from the wholesale market but has a strike price with the buyer of $44/MWh, the buyer would send the seller an $8/MWh settlement payment. Conversely, if the market price is $54/MWh, and the strike price is $44/MWh, the seller would send the buyer a $10/MWh settlement payment.

This setup ensures that the renewable energy seller receives a predictable revenue stream while the buyer receives a financial hedge for its energy costs.

REC Flows

In addition to the cash flows, there is a flow of renewable energy credits, or RECs, associated with the renewable generation. The seller submits meter data from the renewable energy project to a certifying body to demonstrate they’ve produced clean energy. The certifier confirms the data’s validity and eligibility and sends RECs to the seller’s account, which the seller can then transfer to the buyer’s account.

Once the RECs are transferred, the buyer can use them to meet renewable energy goals, comply with regulatory requirements, or make environmental claims about their energy consumption.

To Sum Up….

To recap:

• 1. The seller enters a financial contract with the buyer for clean electricity at a fixed price.
• 2. The seller produces renewable electricity and earns RECs for the energy produced.
• 3. The seller sells the electricity into the grid at the market price.
• 4. Based on the difference between the market price and the contracted fixed price, the buyer pays the seller or vice versa.
• 5. The seller transfers RECs to the buyer, enabling the buyer to claim the renewable energy benefits.

Virtual power purchase agreements allow corporations and organizations to support renewable energy development, achieve sustainability goals, and manage energy cost risks, while renewable energy developers secure predictable revenue streams that allow them to finance and build new clean energy projects.

Verse uses sophisticated software and expert services to empower corporate clean energy buyers to plan, transact, and manage clean energy, including virtual power purchase agreements. We help you determine the right clean energy goal for your organization and provide an optimal roadmap to achieve it. Contact us to learn how we can make the process fast, easy, and affordable!

The oversubscribed round will support Verse Inc software product development and commercial scale.

San Francisco, May 22, 2024 – Verse Inc, whose software enables organizations to understand, plan, and manage clean energy, has raised a $20.5M Series A funding round. The investment, led by GV (Google Ventures) with participation from Coatue, CIV, and MCJ Collective, will support Verse as it scales commercial operations and develops new product capabilities to help organizations reduce emissions and lower electricity costs.

“Commercial and industrial electricity use is a significant contributor to global emissions. We need to make clean energy the most economical option for large electricity consumers, but existing solutions don’t scale,” said Seyed Madaeni, CEO of Verse Inc. “Our Series A round, backed by an impressive roster of investors, will fuel Verse’s growth and enhance our software product suite, enabling more businesses to reduce both the cost and emissions of their electricity.”

Verse’s oversubscribed round coincides with several trends that are increasing pressure on organizations to purchase clean energy.

• AI and EVs: These power-hungry technologies are driving load growth and concerns over associated emissions.
• High and volatile corporate electricity costs: Geopolitical and weather events have increased electricity prices and volatility over the past several years.
• Escalating regulatory demands in the U.S. and EU: New rules mandating carbon disclosure are forcing organizations toward more robust carbon accounting, which is expected to drive more granular (e.g., time- and location-matched) clean energy purchases.
• Legacy approaches to procuring clean energy are expensive: Organizations often incur millions in transaction and overhead costs when shifting to clean power.

Rising prices, more rigorous standards, and expensive processes create both urgency and new levels of complexity that legacy solutions and corporate clean energy buyers are ill-equipped to handle. Verse’s AI-enabled software platform, Aria™, enables buyers to determine goals and create roadmaps for optimal, least-cost clean energy portfolios in minutes – and at a fraction of the cost of existing solutions.

“Emerging regulations and technologies are challenging companies to manage complex clean energy portfolios and become experts quickly,” said Andy Wheeler, General Partner at GV. “The Verse team has combined industry expertise with advanced software to build a powerful, cost-effective solution with instant benefits, and we’re happy to back their efforts to accelerate the clean energy transition.”

Founded in 2022 by Seyed Madaeni and Matt Penfold, Verse Inc offers customers a software platform that supports companies at any stage of their clean energy journey – from setting net zero goals or procuring renewable energy credits (RECs) to managing portfolios of assets for hourly matched carbon-free energy (CFE). By managing risk and optimizing for least cost, Aria enables organizations to manage electricity costs and reduce carbon emissions, making clean energy the smart option.

