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LDES Council

A path towards full grid

decarbonization with 24/7 clean

Power Purchase Agreements

Published in May 2022 by the LDES Council. Copies of this document are available upon request or

can be downloaded from our website: www.ldescouncil.com.

This report was authored by the LDES Council in collaboration with McKinsey & Company as

knowledge partner. This work is independent, reflects the views of the LDES Council, and has not

been commissioned by any business, government, or other institution. The authors of the report

confirm that:

1. There are no recommendations and/or any measures and/or trajectories within the report that

could be interpreted as standards or as any other form of (suggested) coordination between the

participants of the study referred to within the report that would infringe EU competition law; and

2. It is not their intention that any such form of coordination will be adopted.

Whilst the contents of the report and its abstract implications for the industry generally can be

discussed once they have been prepared, individual strategies remain proprietary, confidential and

the responsibility of each participant. Participants are reminded that, as part of the invariable practice

of the LDES Council and the EU competition law obligations to which membership activities are

subject, such strategic and confidential information must not be shared or coordinated — including

as part of this report.

Contents

Acronyms ...............................................................................................................

Preface ....................................................................................................................

Executive summary ...............................................................................................

I. The need for 24/7 clean PPAs ...........................................................................

II. Barriers to 24/7 clean PPAs ..............................................................................

III. Proposed quality assessment framework and implementation ..................

Laying the foundation for a quality assessment of 24/7 clean PPAs ...........

Technology deployment, costs, and decarbonization impact

of quality ratings ................................................................................................

Technical considerations for implementation ................................................

IV. Ensuring impact is captured ............................................................................

V. The path forward ................................................................................................

Appendix A. Modelling methodology ..................................................................

Appendix B. Survey results ...................................................................................

A path towards full grid decarbonization with 24/7 clean Power Purchase Agreements | LDES Council, McKinsey & Company 3

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LDESCouncilApathtowardsfullgriddecarbonizationwith24/7cleanPowerPurchaseAgreementsPublishedinMay2022bytheLDESCouncil.Copiesofthisdocumentareavailableuponrequestorcanbedownloadedfromourwebsite:www.ldescouncil.com.ThisreportwasauthoredbytheLDESCouncilincollaborationwithMcKinsey&Companyasknowledgepartner.Thisworkisindependent,reflectstheviewsoftheLDESCouncil,andhasnotbeencommissionedbyanybusiness,government,orotherinstitution.Theauthorsofthereportconfirmthat:1.Therearenorecommendationsand/oranymeasuresand/ortrajectorieswithinthereportthatcouldbeinterpretedasstandardsorasanyotherformof(suggested)coordinationbetweentheparticipantsofthestudyreferredtowithinthereportthatwouldinfringeEUcompetitionlaw;and2.Itisnottheirintentionthatanysuchformofcoordinationwillbeadopted.Whilstthecontentsofthereportanditsabstractimplicationsfortheindustrygenerallycanbediscussedoncetheyhavebeenprepared,individualstrategiesremainproprietary,confidentialandtheresponsibilityofeachparticipant.Participantsareremindedthat,aspartoftheinvariablepracticeoftheLDESCouncilandtheEUcompetitionlawobligationstowhichmembershipactivitiesaresubject,suchstrategicandconfidentialinformationmustnotbesharedorcoordinated—includingaspartofthisreport.2ContentsAcronyms...............................................................................................................Preface....................................................................................................................Executivesummary...............................................................................................I.Theneedfor24/7cleanPPAs...........................................................................II.Barriersto24/7cleanPPAs..............................................................................III.Proposedqualityassessmentframeworkandimplementation..................Layingthefoundationforaqualityassessmentof24/7cleanPPAs...........Technologydeployment,costs,anddecarbonizationimpactofqualityratings................................................................................................Technicalconsiderationsforimplementation................................................IV.Ensuringimpactiscaptured............................................................................V.Thepathforward................................................................................................AppendixA.Modellingmethodology..................................................................AppendixB.Surveyresults...................................................................................iiiiv171112162129374043Apathtowardsfullgriddecarbonizationwith24/7cleanPowerPurchaseAgreementsLDESCouncil,McKinsey&Company3AcronymsAPIApplicationprogramminginterfacesCapexCapitalexpenditureCO2CarbondioxideEACEnergyattributecertificateEUETSEuropeanUnionEmissionsTradingSystemESGEnvironmental,social,andgovernancegCO2eqGramsofcarbondioxideequivalentGHGGreenhousegasGWGigawattIEAInternationalEnergyAgencyIPCCIntergovernmentalPanelonClimateChangekWhKilowatt-hourLCOELevelizedcostofelectricityLi-ionLithium-ionLDESLongdurationenergystorageMWMegawattMWhMegawatt-hourOpexOperationalexpenditurePPAPowerpurchaseagreementPVPhotovoltaicsRESRenewableenergysourcesSBTiScience-basedtargetsinitiativeTSOTransmissionsystemoperatorTWTerawattTWhTerawatt-hourT&DTransmissionanddistributionUKUnitedKingdomApathtowardsfullgriddecarbonizationwith24/7cleanPowerPurchaseAgreementsLDESCouncil,McKinsey&CompanyiTheLDESCouncilisaglobal,executive-ledorganizationthatstrivestoacceleratedecarbonizationoftheenergysystematlowestcosttosocietybydrivinginnovationanddeploymentoflongdurationenergystorage(LDES).LaunchedatCOP26,theLDESCouncilprovidesfact-basedguidancetogovernmentsandindustry,drawingfromtheexperienceofitsmembers,whichincludeleadingtechnologyproviders,industryandservicescustomers,capitalproviders,equipmentmanufacturers,andlow-carbonenergysystemintegratorsanddevelopers.LDESisdefinedasanytechnologythatcanbedeployedcompetitivelytostoreenergyforprolongedperiodsandscaledupeconomicallytosustainelectricityprovision,formultiplehours,days,orevenweeks,andthathasthepotentialtocontributesignificantlytothedecarbonizationoftheeconomy.ThisreportfocusesoncorporatePowerPurchaseAgreements(PPAs)that,ifproperlydesigned,canbecomeakeylevertocapturethevalueofLDEStechnologiesandacceleratetheirdeployment.Itexcludestheanalysisofothercomplementarymeasuressuchasregulatoryinstruments,newmarketdesigns,orfinancialincentives.ThesetopicswillbecoveredinupcomingLDESCouncilreports.ThefollowingorganizationsformtheCouncil(Exhibit1).Exhibit1LDESCouncilmembersEquipmentmanufacturersCapitalprovidersIndustryandservicescustomersAnchorsTechnologyprovidersLow-carbonenergysystemintegrators&developersPrefaceThereporthasbeenpreparedbythemembersoftheLDESCouncilincollaborationwithMcKinsey&Companyasknowledgepartner.Apathtowardsfullgriddecarbonizationwith24/7cleanPowerPurchaseAgreementsLDESCouncil,McKinsey&CompanyiiAnewformofPowerPurchaseAgreement(PPA)—the24/7cleanPPA—promisesdramaticincreasesintheeffectivenessofemissionreductioneffortsinthepowergenerationsectorandforcorporateoff-takers.24/7cleanPPAshavethepotentialtoaddresskeyproblemsinbalancingsupplyanddemandforpowerasrenewablescontributeanincreasingproportionofgenerationcapacity.Intheprocesstheycanhelpprovidersandoff-takersacceleratetheoveralldecarbonizationofthepowersector.24/7cleanpowerPPAsmeasureelectricityconsumptionandgreenhousegasemissionsonagranularbasis—e.g.,bythehour—andprovidetime-matchedcleanpower.Theyrepresentanimprovementfromtoday’sscope2decarbonizationwithpay-as-producedrenewablePPAs,whichbalancesupplyanddemandonanannualbasisandonlyachieve40—70%decarbonization1oftheoff-taker’sactualelectricityconsumption.Time-matchedcleanpowerprovidedthrough24/7cleanPPAsaddressesbothproblemsbyusingacombinationofrenewablesandflexiblecapacitytocreateamoregranularmatchbetweenrenewablessupplyanddemand.Currentbarrierstowideradoptionof24/7cleanPPAsincludecostandalackofagreedstandards,butthesecanbeovercome.Achieving100%actualdecarbonizationwithtoday’sstoragetechnologyisoftenconsideredtobeprohibitivelyexpensiveasthelevelizedcostofelectricityfromawind/solarandlithium-ion(Li-ion)hybridsystemexceeds200USDperMWhinmostregions.Butsolutionsbasedonnovelenergystoragetechnologieslikelongdurationenergystorage(LDES)areexpectedtoreducethecostof24/7renewablepowertobelow100USDperMWhinthenearfutureifdeploymentaccelerates.24/7cleanPPAsareanessentialnon-regulatorytooltosupportthisaccelerationbyenablinginvestmentsinclean,dispatchablecapacitythatwilldrivedowncosts.Theindustrycanacceleratedecarbonization1Rangeestimatedbasedonasolar/windgenerationprofileandbaseloaddemand;actualdecarbonizationimpactdependsontheloadshapeandmarket-specificemissionsintensity.byapplyingastandardizedassessmentallowingfordifferentlevelsofambition;tothisend,aqualityassessmentframeworkwithinwhichtheindustrycandefineasetofstandardsfor24/7cleanPPAsisproposedinthisreport.Thiswillestablishapathwayto24/7cleanPPAswithincreasinglevelsofcleansupply-demandmatching.“EntryLevel”24/7cleanPPAsaredefinedtohavelowentrybarriersandcostintherangeoftoday’saveragepowermarketpricesinmanyregions(around70USDperMWh),whichshouldaccelerateadoption.Attheotherendofthescale,“Platinum”PPAsrepresentthehighestambitionlevel(approaching100%cleansupply-demandmatching)andaredesignedforthoselookingtoacceleratedecarbonizationandtechnologydeployment:thecostlevelsofthosehigh-quality24/7cleanPPAsisexpectedtodeclineby30—40%overthenext10yearsastechnologymaturesandscaleincreases,closingthegaptomarketprices.Tomaximizedecarbonizationimpact,24/7cleanPPAswouldbenefitfrombeingofficiallycertifiedbyanindependentorganizationbasedonup-frontvalidationofcontracttermsand/orproposedsizingofthedesignatedassets.Inaddition,continuousvalidationoftheactuallevelofcleansupply-demandmatchingthroughoutthePPAlifetimeensuresconsistentexecution.Theassessmentshowsthatfullcleansupply-demandmatchingisnotalwaystheoptimaltarget:thecompromisebetween24/7loadmatchingandsystem-leveldecarbonizationwouldneedtobecarefullyconsideredwhenstructuringthecontracts.Acaseexampleshows10—30%costreductionpotentialandanupliftofaround100%system-levelCO2abatementwhendispatchispartlybasedonpowermarketpricesandhourlymarginalgridemissionsfactors.Thisshowsthatdeviationsfromconsumers’24/7loadmatchingcanunlocksystem-levelbenefitsandavoidsub-optimalsolutionsthatmayemergefrom100%loadmatchingforeachoff-taker.KeymessagesofthereportApathtowardsfullgriddecarbonizationwith24/7cleanPowerPurchaseAgreementsLDESCouncil,McKinsey&CompanyiiiTherisingshareofrenewablepowerintheglobalgenerationmix-drivenbytheneedtoreducegreenhousegas(GHG)emissions—hascreatednewchallengesinmanagingelectricitysupplyanddemand.Inparticular,theinherentintermittencyofwindandsolarpowercreatesaneedtobalancesupplyanddemand,forexamplebyusingfossilfuelpowertofillgaps.Thesearchisonforasolutionthatwillfurtherreducetheneedforfossilfuels,increasedecarbonization,andimproveriskmanagement.Oneansweris24/7cleanPowerPurchaseAgreements(PPAs).Today’sstandardrenewablesPPAsenablenewcleangenerationcapacitybutdonotsupportfullsystemdecarbonizationduetoatemporalmismatchbetweengenerationanddemand•Ascompaniesaspiretodecarbonizetheiroperations,corporaterenewablePPAvolumesareincreasing.•AlthoughthesePPAsdrivethedeploymentofnewrenewablescapacity,theydonotleadtofullgriddecarbonizationasthecarbonaccountingforenergyprocuredisinsufficientlygranular:matchingsupplyanddemandonanannualbasisissufficienttoclaimfulldecarbonizationofpowersupplyaccordingtocurrentcarbonaccountingstandards,whileinrealityonly40—70%2ofemissionsareaddressedduetoatemporalmismatchbetweenrenewablessupplyandoff-takerdemand.•Current100%renewablepay-as-producedPPAsalsodonotfullyhedgepricevolatilityriskfortheoff-taker,whichisaccentuatedbyhighpenetrationofvariablerenewableenergysourcesandvolatilityofcommodityprices.2Rangeestimatedbasedonasolar/windgenerationprofileandbaseloaddemand;actualdecarbonizationimpactdependsontheloadshapeandmarket-specificemissionsintensity.3BasedonCAISO(CaliforniaIndependentSystemOperator).•Whiletherearemultiplesolutionsthatcanaddressboththesechallenges,24/7cleanPPAsareamongstthemostimmediatelyimpactfulastheseonlyrelyonacontractualrelationshipbetweenbuyerandPPAprovider.Lackofstandardsandhighcostpremiumrelativetoaveragepowermarketpricesarekeybarrierstodeploying24/7cleanPPAstoday•Lackofstandards:Thelackofindustry-agreeddefinitionsof24/7cleanPPAscreatesasignificantbarriertoconsistentlyrewardingplayersthatprocure24/7cleanpower.•Cost:24/7renewablesprocurementwithcleansupply-demandmatchingbasedonLi-ionstoragecomesatasignificantcostpremium(forexample,intheCaliforniacaseexample3thecostwouldincreasebymin.5xcomparedtoaveragepowermarketprices).LDEShasthepotentialtosignificantlylowerthiscostpremium;however,morewidespreaddeploymentofthesetechnologiesisneededtodrivedownthecostcurve.AstandardizedqualityassessmentframeworkcanhelprewardindustryplayerstomovebeyondstandardPPAs,whiledifferentqualitylevelshelptosupportaffordability•PPAprovidersandbuyerswouldbenefitfroma24/7cleanPPAsbenchmarkbasedonastandardizedassessmentframeworkandclassifydifferentqualitylevelstoensurethatdecarbonizationleadersgettheappropriaterecognition(e.g.,foraddingnewcleancapacityonthegrid).