About Verse Inc

Verse provides software that helps companies reduce their electricity costs and scope 2 emissions at the same time. Its SaaS platform, Aria™, leverages generative AI to help companies define clean energy goals and plan, procure, and manage optimal portfolios of clean energy assets at least cost. Customers can set parameters that target specific goals (e.g., cost, emissions, or hourly matching) and optimize for annual matching, emissions matching, or hourly matched carbon-free energy (CFE). By reducing transaction costs by up to 70% and providing real-time analysis within minutes, Aria helps scale and accelerate the clean energy transition.

Anthesis Group is using Verse to help clients accurately plan their decarbonization and clean energy investment strategies.

“Projected grid emissions” are the anticipated levels of emissions from electricity generation based on factors such as planned changes in the energy resource mix and policy initiatives.

These grid emissions factors vary widely across the U.S. because not all electric grids are “greening” at the same rate. For instance, California’s grid, which benefits from ambitious decarbonization policies as well as significant existing and planned deployments of clean energy resources, is projected to reduce its emissions much faster than the grids in Pennsylvania, New Jersey, and Maryland.

Accurate emissions forecasting and analysis should account for these local variations. Forecasting isn’t a one-size-fits-all activity, so why would organizations use one-size-fits-all data? Grid emissions factor data helps companies understand how the emissions from their facilities will evolve based on their decisions but also on the local grid’s development, and where to invest for the greatest emissions-reduction impact.

Your Clean Energy Investment Decisions Are Only as Good as Your Data

U.S. Environmental Protection Agency-designated eGrid regions account for unique emissions factors applicable to regional grid electricity consumption. They are more granular than U.S. wholesale power markets, allowing for higher-fidelity data. And because they are used as the basis for reporting requirements from standard-setting organizations such as the Greenhouse Gas Protocol and Carbon Disclosure Project, eGrid regions help organizations align their emissions projections with regulatory and voluntary frameworks.

Verse’s data scientists and clean energy experts have compiled a unique set of data sources in a single platform, synchronized the disparate datasets, and made them easy to use.

Anthesis Group uses the advanced modeling and datasets in Verse’s Data Hub to capture critical grid emissions factors so its clients can develop accurate regional emissions forecasts that drive informed decarbonization planning and investment decisions.

Click the image below to access the Anthesis Group/Verse one-pager.

In March 2024, Verse CEO Seyed Madaeni participated in CERAWeek’s Innovation Agora, delivering an Agora Pod talk.

Click the image below to watch the video, which provides an overview of Verse’s platform and how it’s accelerating corporate clean energy adoption by helping companies reduce electricity costs and carbon emissions at the same time.

In 2023, Heirloom Carbon Technologies (Heirloom) teamed up with Verse to plan its clean energy portfolio.

Recent and pending regulatory and voluntary framework changes are driving companies to procure clean power in more granular ways (e.g., with time- and location-based matching requirements). And the increasing complexity of electricity markets and technologies like energy storage surpass the analytical capabilities of legacy tools (humans and spreadsheets). Clean energy buyers will require the power of artificial intelligence (AI) to analyze potential scenarios and future-proof their clean power procurement.

The following case study illustrates how Verse’s Aria software platform helped Heirloom identify the right clean energy goal for its business and, based on this goal, design its optimal clean power portfolio.

“Defining Optimal Clean Power Goals”

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The U.S. Treasury Department has issued its long-anticipated guidanceon IRA 45V – the section of the Inflation Reduction act that deals with the green hydrogen tax credit. 

In the quest for a cleaner and sustainable energy future, green hydrogen has emerged as a promising solution. Hydrogen, when produced using emissions-free energy, becomes “green hydrogen” — a versatile, carbon-neutral source of energy. Governments worldwide are establishing regulations to promote the production of green hydrogen. But to qualify as green hydrogen, the production process must meet specific requirements.

Here’s what U.S. green hydrogen companies need to know about how the proposed rules will impact companies’ clean energy procurement strategies and monetization of the tax credit. 

What Qualifies for a 45V Green Hydrogen Tax Credit in the U.S.?

For hydrogen to be considered “green” (and qualify for the up to $3 per kilogram of tax credits under the IRA), it must be produced using emissions-free energy sources such as wind or solar. Companies are allowed to use on-site renewable generation (e.g., they could install solar panels at their hydrogen production facility) AND/OR use virtual power purchase agreements (vPPA) to purchase emissions-free electricity from renewable generation in a different location (e.g., from a solar farm that is not adjacent to their facility). 

According to the Treasury, the 45V tax credit will be available for “10 years starting on the date that a hydrogen production facility is placed into service for projects that begin construction before 2033.” If you are a green hydrogen producer using on-site or vPPAs to source renewable energy to power your production and you want to monetize the tax credit, your clean energy needs to meet several critical parameters (what climate advocates are referring to as the “three pillars” of clean electricity supply).

1. Green Hydrogen Production Requires Hourly Time Matching

The Treasury’s proposed 45V rules require hourly time matching, or temporal correlation, of renewable energy to green hydrogen production. That means green hydrogen companies will have to match their energy consumption every hour (their hourly load) with clean power supply (e.g., if they use 1MWh from 10-11am on October 1, 2028, they will procure 1MWh of clean power in that same hour).

This requirement will not be immediate. Until the end of 2027, hydrogen companies can match their energy consumption on an annual basis (e.g., if they use 100,000 MWh of energy between January 1, 2027 and December 31, 2027, they match that by procuring 100,000 MWh of emissions-free energy in that same time frame.) Hourly time matching will begin in 2028 and will be required for everyone (e.g., no grandfathered annual matching allowed).

KEY TAKEAWAY: PLAN AHEAD! Although the time-matching condition will be phased in over several years, companies procuring clean power today must plan NOW for hourly time-matching or risk being ineligible in the future (vPPA contract terms are typically 10-20 years) and the lead time from contract execution to delivery is typically 2-3 years. 

2. Green Hydrogen Production Requires “Additionality,” or “Incrementality”

The new proposed production tax credit rules require renewable energy used in green hydrogen production to be “additional,” or “incremental.” That means the energy must come from new renewable projects, not existing ones, explicitly built to serve hydrogen production facilities. The Treasury defines new projects as those that began commercial operation no earlier than 3 years prior to the commercial operation date of the green hydrogen facility. So, if you want to purchase power from a wind farm that commenced commercial operations in 2020 for a green hydrogen facility that begins operating in 2024, that wouldn’t qualify. 

That said, the Treasury is requesting comments on alternative approaches that would allow energy from existing clean power generators to meet the requirements for new clean power under certain circumstances.

KEY TAKEAWAY: START NOW on your clean power procurement. There is a large backlog of renewable energy projects in the U.S. waiting for permits or interconnection. If you want to begin operations in 2025, you need to contract for clean power as soon as possible. 

3. Green Hydrogen Production Requires Geographic Correlation (“Deliverability”)

45V requires that green hydrogen producers’ clean energy be generated and consumed in the same region as the production. If you are producing hydrogen in Louisiana, for instance, you will need to procure your clean energy in the MISO (Midcontinent Independent System Operator) power grid. If you are producing in Texas, you’ll need to procure your energy in the ERCOT grid (Electric Reliability Council of Texas). The Treasury is also requesting comments on possible options for transmission of clean power between regions, which might alter this requirement. 

KEY TAKEAWAY: The regionality principle of the proposed rules will almost certainly affect your clean energy supply options. If you’ve already sited your production facility, you will need to procure clean power from plants located in the same electric grid, which narrows your options. If you haven’t sited your production facility, THINK CAREFULLY about where you could site it to take maximum advantage of the production tax credit.

How to Maximize the 45V Green Hydrogen Tax Credit

With the EU and the US providing clear regulations and financial incentives, green hydrogen companies are poised for both growth and positive environmental impact. The new U.S. rule will help deliver on the promise of green hydrogen – that it can replace polluting fossil fuels without significant additional production-related carbon emissions. But it adds complexity for hydrogen producers, particularly those unfamiliar with clean power procurement. It will be crucial to work with experts and tools that can provide a holistic, data-driven assessment of possible scenarios to deliver the optimal, future-proofed clean power strategy.

By planning ahead, acting now, and thinking carefully about their clean energy procurement strategies, green hydrogen producers can maximize the 45V production tax credit, secure a reliable supply of renewable energy, and manage long-term costs and risk. 

In November 2023, Verse CEO Seyed Madaeni joined Gabriella Gillet-Perez at DatacenterDynamics’ DCD Connect Virginia conference. They discussed data centers’ use of clean power, why clean energy is a smart financial decision (not just a sustainability decision), and some of the challenges data center leaders face when trying to procure it.