•Attentionneedstobepaidtofivequalitydimensions:thelevelofcleansupply-demandmatching,timegranularity,geographicalgranularity,andadditionalityofrenewablesandflexibleorcleandispatchablecapacity.ExecutivesummaryApathtowardsfullgriddecarbonizationwith24/7cleanPowerPurchaseAgreementsLDESCouncil,McKinsey&Companyiv•Giventhatcorporates’procurementstrategiesvarybasedondecarbonizationandriskappetite,severalqualitygradesareproposedwithprogressivelyhigherrequirementstoencouragecompaniestogobeyondpurehedgingstrategiesandaimforgreatersystemdecarbonizationimpact:−EntryLevelaimstolowerbarriersforenergy-intensiveuserstoadopt24/7cleanPPAs.Basicrequirementsincludeaminimumof80%cleansupply-demandmatchingandone-hourtimegranularity,withassetsandloadtobeinthesamebalancing/biddingzone;−Silverisdesignedforplayersthatseektofurtheracceleratethetransitionandsupportnewcapacitydeployment:thisincludesrequirementssuchasadditionalityofrenewablesandflexiblecapacity;−GoldandPlatinumlevelssethigherambitions,withGoldrequiringaminimumof90%supply-demandmatchingandPlatinumcallingformatchinghigherthan98%.Today,24/7cleanPPAscomeatapremium,butcostlevelsareexpectedtobecomecompetitiveastechnologycostscomedownduetoscalingofnovelflexibilitytechnologies•By2025,meetingthe“Silver”qualityrating(minimumsupply-demandmatchingof80%)impliesonlya10—15%cost-premiumrelativetotoday’saveragewholesalemarketpriceandcleanpowercertificates(basedona2021CAISOexample,whichwouldresultinaSilverPPAcostofaround70USDperMWh).ForPlatinumrequirementswith100%supply-demandmatching,theestimatedcostpremiumwouldriseto40—50%.•Inaddition,overtime,24/7cleanPPAcostsareexpectedtodecreaserapidlyduetoprogressintechnologymaturity,scaleeffects,andfurtherimprovedeconomicsasflexibilityassetstapintoadditionalrevenuestreams:technology-relatedcostaloneisexpectedtodeclineby30—40%overthenext10yearsforPlatinumPPAs.•Achievingattractivecostlevelsfor24/7cleanPPAsolutionsrequiresoptimizationofthetechnologymix,ideallyusingaportfolioofwindandsolarpowerasthegenerationsources.Theanalysisshowsthatusingsolar-onlygenerationcanleadto3timeshighercostofelectricitycomparedtoasolar-wind-hybridsetupincaseofabaseloaddemandprofile.Ingeneral,thecorrelationbetweenloadshapeandavailablerenewablesupplyisarelevantcostdriver.Forexample:switchingfromabaseloadprofiletoatypicalofficeloadprofilecouldimplyacostincreaseofaround25%inawind-dominantregionliketheUnitedKingdom(UK),andacostdecreaseofaround5%inasolar-dominantregionlikeCalifornia.Insomemarkets,CO2impactandcostwouldbenefitfromoptimizeddispatchpatternsnotfocusingonload-matching.Toincreaseattractivenessandconsistency,24/7cleanPPAswouldneedtobeofficiallycertifiedbyanindependentorganizationbasedonvalidationofcontracttermsand/orproposedsizingofthedesignatedassets•Theassessmentshowsthatoftenthereisacompromisebetweenfullcleansupply-demandmatchingandsystemdecarbonization.Iftheoperatorhastheoptiontooptimizedispatchbasedonpowermarketpricesandhourlygridemissions,costscanbereducedby10—30%andsystem-levelCO2abatementincreasedbyaround100%.Thisispossiblethroughmarketarbitrageandsurplusgenerationoptimizationinmarketswheremarketpricesandemissionsintensityarehighlycorrelated.Thus,oncethesystemhasbeendesignedandcertifiedoff-takerscouldconsiderloweringtheload-matchingconstraint,e.g.,to80—90%,toamplifysystem-levelimpactwhilekeepingthePlatinumrating.Apathtowardsfullgriddecarbonizationwith24/7cleanPowerPurchaseAgreementsLDESCouncil,McKinsey&Companyv•Itisproposedthatanindependentcertifyingbodyassesses24/7cleanPPAstoassignaqualityratingfortheirpublicannouncement.Twomajoroptionsexisttoverifythat24/7cleanPPAcontractsadheretoacertainqualitystandard:−Contractualobligationsfortheprovidertodelivercleanpowerconsistentlywiththecertifiedqualitylevel,andclearprovisionsintheeventofnon-delivery.−ModelingthedesignatedPPAcapacityagainstastandardizedsetofweatherdatatoensuresystemdesigncanmeettherequirements.•Hourlytrackingofthedemandandsupplycouldbecarriedouttocertifythecontractualtermsarebeingmetandtodemonstratesystemimpact.Furthermore,playersmayalsochoosetooptimizeemissionsbytrackingthemarginalcarbonintensityofthegrid.Fiveactionscouldsupportthewidespreadadoptionof24/7cleanPPAs:•Establishmentofanagreedinternationalframeworkoverseenbyanindependentgovernancebody;•Creationofincentivestospurwidercorporateadoption,forexamplethroughinclusionof24/7PPAsincarbonaccountingstandards;•Developmentofatransparentdataecosystem,withsupportiveregulation;•Creationofsupportiveregulationstoeliminatebarriersandcatalyzedeployment;•Definitionofmeasuresthatlowerbarrierstoentryforsmallerandlesssophisticatedcorporateplayers,includinginnovativebusinessmodelsthatenableassetsharingandtheinvolvementofintermediariesoraggregatorplatforms.Apathtowardsfullgriddecarbonizationwith24/7cleanPowerPurchaseAgreementsLDESCouncil,McKinsey&CompanyviWhatareCorporatePPAs?CorporatePowerPurchaseAgreements—PPAs—arelegally-bindinglong-termcontractsbetweenasellerandabuyerthatdefineallthecommercialtermsforthepurchaseofelectricity.Thebuyer,alsocalledoff-taker,isusuallyacommercialorindustrialend-consumer,butcanalsobeagovernmententity.InrenewablesCorporatePPAs,theelectricityisobtainedfromrenewablesourceslikesolarorwind.AnnouncedrenewablesCorporatePPAsannually1GWSource:BNEF1.On-sitePPAsexcluded.APACvolumeisanestimate.Pre-reformPPAsinMexicoandsleevedPPAsinAustraliaareexcluded.2.Excludes2021dataWhatarethemostcommonset-ups?Therearethreeprincipalvarieties:On-siteorbehind-the-meter,physicalandvirtualorfinancialPPAs.Theydifferinhowthepowerisdeliveredtothecorporate.Currently,themajorityoftransactionsintheUnitedStatesarevirtualPPAs,whileEuropehasabroadermixoftransactions.AcommonalternativeversionofPhysicalPPAsareSleevedPPAs,whereanintermediaryutilityprovidesthe“sleeving”service.EnergyAttributeCertificates(EACs)Theyofferproofofthesourceofenergybycreatingauniquecertificatethatrepresenttheenvironmentalattributesofonemegawatt-hour(MWh)ofsuppliedpower.Theycanbeunbundledfromtheelectronsandtraded.Onshorewind2Solar2~45%~55%20212017181920AmericasEMEAAPAC614202531<1%UnknownPowerPurchaseAgreements101Apathtowardsfullgriddecarbonizationwith24/7cleanPowerPurchaseAgreementsLDESCouncil,McKinsey&CompanyviiWhatarethemostcommonstructures?ThemosttypicalPPAstructuresare:pay-as-produced,shaped,baseload,andas-consumed.Inpay-as-producedPPAs,theoff-takerbuysthegrossgenerationfromtheassets,therebybearingthepricerisk.Becauseofthis,theremainingthreestructuresareincreasinglyindemand.Inthesecasesthesellerhastosettlethedifferencebetweenthepowerproducedandtheload—currentlytransparencyonthesourceofthepowerfillingthegapisquitelimitedandmaybesourcedfromfossil-basedflexibilitysources.On-site/Behind-the-meterVirtual/FinancialAgreedpriceElectricityFinancialflowOptional:energyattributecertificates(EACs)ContractforDifference(adjustmentbetweenagreedPPApriceandmarketprice)Powermarket-corporatedoesnottakephysicalpossessionoftheelectronsfromtheassetMarketpriceMarketpricePhysicalPowerneedstobesettledbythebalancingauthorityAgreedpriceAlternative:Sleeved/RetailAthird-partyutilitycompanyhandlespaymentandpowertoandfromtherenewableenergyprojecttothebuyer,onbehalfofthebuyerDescriptionIthasahigherpriceriskfor…BuyerSellerContractedPPAvolumeShapedBaseloadAs-consumedPay-as-producedPowersupplyDemandTheconsumerbuysthegrossgenerationfromtheassets.Thesellerconvertsthegrossgenerationfromtheassetsintoafixedshapeoverayear.ThePPAvolumeistheactualoff-takerdemand.Thesellerconvertsthegrossgenerationfromtheassetsintoamonthly/annualbaseloadvolume.Thebuyer,asthegenerationfromtherenewableassetsisnotfullypredictable.Theseller,asithastosettlethedifferencebetweenactualvolumeproducedandthefixedshapeatthemarket(resultinginagainorcost).Theseller.OnlysellerswithalargegenerationportfolioandflexibilityassetscanofferthistypeofPPA.Theseller,asithastosettlethedifferencebetweenactualvolumeproducedandthebaseloadatthemarket(resultinginagainorcost).Apathtowardsfullgriddecarbonizationwith24/7cleanPowerPurchaseAgreementsLDESCouncil,McKinsey&CompanyviiiI.Theneedfor24/7cleanPPAsWhilecurrentrenewablesPPAsdrivethedeploymentofnewsolarandwindgenerationcapacity,theyonlyaddresstheannualsupply-demandbalanceanddonotincentivizefullgriddecarbonization.CurrentrenewablesPPAshavehelpedtounlockprivateinvestmentintonewcleancapacityRenewablespowerpurchaseagreements(PPAs)areakeymechanismfordeployingnewrenewableenergysources(RES)projects.Fromthestandpointoftheenergyseller,theyenablethegenerationplanttoseekfinancingfromcapitalmarkets(e.g.providingtheprojectwithbankability);fromtheperspectiveofenergybuyers,theyenablecorporatesandmajoroff-takerstomeettheircleanelectricitytargetsandobligations.RESPPAsareakeyleverforbusinessesaimingtodecarbonizetheirScope2emissionsfrompurchasedelectricity,heat,andsteam.WhencorporatescontractrenewablePPAs,theybuypowergeneratedfromcarbon-freeassetsaswellastheassets’correspondingEnergyAttributeCertificates4(EACs),whichthecompaniesthenuseintheircarbonaccountingtodemonstratecleanpowerconsumption.TheRE100initiative,withover300membersacross175marketsthathavepledgedtouse100%renewableelectricity,isanotableexampleofthistrend.4OneEACrepresentstheenvironmentalattributesofaonemegawatthour(MWh)ofenergyproduced.5EACscanberedeemedupto12monthsaftertheproductionoftheelectricityunit,andcanbeusedwithincertainmarketlimitsthatarenotalwayslinkedtothegridareaintowhichthepowerisinjected.6Basedon:hourly,averagegridemissionsandsolarandoffshorewindgenerationdataforGermany(2021)anda100MWdemandwithabaseloadprofile.7Excludessupplychainemissions.However,eventhoughcompaniesuse100%renewablePPAstoprocuresufficientrenewablepowertocovertheirannualconsumption,thehour-by-hourloadsaretypicallyco-suppliedbyfossilassetsDuetothevariablenatureofRES,intheabsenceofcleanflexibilitysolutionsormassivecapacityoverbuilding,renewablescanonlycoverafractionofaconsumer’sloadprofile.Whenthesupplyofwindorsolarpowerdropsbelowtheload,thegapisusuallyfilledbypowerderivedfromamixofrenewableandfossilsources.Conversely,whenthesupplyexceedsload,businessessellthesurplusRESbacktothemarket.However,sinceEACscanbetemporallyandphysicallyunbundledfromtheelectricitysupply,5corporatescanusetheEACsfromperiodsofsurplusREStooffsettheiremissionswhenthereisnowindorsun.Consequently,businessesmatchingtheirannualloadwithRESpay-as-producedPPAs(i.e.,100%renewablePPAs)donotaccuratelyaccountforthetimingofemissionsandcurrentlyhavelittleincentivetodoso.Forexample,consumersprocuringasolaroroffshore/onshorewindpay-as-producedPPAmatchingtheirannualloadinGermanyorCaliforniaareactuallybeingsuppliedbycarbon-emittingelectricityduringrenewables‘under-supply’periods.Ifaconsumerhasabaseloadprofilesimilartothatofadatacenter,itsresultingaverageannualcarbonintensitywouldbeabove200gCO2eqperkilowatt-hour(kWh)consumedforasolar-basedPPA,andmorethan110gCO2eqperkWhforawind-basedPPAinbothlocations.6Thiscreatesamismatchwiththedirectemissionsreportedundercurrentaccountingrules,whichwouldbe0gCO2eq7inthiscase(Exhibit2).Apathtowardsfullgriddecarbonizationwith24/7cleanPowerPurchaseAgreementsLDESCouncil,McKinsey&Company2Inadditiontodecarbonizationsolutions,off-takersneedsolutionsthatreducetheirexposuretoincreasedpowerpricevolatility,resultinginpartfromincreasedrenewablespenetration.Current100%renewablePPAsdonotfullyhedgepricevolatilityrisk,whichisaccentuatedbyhighpenetrationofvariableRESandvolatilityofcommoditypricesAllocatingthevariousrisksisacriticalcomponentofthePPAnegotiations.Thecontract’sstructurelargelydeterminesthatriskallocation.Inabaseloadstructure,thePPAprovidertypically8CarbonPulseanalystpoll(dataasofQ12022).bearsthepriceriskasithastosettlethedifferencebetweentheactualvolumeproducedandthebaseloadwiththemarket.Onthecontrary,inpay-as-producedPPAs,theoff-takerisliableforcomplementingitsPPApurchasefromthemarketatperiodsofunder-supply.InmarketswithhighRESpenetration,thepricepeaksatperiodsoflowrenewableproductiontendtobehigherbecausetheclearing—ormarket—priceisoftenaugmentedbystrategicbiddingofthermalgenerationownerstohelpthemrecovertheirinvestment.Increasingcarbonpricesincreasethecostsevenfurther:thepriceintheEuropeanUnionEmissionsTradingSystem(EUETS)isexpectedtogrowby40%by2030,toaround110EURpertonofCO2onaverage.8Exhibit2Emissionsof100%annualmatchingPPAsthatusesunbundledrenewablecertificatestocovergridconsumptionsEmissionsintensityofdifferentpowerprocurementoptions1gCO2eq/kWh1.Basedon2021averagegridemissionsandRESgenerationdataforGermanyandCalifornia.EmissionsintensityofthegridandwindPPA:lowerrangeappliestoGermany(offshorewind),andupperrangetoCalifornia(onshorewind).EmissionsintensityofsolarPPA:lowerrangeappliestoCalifornia,upperrangetoGermany.350-380200-210110-120Wind:60-70%realemissionsreductionSolar:40-50%realemissionsreductionGridaverage100%solarpay-as-producedPPA100%windpay-as-producedPPA0gCO2eq/kWhreportedReported:100%emissionsreductionAbaseloadwitha100%solarorwindPPAmatchingannualconsumption,wouldstillhaveacarbonintensityof200-210or110-120gCO2eq/kWhrespectively.Reportedemissions,however,are0gCO2eqperkWhconsumed.Theoff-takerusesthesurplusenergyattributecertificatesfromtimesofwindorsolarover-supply,tocompensateemissionsfromgridconsumptionduringtimesofunder-supply.Apathtowardsfullgriddecarbonizationwith24/7cleanPowerPurchaseAgreementsLDESCouncil,McKinsey&Company3Asaresult,playersarebecomingexposedtoincreasingmarketpricefluctuationsandperiodsofhighprices.Inthecaseexampleshownbelow,withbaseloadconsumptionunderapay-as-producedPPAmatchingitsannualconsumption,theloadwillbeexposedtomarketpriceswhentheoffshorewindisnotsufficienttocovertheconsumption.ThePPAdoesnothedgetheoff-taker’sexposuretomarketpricefluctuations(Exhibit3).Exhibit3Caseexampleofabaseloadwithapay-as-producedoffshorewindPPA,hourlyprice,andpowersupplycomponents1.BasedonmarketpricedataandoffshorewindcapacityfactorsofGermany,22.12.2021.PriceUSD/MWhHourlypricepaidforabaseloadwithanoffshorewindpay-as-producedPPAinGermany120212000400600PPApay-as-producedfixedpriceMarketprice1PowerMW150500100164Hour62810121418202224SourcedfrommarketWindsupplyLoad300050100150250200350Hour24264168101214182022SourcedfrommarketCoveredbyPPAFinalpricepaidUSD/MWhSolutionsexisttodaytominimizeexposuretoelectricitypricevolatilityviariskmanagementproducts.However,notallapproachesreduceemissionsPlayerscanhedgepriceriskthroughcommoditymarkets.Bothbuyersandsellerscanmanageriskonthesemarketsbytradingonenergyexchanges:forexample,byleveragingFutures,Forwards,SwapsorhourlyOptionstominimizepricerisk.However,theseproductsdonoteffectivelyaddressthedecarbonizationissueasoff-takerscanstilldecoupletheircarbonaccounting(e.g.,viaEACs)fromtheiractualelectricityprocurement.Thismayresultinlowerenvironmental,social,andgovernance(ESG)ratingsduetoalackofdirectlinksbetweenelectricitysupplyandconsumption.Whileothersolutionscanaddressgriddecarbonizationandmarketriskchallenges,24/7cleanPPAsareamongstthemostimmediatelyimpactful.Apathtowardsfullgriddecarbonizationwith24/7cleanPowerPurchaseAgreementsLDESCouncil,McKinsey&Company424/7cleanPPAsincreasethedecarbonizationimpactofcleanelectricityonthegridandreducethemarketriskforcorporatesAsolutiontothedecarbonizationandmarketriskschallengesis24/7cleanpowerprocurement.Purchasinground-the-clockcleanelectricityprimarilyacknowledgesthattemporalitymatterswhenitcomestocleanelectricitygeneration.24/7cleanPPAsareakeyinstrumentinthisregard,astheyfocusonsupplyingsufficientcleanpowertomatchtheactualloadandincentivizeinvestmentsinenablingtechnologies.24/7cleanPPAs:•Haveahigherdecarbonizationimpactthancurrent100%cleanannual-matchingPPAs:24/7cleanPPAsswitchtheemphasisfromelectricityemissionsoffsets(mainlythroughunbundledEACs)totime-monitoredpowerprocurementbundledwithEACs.ThehighertemporalgranularityofthesePPAsresultsinanincreaseddecarbonizationimpact,asitdrivesnewcleansupplyatthehardest-to-decarbonizetimescurrentlyservedbynon-cleanassets.•IncentivizethedeploymentofenablingcleanflexibilitysolutionslikeLDES:Atime-stampedcleanpowerprocurementcapturesthevalueofflexibilitysolutionslikeenergystorageordemand-sidemanagement(e.g.,electrolyzers),andenablestheirmonetization.Theearlydeploymentofthesesolutionsiskeytoacceleratingtheirlearningcurvesandensuringthetimelydecarbonizationofpowersystemsatthelowestcosttosociety.Furthermore,theysupportamoreefficientsystemwithlowerRESoverproduction.•Mitigatetheincreasingmarketrisksforoff-takers:Theyprovidelong-termrevenuecertaintyforPPAproviders,whilemitigatingcostrisksforoff-takerscausedbyincreasedmarketvolatilityandreducinghedgingcosts.Furthermore,theyensurethatcompanies’statementsondecarbonizationimpactaretraceable,validatingclean,time-matchedpowerconsumptionclaims.Lastly,bygivingoptionsthatcanbeimplementedtoday,versionsof24/7PPAscanhelpmitigateriskofcompaniesfacingfuturetime-matchedprocurementrequirementsthataredifficulttomeet.Exhibit4AssessmentofPPAimpactonnewcapacity,pricerisk,anddecarbonizationDeploymentofnewcleandispatchablecapacitydisplacingfossilpeakersDeploymentofnewrenewablecapacity2Decarbonizationimpactonthegrid3Reductionofplayers’exposuretopriceriskPay-as-producedPPAs124/7cleanPPAsWeakMediumMediumStrongStrongWeakImpactassessment1.Matching100%oftheloadwiththesupplyonanannualbasis.2.Assumescontractswithadditionalityrequirement.3.Dependsonthedispatchstrategyandonwhethertheassetsareoperatedtomaximizerevenues,load-matching,orcarbonimpact(seeChapters3and4formoredetails).Apathtowardsfullgriddecarbonizationwith24/7cleanPowerPurchaseAgreementsLDESCouncil,McKinsey&Company55Otheroptionstoincreasedecarbonizationincludenewmarketdesigns,ortransmissionanddistribution(T&D)infrastructurebuild-out.However,thesewouldlikelytakelongertoimplementastheyrequirealignmentonthepartofalargerstakeholderpoolAwiderangeofotherdecarbonizationandmarketriskmitigationleversarealsoavailable.Carbonmarketsandcarbonaccountingstandards,suchastheGHGProtocol,areexamplesofexistingsolutionstodecarbonizeeconomies.T&Dexpansionandnewmarketdesignscanalsohelptodecarbonizethepowersystemandsmoothoutpricepeaks.Forinstance,T&Dreinforcementreducesgridcongestionrisks,andtechnology-specificcapacitymarketscapturethevalueofnewflexibilitycapacitydeployedonthegrid,reducingpricevolatilityandtheneedforfossil-fuelalternatives(e.g.,gaspeakingplants).Acombinationoftheseinstrumentswillcontributetothefulldecarbonizationofpowersystems;however,theirimplementationlikelyrequiresthealignmentofalargerstakeholdergroup,whichcanincreasetheeffortandtimerequiredforimplementation.Apathtowardsfullgriddecarbonizationwith24/7cleanPowerPurchaseAgreementsLDESCouncil,McKinsey&Company6II.Barriersto24/7cleanPPAsAlthough24/7cleanPPAscontractsarebeingincreasinglyannounced,somebarrierstotheirwidescaleadoptionremain.Therearefivemajorbarriers,perceivedasveryrelevantbyindustryplayers(seeAppendixB:SurveyResponses):thelackofflexibilitytechnologies,thelackofcarbonaccountingincentivesandinternationalcertificates,thelackofstandardizationof24/7products,andtheircostpremium.Thelackofflexibilitytechnologies(e.g.,large-scalestorage,hydrogen)isdiscussedextensivelyinthisreportandinpreviousLDESCouncilpublications.Howtoovercomethelackofcarbonaccountingincentives(e.g.,scope2emissionsofGHGProtocol)andthelackofinternationalcertificateschemes(suchasrenewableenergycertificatesorguaranteesoforigin)withhighertemporalresolutionisdescribedinChapterV.Thischapterexplorestheremainingtwobarriers:thelackofstandardizationofPPAproductsandqualityaswellasthecostpremium.Thelackofindustry-aligneddefinitionsof24/7cleanPPAscreatesasignificantbarriertoconsistentlyrewardingplayersthatsupplyandprocure24/7cleanpowerThebenefitsof24/7cleanPPAsforthegridarenotable,andassuch,theyaregainingtractionintheindustry,withafewkeyplayersalreadycommittingtoround-the-clockcleanenergyprocurement.TheUnitedNations’24/7Carbon-FreeEnergyCompactisanoteworthyexampleofajointeffortbyprivatecompaniesandpublicorganizationstoadvocateforsuchsystemicchange.However,thelackofcommonunderstandingoftheseinstrumentsisasignificantbarriertotheirwideradoption.Whatdoes“24/7”mean?Howabout“cleanpower”?Whatis“bestpractice”?Todate,severalquestionsacrossasetofkeydimensionsremain,namely:•Actualdefinitionof24/7:whatistheminimumacceptedlevelofcleanpowerthathastobesuppliedforeachunitofactualdemand?Considerationsaroundextremeweathereventsandcleanpowersourcedfromthegridshouldalsobediscussed.•Technologypool:whichcleananddispatchabletechnologiesapartfromREScanbeconsidered?ThepoolincludesLDES,hydrogenturbines,geothermalpower,smallnuclearreactors,demand-sideflexibility,andsoon.•Cleancapacityadditionality:whataretherequirementsoninvestmentsintocleangenerationprojects,especiallyinthecaseofnewloadsbeingconnectedtothegrid?•Timegranularity:whatisthemaximumtimewindowwhencleansupplymustmatchtheload?Hourlytimestepsarethemoststandardizedacrossmarkets,however,somemarketshaveintroducedshortersettlementperiods(e.g.,5minutesinAustralia).•Geographicalgranularity:whatarethelimitsforthelocationoftheloadandthepowersupply?•Furthersystemimpact:whichcomplementaryaspectsthatfurtherdrivegriddecarbonizationandoptimizationcanbeconsidered(e.g.,impactongridstabilityandreliability)?Apathtowardsfullgriddecarbonizationwith24/7cleanPowerPurchaseAgreementsLDESCouncil,McKinsey&Company8Alackofacommonlanguageandagreementonthesedimensionshasimportantconsequencesforsuppliersandbuyersalike.Itlimitsinvestors’andcapitalmarkets’abilitytorecognizeandrewardplayersthatwanttogofurtherthancarbonoffsetstoincreasetheirdecarbonizationimpact,anditfailstorewardplayersthatgoaboveandbeyondtheminimumrequirementsbydrivingtechnologicalinnovationandmakingiteasierforsocietytodecarbonize.Currentcommercialstoragetechnologiesrequiresignificantrenewablesoverbuildandpricepremiumstoprovidea24/7cleanpowersupplyLithium-ion(Li-ion)batterieshavealimitedabilitytoprovidelong-durationflexibilityeconomically.Giventhatrenewablesoutputcanbereducedforseveralhours,sometimesdays,solutionsbasedsolelyonRESandLi-ionareinsufficienttocost-effectivelycoverhighlevelsoftime-matchedprocurement.Forexample,thelevelizedcostofelectricity(LCOE)in2025ofasystemdesignedtoprovide100%supply-9“Net-zeropower;Longdurationenergystorageforarenewablegrid,”LDESCouncil,2021.demandmatchingwouldbe90-130%higherifthestoragewasprovidedonlybyLi-ionratherthanalsobyLDES(Exhibit6).Asshown,withhigherlevelsofmatching,above80%,LDESbecomeskeytoreducingtheoverallcost.Furthermore,thereisaneedtode-riskpotentialpricevariationsandsupplychainconstraintstoLi-ionbatteriesusedforstationaryapplications,sinceelectricvehiclesrepresentthevastmajorityofbatterydemand.LDEStechnologieshavethepotentialtoenablecost-effectivesolutionsandde-riskinvestments;however,theyarestillintheearlystagesofdevelopmentandhavetobedeployedtoacceleratelearningcurves.By2040,LDEStechnologiesneedtohavedeployed1.5—2.5terawatts(TW)orpowercapacityand85—140terawatt-hours(TWh)ofenergycapacity9torealizetheircost-reductionpotential.Exhibit5Keydimensionsofa24/7cleanPPAInvestmentsintonewrenewableenergycapacity,toacceleratetheirdeploymentandthereplacementoffossilassets.RenewablesadditionalityCleanpowerthatissuppliedforeachunitofdemand,measuredatgranulartimeintervals(e.g.,1hour).Investmentsintonewflexibleordispatchablecapacitytoenabletheuseofcleanpoweratalltimes,alsowhenthesunisnotshining,andthewindisnotblowing.CleanflexibilityadditionalityLimitsforthelocationofthepowersupply,flexibility,anddemandtoensurelocaldecarbonizationimpact.GeographicalgranularityMatchingofcleanpowersupplyanddemandTimegranularityApathtowardsfullgriddecarbonizationwith24/7cleanPowerPurchaseAgreementsLDESCouncil,McKinsey&Company9Exhibit6LDESiskeytoreducingthecostsathighlevelsofmatching1.Basedonmodellingabaseloadinlocationswithaverage(UK)andoptimal(Australia)LCOE.2.LDES8-24hand24h+technologies.RES+StorageLCOEfordifferentlevelsofcleansupply-demandmatching2025Source:LDESCouncil2021technologybenchmarkandreport,McKinseyPowerModel.LCOE,USD/MWhLi-ionLi-ionandLDES2Upperrange1Lowerrange102005010015025020%100%10%30%40%50%60%70%80%85%90%95%99%Cleansupply-demandmatching,%LimitedLDESrequiredatlowerlevelscleansupply-demandmatching.LDESbecomeskeytoreducingcostsforlevelsabove80%.Apathtowardsfullgriddecarbonizationwith24/7cleanPowerPurchaseAgreementsLDESCouncil,McKinsey&Company10III.Proposedqualityassessmentframeworkandimplementation24/7cleanPPAsareexpectedtoplayakeyroleindrivingdeepdecarbonizationofthegrid.However,torealizetheirfullpotential,industry-alignedvaluationofthesePPAsisrequiredtorecognizeplayersthatdrivesystemicchangethroughthesecontractsandtosupportadoption.Tothisend,aqualityassessmentframeworkwithinwhichtheindustrycandefineasetofratingsfor24/7cleanPPAsisproposed.Theframeworkisstructuredaroundfourqualityratingswithgrowinglevelofambition,wherethelowerboundsetsthe‘entrylevel’andtheupperboundaimstodefinetoday’shighestaspiration.Lastly,thissectionoffersanoverviewofthekeytechnicalconsiderationsfortheirimplementationinvariouscountriesandwithvaryingtechnologymixes.Layingthefoundationforaqualityassessmentof24/7cleanPPAsHavingaglobalqualityframeworkinplaceisthefirststeptoensurethatcorporatesgoingbeyondpurehedgingstrategiesorannual-basedcarbonaccountingarerecognizedfortheirefforts.Thisframeworkalsoprovidesapathwaytoincreasedecarbonizationthroughhigherqualityratings.AframeworkisproposedbasedonfourqualityratingsandrequirementsacrossfivekeydimensionsThisframeworkaimstoprovideindustryguidanceandcreditthedecarbonizationimpactof24/7cleanPPAs.Giventhevarietyofdesignoptionsavailable,theproposedframeworkincludesfourlevelsorratings—EntryLevel,Silver,Gold,andPlatinum—eachwithitsownrequirements.BoththeEntryLevelandSilverratingscovercontractsthatswitchthefocusfromannual-basedtotime-matchedpowerprocurementleadingtogreatergriddecarbonization.TheEntryLevelaimsatloweringbarriers,especiallyforenergy-intensiveplayers,forincreasedadoptionof24/7cleanPPAs,whiletheSilverratingisdesignedforplayersthatseektofurtheracceleratethetransitionandsupportnewREScapacitydeployment.TheGoldandPlatinumratingsacknowledgecontractswithhigherambitionsonload-matchingand,consequently,drivefurtherdeploymentofadditionalflexibility,includinginnovativestoragetechnologieslikeLDES(Exhibit7).Apathtowardsfullgriddecarbonizationwith24/7cleanPowerPurchaseAgreementsLDESCouncil,McKinsey&Company12Thequalityratingsaredelimitedbyrequirementsonfivekeydimensions:thelevelofcleansupply-demandmatching,timeandgeographicalgranularity,andadditionalityofrenewablesandcleandispatchablecapacityThequalityratingslookatthebigpicture,factoring-inallcriticalelementsthatworktogethertocreateoptimaldealsfromasystemperspective.Suchelementshavebeensynthesizedintofivekeyqualitydimensions,eachofwhichincludeeligibilityrequirementsforthespecificratings(summarizedinExhibit8).Exhibit7Procurementstrategiesvarybasedoncorporates’decarbonizationandriskappetite;24/7cleanPPAsareoptimalforfullgriddecarbonizationCorporatepowerprocurementsolutionsbyambitionlevelDecarbonizationprioritiesRisk-managementprioritiesPowerpricerisksCapitalmarketrisksCarbonpricerisksReputationalrisks1.Energyattributecertificates.2.Forexample,theGreenhouseGas(GHG)ProtocolorScienceBasedTargetsInitiative(SBTi).Optimizedprocurement,financialproductsConventionalrenewablesPPAs,carbonoffsets,unbundledEACs1GoldPlatinumSilverEntrylevelProcurementthatleadstoa24/7decarbonizedgridandgoesbeyondminimumrequirements,supportingdecarbonizationbydrivingenablingtechnologyadoptionandscale-up.Meetingminimumregulatoryrequirements.Compliancewithrecognizeddecarbonizationtargetsandaccountingstandards.2Procurementthatleadstoa24/7decarbonizedgrid.24/7cleanPPAsConventionalapproachesApathtowardsfullgriddecarbonizationwith24/7cleanPowerPurchaseAgreementsLDESCouncil,McKinsey&Company13Minimumlevelofcleansupply-demandmatching:•Definition:load-weightedaverageofhourlycleanelectricitysupply,calculatedas:𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠-𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑚𝑚𝑚𝑚𝑚𝑚𝑚𝑚𝑚𝑚𝑚𝑚𝑚𝑚𝑚=σ𝑡𝑡=18760min𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑡𝑡,𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝑡𝑡෌𝑡𝑡=18760𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷(𝑡𝑡)Where‘Cleansupply(t)’isthecleanelectricitydeliveredfromthePPAdesignatedassets(renewablesandflexibilitycapacity).•Rationale:theminimumrequirementshavebeendesignedbytakingintoaccountwhatlevelwouldbeeconomicallyfeasibletoday(EntryLevelandSilver),aswellastosettherightlevelofambitionthatwoulddrivethenecessarytechnologydeploymentsandeventuallyfullgriddecarbonization(GoldandPlatinum).Thespecificimplicationsofeachoftherequiredlevelsaredescribedinthefollowingreportsections.•Remarks:thisrequirementdoesnotimplythattheminimumlevelofcleansupply-demandmatchinghastobemeteveryhouroftheyear(i.e.,therecanbehourswhenthesupplyexceedstheminimumrequirementandhourswhentheminimumrequirementisnotmet,aslongastheannualaverageisfulfilled).Furthermore,fulfillingtheminimumrequirementsentailsacertainoversizingoftheRESsupplyastherenewablesyieldcansignificantlyfluctuateacrossyears.Timegranularity:•Definition:measurementintervalusedtocalculatetheminimumlevelofsupply-demandmatching.•Rationale:thethresholdhasbeensetatonehourforallthequalityratings,asthisisthemoststandardizedtime-stepacrossmarkets.Whilelowertimestepssuchastheminimumsettlementperiodcouldincrease‘round-the-clock’decarbonizationcredibility,theycouldalsodisincentivize24/7cleanPPAsinmarketswithshortersettlementperiodsorover-constrainthesolutionspace.10Thetimegranularitycouldevolvetowardsshorterperiodsasmarketsmoveinthisdirection.Geographicgranularity:•Definition:limitstothelocationofthesupply,flexibility,andtheload.•Rationale:24/7cleanPPAsshouldacceleratethedecarbonizationofthegridswheretheloadsareconnected,andtrulyreflectcongestionissues.Therefore,load,flexibility,andsupplyshouldatleastbeconnectedtothesamebiddingorbalancingzone,whicheverisbroader.•Remarks:theoverarchingdesignprincipleofthisdimensionistoencouragedeploymentofassetsingridswheretheoff-takerislocatedinoptimallocationsfromasystemstandpointwithoutimposingarequirementforphysicaldelivery,whichisnotpossibleinallmarkets.Thekeyfactorinfluencingoptimallocationisgridconstraints,buthowthisisaccountedforvariesbymarketdesign.Forinstance,innodalelectricitymarkets(suchasERCOTintheUnitedStates)thatreflectcongestioninpricesignals,thegeographicalgranularitycouldbedefinedtothesettlementpointwhichcanensuresufficientmarketliquidityandenablebuyersandsellersthesharetherisksofdeliveringthepower.Furthermore,storageshouldbeideallylocatedingridlocationswhereitcouldminimizegridcongestionswhererelevant(e.g.,co-locatedwithRES)(althoughthisisnotarequirement).10Dueto,forinstance,limitingtheportfoliototechnologieswithfastramp-upcapabilities.Apathtowardsfullgriddecarbonizationwith24/7cleanPowerPurchaseAgreementsLDESCouncil,McKinsey&Company14Renewablesadditionality:•Definition:requirementsoninvestmentsintonewcleancapacity,likevariablerenewablessuchaswindandsolar.11•Rationale:−SoSilver,Gold,Platinum:thesigningof24/7cleanPPAsshouldeventuallyleadtothedeploymentofnewcleancapacityonthegrid.Therefore,itisrequiredthatSilver,Gold,andPlatinumPPAsleadtoanetcleancapacityincreaseinthesystem.Repoweringassetscouldalsocounttowardstheadditionalityrequirement,providedthereisanetcleancapacityincrease.−EntryLevel:inrecognitionofthefactthatsomerenewableswouldbenefitfromthesePPAsattheendofprevioussupportschemesorofftakecontracts,theEntryLevelratingallowsforexisting,subsidy-freeRESassetstoqualify.−Toensuretheelectricityconsumptionisactuallycleanandnotbasedonacertificate-onlyapproach,allratingsrequirethepurchaseofbundledEACswithphysicalpower.12•Remarks:24/7cleanPPAssolutionsshouldbetechnology-agnostic;theRESadditionalityrequirementappliesonlywhenrenewablesarepartofthesolution.Cleanflexibleordispatchablecapacityadditionality:•Definition:requirementsoninvestmentsintonewcleanflexiblecapacity,includingstorage,dispatchablegeneration(e.g.,hydropower,biomass,hydrogen),ordemand-sideflexibility.•Rationale:−Silver,Gold,Platinum:24/7cleanPPAswithhighlevelsofdemand-matchingnaturallydemandflexiblecapacitytoimprovetheeconomicsofthecontract.Giventheneedforsystemflexibility,andtheneedtoacceleratethelearningcurvesofmanyofthesesolutions,allratingsfromSilverandaboverequirealltheusedflexiblecapacitytobeadditional(i.e.,leadingtoanetincreaseincleanflexibleordispatchablecapacityinthesystem).−EntryLevel:forEntry-levelPPAs,thedesignatedcleanflexible/dispatchablecapacityshouldnotbeolderthan10years.Thismeasureintendstoincentivizethedeploymentofnewflexibilityonthegridtoaccommodatetheincreasingrenewablespenetrationongrids.−Allratings:upgradesandretrofitswouldalsoqualifytotheextentthattheseresultinacleancapacityaddition,13withthecaveatthatspecificrulesneedtobedesignedtotrulyfavoroptimalsystemsolutions(andavoidprojectscarryingoutonlyminorretrofitactivitiestomeettherequirements).Investmentsinbatteries’cellsreplacementsaftertheirdegradationwouldalsoqualify.Onthecontrary,standardmaintenanceworkwouldnotmeettheminimumconditions,asthiswouldnotsupporttheultimategoalofaddingnewcapacitytothegrid.