You can view the video on DatacenterDynamics’ website.

If you’re unfamiliar with scope 2 decarbonization strategies or need a quick refresher, check out this explainer video! It provides an overview (with examples) of three common strategies — 100% Renewable Energy (RE), Carbon-Matching (aka Emissionality), and 24/7 Carbon Free Energy (CFE).

Decarbonization Strategy #1: 100% RE

In this scenario, a company aims to match its annual power consumption with clean energy. 

For instance, if company A uses 100,000 MWh of electricity between January 1 and December 31, it will purchase 100,000 MWh of clean energy in that same period. 

100% RE involves matching annual energy consumption with an equal amount of renewable energy. Clean energy purchases are not restricted to the grid in which the consumption occurs.

That means a company can purchase renewable energy wherever it’s least-cost, without considering where it operates. For example, Company A, whose operations are in Louisiana, could buy renewable energy from projects in any grid.

Decarbonization Strategy #2: Carbon-Matching

The goal is to match a company’s annual emissions associated with its energy consumption with an equal amount of avoided emissions from its purchases of clean energy.

So, if Company A emits 40,000 tons of carbon in a year, it will procure clean energy that avoids 40,000 tons of carbon emissions over the same period.

Like 100% RE, carbon matching involves annual matching but focuses on carbon emissions rather than megawatt hours of energy. There is no location requirement, BUT location matters as each grid has a different carbon intensity. This approach prioritizes clean energy purchases that are least-cost from an emissions impact perspective. 

For instance, a company pursuing carbon-matching would rather buy solar power in Kentucky than in California because Kentucky’s mostly fossil-fuel grid has a higher carbon emissions intensity than California’s, which has lots of clean energy and thus relatively lower emissions intensity levels. 

Decarbonization Strategy #3: 24/7 CFE

The third goal is 24/7 carbon-free energy (CFE). Unlike the two previous goals, this one involves hourly matching and includes a location requirement. 24/7 CFE aims to match every MWh of a company’s electricity consumption, every hour of every day, with carbon-free electricity sources in the same grid. It is the end state of a fully decarbonized electricity system.

If a company matches 100% of its hourly consumption with CFE, the company would have a CFE score of 100%. 

Which Strategy Is Right for Me?

It can be very difficult to choose from among the various scope 2 decarbonization strategies if you don’t understand the tradeoffs. 

Verse uses software and services to help companies understand the benefits and drawbacks of different goals and determine which the optimal, least-cost strategy based on specific company parameters. Our Aria platform analyzes and illustrates the cost, risk, emissions, and carbon-free energy profile of the various options, and provides precise procurement roadmaps to achieve them. 

2023 witnessed significant strides in the clean energy and climate space. Corporates and institutions continue to drive clean energy adoption. First-of-a-kind deployments came online. And governments took meaningful steps to codify and encourage carbon disclosure and reduction efforts.^[1]

Given Verse’s current focus on the U.S. and EU, we’re restricting this blog to a handful of achievements. Those include legislative developments in California, the Carbon Border Adjustment Mechanism (CBAM) in the EU, and the first round of funding for carbon capture demo projects and clean hydrogen hubs in the U.S. We’ll also explore a few anticipated events, including SEC rule changes for climate disclosures, U.S. Treasury Department rules about green hydrogen, and revisions to the Science-Based Targets initiative (SBTi) and Greenhouse Gas Protocol (GHGP) standards for Scope 1, 2, and 3 reporting.

^[1] The public can access a version of CEBA’s clean energy deal tracker, which “identifies the total annual volume of clean energy procured by energy customers, as well as companies that have led clean energy procurement announcements” here: https://cebuyers.org/deal-tracker/

2023 Clean Energy & Climate Milestones

1. California SB 253 & SB 261

California continued its climate leadership with Senate Bills 253 (the Climate Corporate Data Accountability Act) and 261 (the Climate-Related Financial Risk Act). 

Beginning in 2026, SB 253 requires businesses with more than $1B in revenue operating in California to provide annual Scope 1, 2, and 3 emissions reports. Notably, the law includes an accountability mechanism by requiring companies to provide third-party confirmation of their reports. 

SB 261 requires companies with more than $500M in revenue operating in California to provide public annual climate-related financial risk disclosures (and how they plan to address those risks). 

These laws are important because of their trans-border impact. Companies that meet the legal parameters and wish to do business in California (one of the world’s biggest economies) must comply, regardless of where they are based. The rules also serve as a model for other jurisdictions seeking robust policy frameworks.

2. EU Carbon Border Adjustment Mechanism

The European Union’s implementation of the Carbon Border Adjustment Mechanism (CBAM) in 2023 marked a paradigm shift in global trade dynamics. 

CBAM is the EU’s effort to “put a fair price on the carbon emitted during the production of carbon intensive goods.” The rule imposes carbon costs on certain imports — cement, iron and steel, aluminum, fertilizers, electricity, and hydrogen — to incentivize cleaner production methods and prevent carbon leakage (the transfer of carbon emissions from EU-based facilities to other locations around the world). 

As with the California legislation, CBAM has implications for businesses far beyond the EU’s borders. By internalizing the external cost of carbon, the EU is encouraging businesses worldwide to adopt more sustainable practices, helping foster a race to the top in environmental standards.

3. U.S. Funding for Carbon Capture Demonstrations & Clean Hydrogen Hubs

In 2023, the Biden Administration began awarding $2.5B in funding through the Bipartisan Infrastructure Law for carbon capture demonstration projects. Verse customers Climeworks  and Heirloom were among the 2023 awardees. The Biden Administration also announced a whopping $7B for regional clean hydrogen hubs (H2Hubs) around the country. And it’s not just funding: we’re also seeing deployments. Heirloom announced the first commercial plant in the U.S. to use direct air capture (Climeworks’ project in Iceland began operations in 2021).

Both technologies are still pre-widespread commercial scale, so the government’s financial support will help establish track records, lower costs, and support a cleaner and more resilient energy infrastructure. The International Energy Agency (IEA)’s 2023 Net Zero Roadmap update suggests we can still avoid the worst effects of climate change, in large part due to record growth of clean energy technologies. We should use all tools available, from reducing emissions through clean power procurement to removing carbon dioxide already present in the atmosphere with direct air capture. 

2024 Clean Energy and Climate Predictions

1. SEC Rules on Climate Disclosure

The Securities and Exchange Commission (SEC) is expected to change its rules regarding climate disclosure, which will help reshape corporate reporting. The move towards more standardized and comprehensive climate-related disclosures will empower investors to make informed decisions based on companies’ environmental performance. This shift aligns financial markets with the imperative of addressing climate risks and opportunities — a key catalyst for continued clean energy & climate investments.

2. Treasury Ruling on 45V for Green Hydrogen

The U.S. Treasury was expected this past fall to issue a ruling on Section 45V of the Inflation Reduction Act that addresses financial support for the green hydrogen sector. A large portion of the energy sector is waiting with bated breath for the Treasury to provide guidance on key issues related to tax credits for green hydrogen production.

One of these issues is the concept of additionality, and whether the Treasury will require “green” hydrogen to be produced with clean power that would not otherwise have been built. If the recent leak about the rules is accurate, green hydrogen producers will have to be smart about how they configure their plants to meet clean power goals. That includes not only how they source clean energy, but also how they invest in flexible electrolyzers that can act as grid resources.

3. SBTi Rule Changes & GHG Protocol Guidance Updates

The Science-Based Targets initiative (SBTi) is expected to undergo rule changes in 2024, refining the criteria for setting and validating science-based emission reduction targets. Companies that have committed or are considering committing to science-based targets should keep an eye out for updated rules.

In 2023, the GHG Protocol began the process of updating its corporate standards and guidance for Scope 1, 2, and 3 emissions (direct emissions, indirect emissions from purchased energy, and indirect emissions from the value chain, respectively). So many businesses are seeking to measure, report, and reduce their carbon footprint (for voluntary reasons and to stay ahead of emerging regulations) that the secretariat decided its rules needed a refresh. These updated guidelines, drafts of which are expected in 2024 (with final standards/guidance in 2025), will help foster a more transparent and accountable approach to sustainability.

Clean Energy and Climate Collaboration

As we reflect on the achievements of 2023 and peer into 2024, it is evident that the global community – including corporates and policymakers — is making strides toward a more sustainable and resilient future. The convergence of legislative actions, international collaborations, and financial incentives is paving the way for clean energy & climate progress. Onward and upward as we move into the new year!