•Remarks:similartoRESadditionality,thisrequirementonlyapplieswhenflexibilityordispatchablecapacityispartoftheassetportfolio.11Alsoincludesnon-dispatchablecleancapacitylikenuclear.Excludesdispatchableassetslikehydro,whichinthisreportisclassifiedasflexiblecapacity.12Thisrequirementcouldbereconsideredinthefuture,providedthatthecertificatemarketsmaturetowardshighertemporalgranularity,establishreasonablegeographical/marketlimitsandcorrectlyreflecttheneedsofthepowersystem.13Includingfossil-basedpowerplantsretrofittedtogenerateclean-basedelectricity(e.g.,gaspowerplantstooperatewithcleanhydrogen)orinstallationofnewgenerationcapacityinlegacy/decommissionedhydropowerreservoirs.Apathtowardsfullgriddecarbonizationwith24/7cleanPowerPurchaseAgreementsLDESCouncil,McKinsey&Company15Exhibit8RequirementsforeachofthequalityratingsacrossthefivequalitydimensionsGeographicalgranularityBiddingorbalancingzone(whicheverisbroader)RenewablesadditionalityNorequirement(i.e.,post-subsidyrenewablescanqualify)Ifrenewablesarepartofthefinalsystemdesign,100%ofthecapacityneedstobeadditional(includingrepowering)1QualitydimensionsMinimumlevelofcleansupply-demandmatching,MWh/year90%>98%(approaching100%instandardweatheryears)80%80%Timegranularity1hourEntrylevelGoldPlatinumSilver1.Totheextentthatthisresultsinanetcapacityincreaseinthesystem,includingoverhaulofLi-ionstorageresultinginanincreaseinavailablecapacity.2.Includesdispatchablegenerationcapacity,e.g.,hydropower.Flexible/dispatchablecapacityadditionality2Ifflexibility/dispatchablecapacityrequired,100%ofthecapacityneedstobeadditional(includingupgradesandretrofits)1Designatedcapacitycannotbeolderthan10yearsTechnologydeployment,costs,anddecarbonizationimpactofqualityratingsAsdiscussedinChapterII,amajorchallengefor24/7cleanPPAadoptiontodayisthecostpremium.Theproposedqualityratingshelpcreateatransitionpathwaywithincentivestoscale-upstoragedeploymentandthusacceleratelearningeffectsfornovelflexibilitysolutionslikeLDES.ThissectionexplorestheimpactthatcommittingtothesequalityratingswouldhaveonPPAcosts,flexibilitycapacitydeployed,andgridemissions.NoteonthemethodologyThefollowinganalysisprovidesindicationsonexpectedcostlevelsfordifferentgeographiesandcustomertypes.Itisbasedonmodelingtheleast-costportfolioofrenewablesandstoragetomeetthedesiredlevelofcleansupply-demandmatchingforagivenloadprofile(i.e.,a100MWbaseloadunlessotherwisespecified).Theanalysisisbasedononeaverageweatheryearandignoresplannedandunplannedmaintenance.Thus,theresultingcostlevelsshouldbetreatedasindicative.SeeAppendixAfordetailsonthemethodologyandassumptions.Apathtowardsfullgriddecarbonizationwith24/7cleanPowerPurchaseAgreementsLDESCouncil,McKinsey&Company16Twokeycostmetricsfora24/7cleanPPAareconsidered(illustratedinExhibit9):1.Thelevelizedcostofrenewablesandstorage,hereinreferredtoas“RES+StorageLCOE”:thiscostmetricreflectstheunderlyingcapitalexpenditures(capex)andoperatingexpenses(opex)oftherenewablesandstoragedeployedtomeetthecleansupply-demandmatchingrequirements.2.ThefinalPPAcost,excludingmargins,referredtoas“ShapedPPACost”:thiscostmetricbuildsontheRES+StorageLCOEbyincorporatingadditionalcostandrevenuecomponentsthatimpacttheoverallPPAeconomics.Suchcomponentsincludepowerboughtonthemarketwhenrenewablesgenerationisnotsufficient,andrevenues14RES+StorageLCOEorShapedPPACostdonotincludethemarginoftheseller.fromexcessgenerationsoldtothegrid.Inaddition,itincludesrevenuesfromcapacitymechanismswhererelevant.Otherrevenuesfromoptimizingtheoperationoftheflexibilityassetsbasedonmarketsignalscouldbefactored-in(seeChapterIV),althoughtheyhaven’tbeenconsideredinthischapter.WhiletheShapedPPACostisabetterproxyforthetotalcostofownershipfromanoff-takerpointofview14theLCOEofRES+Storageisthekeymetricofinterest.TheformerreflectsbetterthefinalPPApricebytakingintoaccountthepowerboughtandsoldtothemarket(excludingthesellermargin).Thelatterrepresentsthecostcomponentthatwouldmostgreatlybenefitfromthelearning-curvesandscaleeffectsofenergystoragefurtherenabledby24/7cleanPPAs.Exhibit9TheShapedPPACostconsistsofrenewablesandstorageLCOE,andcostbalanceofbuyingandsellingpowertothegrid80%PPAcostcomponentsfor80%cleansupply-demandmatching20251.Calculatedastotalcostsoverenergydeliveredbysolarandwind.2.Calculatedasthetotalcostofthecapacitymixdividedbytheenergydeliveredbytherenewablesandthestorage.3.SurpluspowerfromPPARESassetssoldtotheday-aheadmarket.Thatexcessisassumedtobesoldduringtheaveragepriceforcheapest%ofhours(where%ofhourisequaltothe%oftimethatthereisexcessgeneration).4.Powerbought20%ofthehourswhensupplyfromlow-carbonsourcesisunabletomeetdemand.Thepriceatthosehoursisassumedtobethepriceofthe20%mostexpensivehours(asmetbypeakingassets).010050150023023230Powerdischargedto/fromthestorageExcesssupplysoldonthemarket3Unmetpowerboughtonthemarket4RESCostUSD/MWh50501919(RES+StorageLCOE)69(ShapedPPAcost)70-4(RESLCOE)505SupplybysourceMWHourRESandstorage2ShapedPPA:RES,storage,andpowerbought/soldtothemarketRES(windandsolar)1Additionalrevenuestreamsforflexibility(e.g.,capacitymarkets)canfurtherreduceshapedPPAcosts.Notincludedinthisanalysis.StoredpowerSurpluspowerDemandApathtowardsfullgriddecarbonizationwith24/7cleanPowerPurchaseAgreementsLDESCouncil,McKinsey&Company17Exhibit10RES+StorageLCOEtodecreaseasLDEStechnologiesmature514643805852481198675690120201050403011060708090100202569204020302035RES+StorageLCOE1for100MWbaseload24/7supplyinCaliforniaoveryearsUSD/MWh1.RES+StorageLCOEiscalculatedas:(annualizedcostofrenewablegeneration+storagecapacity)/cleanenergydeliveredtotheoff-taker.Thisexcludesadditionalcosts/revenuesthatwouldimpactfinalPPAprice.Source:LDESCouncil2021technologybenchmarkandreport,McKinseyPowerModel.Cleansupply-demandmatchinglevelInitialdecreaseprimarilyduetotechnologyimprovements(e.g.,increasingefficiency,lowermaterialusage).Latercostdeclinedrivenbyscaleeffects(e.g.,optimizedsupplychains).80%(Silver)90%(Gold)100%(Platinum)TechnologydevelopmentsareexpectedtodrivesignificantLCOEimprovementsTheLCOEoftherenewablesandstorageisexpectedtodecreaseoverthenextyearsasthematurityofthetechnologiesincreases,duetooptimizeddesignsandefficiency,learningfromvolumes,andmanufacturingandsupplychainimprovements.Forinstance,forLDEStechnologiesthelearningratesareexpectedtobeinthe12-18%range,withvariationsacrossthedifferenttechnologycategories.15Nevertheless,thelearningratesacrosstechnologies—includingLi-ion—arehighlysensitivetorawmaterialcostsanddemand.15“Net-zeropower;Longdurationenergystorageforarenewablegrid,”LDESCouncil,2021.Forexample,theLCOEforPPAsfulfillingdifferentqualityratingsinCaliforniacandecreasearound40%from2025to2040.Thedecreaseinthefirstyearsisexpectedtobemorepronounceddrivenbyoptimizedtechnologydesigns.Thecost-decreaserateoverthenextdecadewouldbethenmainlydrivenbyvolumeeffects,likeoptimizedsupplychains,andcontinuedtechnologicalimprovements.Similartrendsareexpectedacrossothergeographies,withvariationsalsopartlyduetodifferentrenewablespotential(Exhibit10).Apathtowardsfullgriddecarbonizationwith24/7cleanPowerPurchaseAgreementsLDESCouncil,McKinsey&Company18Inthenear-term,theShapedPPACostpremiumrelativetotheaveragemarketpriceandcleanpowercertificateswouldlieintherangeof10%to50%forthedifferentPPAqualityratingsWhencomparedtotoday’saveragewholesalemarketandEACpricesinCalifornia,aSilverPPAin2025canresultina10—15%cost-premium.ThepremiumcostassociatedwithGoldrequirementswouldbelieintherangeof20—30%.Ifthelevelofsupply-demandmatchingtargetsPlatinumrequirements—oriscloseto100%—theestimatedcostpremiumwouldrisetonearly40—50%.LDESisincludedinthecost-optimaltechnologymixinallcases(Exhibit11).Thelowerexposuretowholesalemarketprices—especiallyintherecenttrendsofhighspotprices—andthehigherdecarbonizationimpactthatthesePPAsdeliver,resultinthesecostlevelsbeingattractive.Inaddition,otherrevenuestreamscouldfurtherimprovetherelative24/7cleanPPAeconomics.Theseincludetheoptimaluseofsurplusgenerationbesidessellingpowertothemarket(e.g.,insecondarymarkets).Furthermore,inthemid-to-longtermthepremiumisexpectedtobelowerorevenzeroduetodecreasingtechnologycostsandrisingcommodityandcarbonprices.Exhibit11Costpremiumfor24/7cleanPPAs—exampleCAISOIllustrativecomparisonbetween24/7cleanPPAandannual-matchingPPAcostUSD/MWh1.Basedonhistorical2020-21RECauctions,CaliforniaPublicUtilitiesCommission.2.ExcludingrevenuesfromsellingsurplusEnergyAttributeCertificates.52758690%(Gold)4-1080%(EntryLevel/Silver)100%(Platinum)59-6270+13%+22%+38%Annual-matchingPPA(withfullCO2offset)PPAcost(assumingequivalenttoaverageCAISOwholesaleprice)EstimatedcostofEnergyAttributeCertificates1tocoverfullannualemissionsShapedPPACost22025,%cleansupply-demandmatchingApathtowardsfullgriddecarbonizationwith24/7cleanPowerPurchaseAgreementsLDESCouncil,McKinsey&Company19Exhibit12Emissionsintensityofdifferentpowerprocurementoptionsincluding24/7cleanPPAsEmissionsintensityofdifferentpowerprocurementoptions1gCO2eq/kWh1.Basedon2021averagegridemissionsandRESgenerationdataforGermanyandCalifornia.EmissionsintensityofthegridandwindPPA:lowerrangeappliestoGermany(offshorewind),andupperrangetoCalifornia(onshorewind).EmissionsintensityofsolarPPA:lowerrangeappliestoCalifornia,upperrangetoGermany.2.Pay-as-produced.110-120200-210350-38070-8035-400Gridaverage100%solarP-A-P2PPASilverGoldPlatinum100%windP-A-P2PPA60-70%realemissionsreduction40-50%realemissionsreduction~80%realemissionsreduction~90%realemissionsreduction~100%realemissionsreduction24/7cleanPPAscanoffset80%to100%ofcarbonemissionswhilesolarandwindpay-as-producedPPAsmeeting100%ofacorporate’sconsumptionwouldonlyoffsetafractionofthatThereductioninemissionsintensityofacorporate’sloadwithanEntryLevel/Silver,Gold,orPlatinumPPA,wouldbe80%,90%,and100%respectively(comparedtotheaverageofthegridtowhichtheloadisconnected).Thiscomparestotheactualemissions-intensityreductioniftheloadissuppliedbyapay-as-producedPPAmeetingtheannualpowerconsumptionofaload.Exhibit12illustratesaboveexampleofbaseloadsinGermanyorCalifornia,suppliedbyconventionalsolarorwindpay-as-producedPPAs.Asshown,theaverageemissionsintensitywouldonlybe40%to50%lowerthanthegridaverageforsolarcontracts,andof60%to70%lowerforwind.Furthermore,ifthe2020volumeof25GWofcorporatePPAs(seePPAs101atthebeginningofthereportformoredetails)switchestoPlatinumrating,thiswouldresultinmorethan12milliontonsofCO2eqreducedperyear(excludingadditionalsystem-levelbenefits,seeChapterIV).Apathtowardsfullgriddecarbonizationwith24/7cleanPowerPurchaseAgreementsLDESCouncil,McKinsey&Company20TechnicalconsiderationsforimplementationThetechnicalimplementationandresultingcostof24/7cleanPPAsdependonseveralfactorslinkedtogeneration,storage,anddemand.Thissectionpresentsdetailedmodelingresultsandsensitivityanalysesacrossthesefactors(Exhibit13).Exhibit13FactorsthatimpactthesystemLCOEDImpactsthecapex,mainlyifonlyLi-ionorLi-ionandLDESisused.ETechnology-specificcostcharacteristicsPossibilityforasymmetricalcharge/dischargecapacities(andrelativecapexrequired)allowsforoptimalsystemconfiguration.GenerationStorageDemandImpactsthesupply-demandcorrelationandeventuallytheneedforstorageandoverallcapex.PortfolioaggregationAggregatedprojectsacrosslargergeographicareassmoothenthevariabilityofRESsupply.CStoragemixFShapeofthedemandLocationofprojectGenerationprofileofRESintheregion.AWeathereventsdeviationDeviationsinpoweroutputduetounexpectedweather.BFactorsdrivingRES+StorageLCOEDemandBADGenerationStorageCFEThesearetechnicaldrivers.Theimpactofotherdrivers(e.g.,costofcapital,additionalrevenues)hasnotbeenevaluated.GenerationTherearethreemajorcostdriverslinkedtothegenerationsideofthePPA:A)theprojectlocation,B)thefrequencyofextremeweatherevents,andC)thepotentialforpowersupplyaggregation.Thesearefurtherdescribedbelow:A.Projectlocation:theavailabilityofwindreducestheneedforLDESasthegenerationprofileismorestableTheprojectlocationdeterminestheavailabilityofrenewableresources:factorssuchassolarirradianceandwindspeedarelocation-dependent,andtheyinturninfluencetheamountofstorageandthetechnologyrequiredtooffsetrenewablesvariability.Suchvariabilitywidelydiffersbysource,withoffshorewindhavingthelowestoutputfluctuation,upto20%fromhour-to-hour,comparedtosolarPVwhere16“OffshoreWindOutlook2019,”InternationalEnergyAgency(IEA).17Acapacityfactormeasuresthefractionoftimethatthepowerplantrunsduringaspecificperiod.fluctuationcanbeasmuchas40%.16Similarly,whenlookingattheannualcapacityfactors17ofthedifferentrenewablesourcesacrossgeographies,significantdifferencescanbefound:solarPVrangesfrom10%tomorethan30%inregionswithhighirradiationsuchasCalifornia;onshorewindtypicallyoscillatesfromabove20%upto45%inregionsrichinonshorewind;andlastly,offshorewindvariesbetween30%tomorethan50%acrosscountries(likeforexample,theUKorGermany).Inaddition,thesefactorscouldbefurtherimprovedovertimefollowingtechnicaldevelopments.Consequently,thelocationoftheprojectcanhaveasignificantimpactontheoverallPPAcost.Forexample,a100MWbaseloadintheUKwithaPlatinum24/7cleanPPAsupplying100%oftheloadwithsolarPV,wouldhaveanLCOEmorethan2.5timeshigherthanasimilarApathtowardsfullgriddecarbonizationwith24/7cleanPowerPurchaseAgreementsLDESCouncil,McKinsey&Company21Exhibit14ImpactofthesupplysourcesontheLCOEandsystemcapacitymix(includingpurelyhypotheticalsolar-onlysetup)Source:LDESCouncil2021technologybenchmarkandreport,McKinseyPowerModel.10530010876305021088250314261872161,41445350OnshorewindLDES24h+LDES8-24hLi-ionOffshorewindSolarPVRES+StorageLCOEUSD/MWhREScapacityMWStoragechargingcapacityMWEnergystoragecapacityGWh109211061041414312SolarSolarandonshorewindSolar,onshoreandoffshorewindWhilebuildingonlysolarinUKisun-realistic,forsuchascenarioflexibilitywouldbemetbyhydrogenturbines/storageLCOEandrequiredcapacityfor24/7supplytoa100MWbaseloadwithdifferentgenerationsources2025>98%contractthatalsoincludesonshoreand/oroffshorewindinthecapacitymix(frommorethan270USDperMWhdownto108or105USDperMWh,respectively).Thisistheresultofhigherstorageneedstoshifttheenergyfromdaytonighthours(Exhibit14).ThemosteconomicalsolutionsinvolvemixingassetswithcomplementarygenerationpatternslikesolarPVandwind,andstorage.Thiscreatessomebarriersassuppliersareoftennotspecializedinallrequiredtechnologies.Nevertheless,thiscouldbeaddressedbyinvolvingintermediatorsorbysupplierscontractingoutmissingelements(e.g.,bypay-as-producedorleasecontracts).B.Weatherevents:unusualweathereventsresultinreducedrenewablesoutputleadingtooversizingthestorageandtoahigherLCOEUnusualweathereventscausedeviationsinprojectedRESsupply,resultingintheneedtoadjustthecapacitymixtocoversuchevents(oversizing)andtomeettheload-matchingrequirement.Suchweatherevents,whichcantaketheformoftropicalandwinterstormsinCaliforniaordarkdoldrumsinGermany,cancausesolarandwindgenerationtobedisruptedfordays.Furthermore,climatechange—inadditiontodirectimpactonhumanlivesandnature—mayincreasethefrequencyofsuchweatherevents.AccordingtothelatestApathtowardsfullgriddecarbonizationwith24/7cleanPowerPurchaseAgreementsLDESCouncil,McKinsey&Company22AssessmentReport18bytheUnitedNationsIntergovernmentalPanelonClimateChange(IPCC),extremeprecipitationisprojectedtoincreaseatglobalwarminglevelsexceeding1.5°Celsiusinnearlyallregions.Becausetheminimumlevelofcleansupply-demandmatchingmustbemetthroughoutthecontract’sduration,includingunusualweatheryears,theLCOErisesduetotheneedtooversizethesystemcapacity.TheimpactofanunusualweathereventisdepictedinExhibit15below.Thisexampleshowstheimpactofanentireyearwith20%lessonshoreandoffshorewind18“Climatechange2021:thephysicalsciencebasis.ContributionofWorkingGroupItothesixthassessmentreportoftheintergovernmentalpanelonclimatechange,”IPCC,2021.generationintheUK.Suchaneventwouldresultinincreasedcapacityneedsandin10%increaseinthetechnology-relatedcosts.Furthermore,inpreparationforextremeweatheryearswithlowersolarandwindgeneration,higherlevelsof24+hLDESstoragewouldbedeployedtoeffectivelyassurereliablesupply.C.Portfolioaggregation:optimizingthesupplyportfoliocanreducetheLCOEbycreatingasmootherrenewablesgenerationprofileandreducingthestoragerequirementExhibit15ImpactofanunusualweatheryearontheLCOEandsystemcapacitymixSource:LDESCouncil2021technologybenchmarkandreport,McKinseyPowerModel.LCOEandrequiredcapacityfordifferentweatherprofiles20251.Windgeneration(bothonshoreandoffshore)acrossentireyearreducedby20%.2.Chargecapacityforstorage.123145042631508105119LDES24h+LDES8-24hRESLi-ionDailyRESprofileinaffectedmonth1RES+StorageLCOEUSD/MWhCapacity2MWEnergystoragecapacityGWhHouroftheday151235950034593HourofthedayAnnualaverageREScapacityfactorTypicalweatherprofileLow-windprofile34%30%TypicalweatheryearLowwindyear110-25%costincreaseexpectedforoversizedsystemsdesignedforatypicalweatherconditions.Example1:(seeleft):assuming20%lowerannualwindgenerationleadsto15%LCOEincrease(119USD/MWh).Example2:assuming50%lowersolargenerationand85%loweronshore&offshorewindgenerationfor10daysinNovemberleadsto20%higherLCOE(126USD/MWh).+15%>98%Apathtowardsfullgriddecarbonizationwith24/7cleanPowerPurchaseAgreementsLDESCouncil,McKinsey&Company23Exhibit16AggregationimpactontheontheLCOEandsystemcapacitymixSource:LDESCouncil2021technologybenchmarkandreport,McKinseyPowerModel.LCOEandrequiredcapacityfordifferentrenewables’aggregationslevels20251.Regionalaveragerepresentsanaverageprofileof5regionsinCalifornia.2.SpecificsiteismodelledwithgenerationprofilesofAltaParkWindfarmandDesertSolarfarminCalifornia.3.Profileshownisillustrative.4.Chargingforstorage.21119056882769HouroftheDayCapacityFactorRegionalaverage1Specificsite231918666446896HouroftheDayCapacityFactorCloudcoverreducedgeneration10386LDES8-24Li-ionRESLDES24+hDailySolarProfile3RES+StorageLCOEUSD/MWhCapacity4MWEnergystoragecapacityGWhCloudcoveralmostnogeneration>98%TheaggregationofRESsupplyoveralargergeographicareareducestherisksoflocaleventsreducingrenewablessupplytotheloadandcreatesasmoothergenerationprofile.Thisisduetothefactthatascarcityofrenewablesyieldinoneregioncanbecompensatedforbyitsavailabilityinanotherregionatthesametime,assumingthatthesearewellinterconnected.Becauseofthis,usingdesignatedassetsfromaspecificsiteonlyismorecostlythananoptimizedportfolioacrosssites,andrequiresadditionalRESandstoragecapacitytocovertimesoflocal‘under-supply’.Whenmodelledusingtheaspecificsiteratherthanaregionalaggregation,theLCOEfortheCaliforniacaseincreasesby20%duetohighergenerationandstoragecapacitybuild-out(Exhibit16).Apathtowardsfullgriddecarbonizationwith24/7cleanPowerPurchaseAgreementsLDESCouncil,McKinsey&Company24StorageTherearetwomajorcostdriversrelatedtostoragetechnologies,classifiedin:D)thetechnologymix,andE)thesymmetryofstoragechargeanddischargecapacities.Thesearefurtherdescribedbelow.D.Thestoragemix:LDESiskeytoreducingcostsof24/7cleanPPAsathighlevelsofsupply-demandmatching,especiallycomparedtousingonlyLi-ionbatteriesLevelsofmatchingabove80%requireassetsthatcansupplycleanpowerreliablyforlongperiodsoftime.Giventhenaturalintermittencyofrenewables,24/7cleanPPAsareonlyefficientlydeliveredifflexibilityorcleandispatchablecapacityispartofthetechnologymix.Moreover,thedifferenttechnicalandfinancialcharacteristicsofthetechnologiesimpacttheoptimalassetportfoliotodeliver24/7cleanpower.Li-ionbatterieshavealimitedabilitytoprovidelong-durationflexibilityeconomicallyastheirenergystoragecapexincreasesinalinearrelationshiptoduration.ThiscontrastswithLDEStechnologies,whichgenerallyhavehigherpowercapacitycapexbutcanincreaseenergystoragecapacityatalowcost,allowingforscalableduration.19Inthecaseofa100MWbaseloadin2025inCalifornia,theLCOEcandecreasefrom8%to12%foraSilverandGoldPPArespectively,ifthesystemaddsLDEStotheLi-ionandrenewablessystem.IftheloadholdsaPPAwithPlatinummatchingrequirements,theLCOEcanbemorethan15USDperMWhhigherwithLi-iononlythanifLDESisleveraged.Inaddition,the‘Li-iononly’solutionwouldbehighlyinefficientforthesystem,withexcessiveRESinstalledleadingto175%20surplusgeneration(Exhibit17).19“Net-zeropower;Longdurationenergystorageforarenewablegrid,”LDESCouncil,2021.20Calculatedastheamountofexcessgenerationaftermeetingtheloadrequirements.Excessgenerationoccursinhourswithhighsolarandwindgeneration(morningandafternoon).HigherREScapacitybuildoutisrequiredwithLi-iononlyduetoitsreducedcapacitytoshiftbulkgeneration.E.Technology-specificcostcharacteristics:thechoiceofasymmetricalcharging/dischargingcapacitiescandrivedowntheLCOEThedesignofasymmetricalcapacitiesforthecharginganddischargingequipmentalsohasanimpactonthefinalsystemdesignandoperation,andconsequentlyonthecost.Forexample,inacompressedairstoragesystem,thecompressorusedtochargethestoragecanhaveadifferentcapacitythantheturbinetodischargethepower.CommonlytheLDESchargingcapacityishigher,sothesystemcancapturerenewablespeakproductionhours.ThischaracteristicisintrinsictomanyLDEStechnologies,particularlythermalandmechanicalandtoalesserextent,electrochemicaltechnologies.Exhibit18depictsthedifferenceinLCOEin2025fora100MWbaseloadinCalifornia.Asshown,anasymmetricaldesigncanleadtolowerLCOEsforGoldandPlatinumPPAsthanifthesystemissymmetric.Inthisspecificexample,theunderlyingLCOEforaPlatinumPPAwouldbe5USDperMWhlower.Thisimpactisevenmorepronouncedforthosetechnologiesforwhichthecapex(perMWofcapacity)ofthechargingcomponentsislowerthanthedischargingsystem.Apathtowardsfullgriddecarbonizationwith24/7cleanPowerPurchaseAgreementsLDESCouncil,McKinsey&Company25Exhibit17ImpactofstoragetechnologyontheLCOEandsystemcapacitymixLCOEandrequiredrenewablesandstoragecapacitywithLi-iononlyorwithLDES20251.LDES8-24hand24+htechnologies.32731180%supply-demandmatching90%supply-demandmatching100%supply-demandmatching387371834553Li-ion+LDES1Li-iononlyChargingpowerDischargingpower6547851071779073722073713423523589894242Li-ionLDES24+hLDES8-24LDESreducesLCOEathigherlevelsofmatchingbyreducingRESoverbuild.RES+StorageLCOEUSD/MWhREScapacityMWStoragecapacityMW76709180135119Apathtowardsfullgriddecarbonizationwith24/7cleanPowerPurchaseAgreementsLDESCouncil,McKinsey&Company26Exhibit18ImpactofLDEScharge/dischargecapacitysymmetryontheLCOEandsystemcapacitymix31531180%supply-demandmatching90%supply-demandmatching100%supply-demandmatching375371553558LDESasymmetriccharging&dischargingLDESsymmetriccharging&dischargingChargingpowerDischargingpower4765107851779072203773713496962929174491744993935454LDES24+hLDES8-24Li-ionAthighlevelsofmatchinghavingmorechargecapacitycaptures“peak”RESproductionhours.RES+StorageLCOEUSD/MWhREScapacityMWStoragecapacityMWLCOEandrequiredrenewablesandstoragecapacitywithsymmetricandasymmetricLDES202570708180124119DemandF.Shapeofdemand:whentheloadandtherenewablesprofilesarealigned,lessstorageisrequiredtoshiftenergy,resultinginalowerLCOETheamountofenergythathastobeshiftedintimetomeetthePPArequirementsishighlydependentontheadequacyofthesupplygenerationprofileandthedemandprofile.Aspreviouslystated,theformerisdependentonrenewableenergyresourcesandprojectlocation.Certainareas,suchasCaliforniaorIndia,are‘solardominant,’meaningthatthesolaryieldexceedsthewindyieldduetogeographicalandmeteorologicalconditions.Thisresultsinasupplyprofileinwhich21Loadprofilehasahighconcentrationofelectricityconsumptionatdayhours(modeledas220MWconstantfrom9a.m.to7p.m.).generationisconcentratedduringdaylighthours.Incontrast,thereare‘winddominant’regions,suchastheUK,wherethesupplyprofileisdominatedbywindspeedsthataremorestablethroughouttheday.Insolar-dominantregions,powergenerationduringthedaywouldbemoretime-correlatedwithdemandarchetypesdefinedbyelectricityconsumptionduringtheday.Thisarchetypeisreferredtoasa‘loadprofile’.21Inthecaseofwind-basedsupply,thepredominantgenerationprofilewouldbemorecorrelatedwithconstantconsumption,orbaseloads(similartodatacenters).ThecorrelationbetweentheRESgenerationandtheloadprofilehasanimpactontheLCOEasApathtowardsfullgriddecarbonizationwith24/7cleanPowerPurchaseAgreementsLDESCouncil,McKinsey&Company27Exhibit19Impactofgeneration-loadprofilecorrelationontheLCOEandsystemcapacitymixSource:LDESCouncil2021technologybenchmarkandreport,McKinseyPowerModel.LCOEandtechnologymix(MW)fordifferentdemandandsupplyprofiles2025,99%cleansupply-demandmatching1.Baseloadequals100MW.Officeloadprofileconsideredwithsameannualconsumptionasbaseload~220MWfrom9:00a.m.to7:00p.m.2.UKexamplehasbeenshownformarketswithwinddominantprofilesupplyormarketwithsupplycorrelatedwithbaseload.3.Californiaexamplehasbeenpresentedformarketswithsolardominantprofileormarketwithsupplycorrelatedwithofficeload.RES+StorageLCOE,USD/MWhCorrelatedSupply-DemandProfilexDemandprofileOfficeload1Baseload1Winddominant2Solardominant3Supplyprofile110125105100665510690750LDES24+hLDES8-24hLi-ionRES>98%thegreaterthealignment,thelowertheneedtoshiftenergyforlongdurationsandthelowertheoverallsystemcost.ThecaseexampleinExhibit19illustratesthistrend:theLCOEcanrangebetween100USDperMWhand125USDperMWhdependingontheadequacyofthecurves.Apathtowardsfullgriddecarbonizationwith24/7cleanPowerPurchaseAgreementsLDESCouncil,McKinsey&Company28IV.EnsuringimpactiscapturedThischapterhighlightskeyconsiderationsforacertificationof24/7cleanPPAsforofficialannouncement.Inaddition,itdiscussesoptionsforcontinuousmeasurementduringPPAlifetime.Ascontextforthis,thethedifferentimpactsofoptimizingoff-takerorsystem-leveldecarbonizationisalsodiscussed.Thereisatradeoffbetweencorporateandsystem-leveldecarbonizationDeviationsfrom100%cleansupply-demandmatchingcanimprovecostandminimizesystememissions24/7cleanPPAstodayaredrivenbydemandfromoff-takersthatseektofullydecarbonizetheiractualemissionsfrompowerprocurement.However,therearealsosystemlevelimplicationsandtheyarestronglyinfluencedbythedispatchapproachofthedesignatedcleanflexiblecapacity.Ontheonehand,theoperationoftheassetscouldmaximizethedecarbonizationofaoff-taker’sloadbyensuring100%load-matching.Ontheotherhand,itcouldlookbeyondasingleloadandmaximizetheimpactonthegrid,e.g.,bydischargingpowertothegridattimesofpeakemissionsintensity.Thismayhappentoacertainextentalsowhenthereisastrict100%cleansupply-loadmatchingrequirement(byusingtheflexiblecapacityforsystem-leveloptimizationwhenit’snotneededforload-matching).Thesystem-levelimpactcanbefurtherenhancedbyloweringtheload-matchingconstraint.Exhibit20showsacomparisonofthesedifferentapproachesandtheresultingimpactontheShapedPPACostandsystem-levelemissionsabatement.TheexampleanalysisforGermanyshowsthat:•24/7cleanPPAsdesignedfor100%load-matchingachievefulldecarbonizationoftheoff-taker’spowerconsumption,butinaddition,feed-inofsurplusgenerationleadstosystem-leveldecarbonization(Scenario1);22Theimpactnumberswilldifferbymarketandchangeovertime.•Allowingformarketarbitrage(withunutilizedstoragecapacity)at100%load-matchingalreadyslightlyreducesShapedPPACostandincreasessystem-leveldecarbonizationimpactbyaround40%(Scenario2);thus24/7cleanPPAcontractswouldbenefitfrombeingdesignedinawaythattheoperatorcanatleastusethesurpluscapacityformarketarbitrage;•Byweakeningtheload-matchingconstraintfromnearly100%to80%,costandsystem-levelCO2impactcanbefurtherimproved:around25%lowerShapedPPACostandaround50%higherdecarbonizationimpactcomparedto100%load-matching(Scenario3).22Thus,thereisatradeoffbetweenoff-takerandsystem-leveldecarbonization.Apathtowardsfullgriddecarbonizationwith24/7cleanPowerPurchaseAgreementsLDESCouncil,McKinsey&Company30Theseresultsarebasedonpureeconomicoptimizationofthedispatch.Anadditionalanalysishasbeenperformedtoassessthemaximumcarbonabatementimpactwhenoptimizingthedispatchpurelybasedongrid-levelemissionsintensity.Exhibit21showstheShapedPPACostandimpliednetemissionsintensityfortheoff-takerinadirectcomparisonforbothoptimizationapproaches.Theanalysisshowsthatdispatchoptimizationbasedonrevenuealsoachievesstrongdecarbonizationimpact(duetothecorrelationbetweengridpriceandemissionsintensity);optimizingpurelyforCO2impactcanimprovedecarbonizationfurther(around10%).Theanalysisalsoshowsthatinmarketswithastrongcorrelationbetweencarbonandmarketpricesignals,80—90%minimumload-matchingisasweetspotofbothhighoff-takerdecarbonizationandsystem-leveldecarbonizationimpact.Ontheotherhand,therewouldbeanemissions-costtradeoffinmarketsthatcontinuetorelyonlow-costcoalpower.Exhibit20Changesinhourlydispatchfordifferentoptimizationobjectivesandload-matchingconstraintsAveragedailygenerationfordifferentdispatchapproaches202511.Thegenerationshownisannualaverage,henceinagivenhourthereisbothgridbuyingandselling.Basedon2021powermarketprices.2.Inadditiontodecarbonizationoftheoff-taker’spowerdemand.3.ThisincludesRES+StorageLCOEandcostsofgridbalancing(withhourlygridpricesdrivinggridbuyingandsellingcosts).Scenario3:dispatchobjectiveis80%load-matchingandmarketarbitrage(withremainingcapacity)Scenario2:dispatchobjectiveis100%load-matchingandmarketarbitrage(withremainingcapacity)Scenario1:dispatchobjectiveis100%load-matchingDispatchscenario(samesystem)HourlygenerationmixMWImpact100%cleanpowertooff-taker.75000tadditionalsystem-levelCO2abatement(fromsurplusgeneration+arbitrage).86USD/MWhshapedPPAcost.100%cleanpowertooff-taker.54000tadditionalsystem-levelCO2abatement2(fromsurplusgeneration).89USD/MWhshapedPPAcost3.80%cleanpowertooff-taker.104000tadditionalsystem-levelCO2abatement(fromsurplusgeneration+arbitrage).64USD/MWhshapedPPAcost.12420050-150-100-500150100124Hour124Averagegridprice,2021PowerfromRESPowerboughtfromthegridPowerfromstorageChargingstoragePowersoldtothegridAvg.gridprice(a.u.)>98%Apathtowardsfullgriddecarbonizationwith24/7cleanPowerPurchaseAgreementsLDESCouncil,McKinsey&Company3131Exhibit21ImpactofdifferentdispatchoptimizationapproachesonShapedPPACostandCO2emissionsShapedPPAcostfordifferentdispatch-optimizationapproachesanddecreasingload-matchingconstraints20251,USD/MWh1.ShapedPPACostcalculatedfrom2025LCOE,butbasedonactual2021powermarketpricedatainGermany,emissionsestimatesalsobasedonactualdatafor2021,resultstobetreatedasestimatessincethemodelhasperfectforesight.2.EmissionsperkWhconsumedbyoff-taker,estimatedbasedonhourlyaveragegridemissions,valuesfor24/7cleanPPAsnegativeduetofeed-inofsurplusgenerationandimpactofarbitrage.3.“Marketarbitrage”:chargingfromanddischargingtogridenabled,storagedispatchadjustedtoleveragefreecapacityforeithermaximizingmarketarbitragerevenuesormaximizinggridemissionsabatement(byshiftingelectricityfromhourswithlowemissionsintensitytohourswithhighemissionsintensity).978986686488737180%loadmatching+marketarbitrageGridpower100%loadmatching+marketarbitrage3100%loadmatching90%loadmatching+marketarbitrageOptimizedforrevenueOptimizedforCO2Reference24/7cleanPPAXXgCO2eq/kWh2-119-131-110-123-85-89-62338Remarks:Allresultsarebasedonafixedhardwareconfiguration(solar,wind,storage)thathasbeendefinedbasedona100%load-matchingrequirement.ActualcostsandemissionsabatementpotentialhighlydependentonmarketandyearasmarketpricesandCO2emissionsintensitydiffersignificantlybyregionandovertime.Loweringtheload-matchingconstraintbelow80%doesnotsubstantiallychangetheresultingshapedPPAcostandemissionsimpact.EnsuringthePPAsadheretotheminimumrequirementswouldbenefitfromacertificationsystem.Thequalityratingwouldneedtobeapprovedpriortoexecutionbyanindependentparty,basedonastandardizedapproachToensurerigorandconsistency,awardinganEntryLevel,Silver,Gold,orPlatinumratingtoaspecificPPAcontractwouldneedtobedonebyanindependentcertificationbody.Thisentitywouldberesponsibleforvalidatingthatthecontracttermsanddesignatedassetsmeetthepre-requisitesacrossallqualitydimensionsoutlinedabove.Toensuretheminimumlevelofcleansupply-demandmatching,itisrecommendedthatthecertificationapproachisbasedoneitherofthefollowingtwooptions,orideallybothcombined:1.Contractualobligations:ThethirdpartywouldvalidatethecontracttermsofthePPA,whichneedtobesufficientlyrobusttoensurethattheexecutionofthecontractadherestothecleansupply-demandrequirements.Thisrequirestightcontractualobligationssuchthatitisclearhowtheproviderwoulddelivercleanpowerconsistentlywiththecertifiedqualitylevelandwhatprovisionswouldbemadeintheeventofnon-delivery.Apathtowardsfullgriddecarbonizationwith24/7cleanPowerPurchaseAgreementsLDESCouncil,McKinsey&Company322.Pre-measurement:Giventhecurrentlackofstandardprotocolsforauditingtheactualhourlydeliveryofcleanpower,transitionalmeasuresarerequiredtoensurethatthedesignatedassets23aresizedappropriatelytobeabletomeetthedesiredcleansupply-demandrequirements.Apre-measurementsimulatingtheprojectedpowersupplyusingasignificantnumberofhistoricalweatheryearsisproposedascorepartofthecertificationofa24/7cleanPPA.24Thissimulationwouldoptimallybedonebybytheindependentcertificationbody(usingconsistentweatherdataacrossalllocations,whichemphasizestheimportanceofrepositorieswithlocation-specificrepresentativeweatherdatasets).AfterinitialcertificationofthePPA,continuedmonitoringoftheactualpowerdeliverywouldbebeneficialtoensureimpactThePPAproviderandbuyerhavedifferentoptionstoensurecontractualobligationsarebeingmet.ContinuedmonitoringoftheactualpowerdeliveryallowstheinvolvedpartiestocommunicatethedecarbonizationimpactofthePPAandensuresthatthecontractualobligationsarefulfilled.24/7cleanPPAstypicallyaresignedbyoff-takersthathavetheambitiontofullydecarbonizetheirpowerconsumption(24/7load-matching).However,thedesignatedflexiblecleancapacitymayhaveanevenstrongersystemdecarbonizationimpactwhendispatchisoptimizedbasedonthehourlygridemissionsintensity(seeprevioussection).Thus,PPAproviderandoff-takershouldaligntheobjectivesofthedispatchoptimization.Inthefollowing,twoarchetypesforcontinuousmonitoringapproachesthatcanbelinkedtodifferentdispatchobjectivesareintroduced.Eitherstrategywouldaffecttheactualpowersuppliedtothedemand,andconsequentlythelevelofsupply-demandmatching.Thetwoarchetypesaredefinedbelow,byincreasingimplementationcomplexity(Exhibit22):23DesignatedassetsdonotneedtobeownedbythePPAprovider,andassetsmaybesharedacrossmultiplePPAsaslongasthereissufficientcapacitydesignatedtoeachPPAtoensuredelivery.24Cleanpowerfromthegriddeliveredtotheloadwouldbeexcludedfromsuchatest.SurpluspowerfromREScouldbesoldtoanotherload(e.g.,withhigherdemand-sideflexibilitylikehydrogenproduction).A.Monitoringof24/7load-matchingThisapproachwouldbebasedontrackingthehourlycleansupply,flexibility,anddemand,toconfirmthatthedesiredminimumlevelofcleansupply-load-matchingismet.Thismaybeimplementedintwoversions:•A1.Thepowersupplycouldberestrictedtothedesignatedassets,or•A2.Theshareofcleanpowerfromthegridcouldalsobefactoredin.Inthiscase,specificmeasuresanddatatransparencyonthehourlyresidualgridmixwouldberequiredtoavoiddoublecounting.Thismethodwouldenablebusinesseswithcleanelectricitytargetstodemonstrateandcommunicatetheireffortsoncleanenergyconsumption.B.Monitoringofdecarbonizationimpact:Inadditiontopurelyassessingcleansupply-demandmatching,thisapproachwouldmeasurethehourlydecarbonizationimpactofdispatchingthedesignatedcapacity.Thismeasurementismorecomplexandwouldrequirehighdatatransparencyonactualmarginalgridemissionsintensity.Thisapproachwouldfitthoseplayerslookingtomaximizetheiroveralldecarbonizationimpactonthegrid,ratherthanonlymaximizingthedecarbonizationoftheirownload.Apathtowardsfullgriddecarbonizationwith24/7cleanPowerPurchaseAgreementsLDESCouncil,McKinsey&Company3333Thetwoarchetypesoutlinedabovedemonstratethattherearedifferentwaystocontinuouslymeasuretheimpactof24/7cleanPPAs.Third-partysolutionsforsuchcontinuedtracking/measurementareexpectedtoemerge,includingblockchain-basedtrackingofdeliveredpower.ContinuoustrackingduringthePPAlifetimewouldbebeneficialtoensurefulfillmentofthecontract.Playersmaychoosenottofollowanyoftheaforementionedapproachesgiventhecomplexitytheyentailtoday,intheabsenceofmaturetrackingsolutions.Nevertheless,itisexpectedthatplayerswithhighdecarbonizationambitionswouldbenefitfromcommunicatingload-matchingandcarbonimpactduringexecution;suchplayersareexpectedtoadoptcommonlyacceptedandreliabletrackingapproaches.Exhibit22Approachestocertifythe24/7cleanPPAforannouncementandoptionsforcontinuedmeasurementduringPPAlifetimePPAannouncementPPAlifetimeAssessmentofcontracttermsDefinitionofcontractualobligationsfortheprovidertodelivercleanpowerconsistentlywiththecertifiedqualitylevel,andclearprovisionsintheeventofnon-delivery.Continuedmeasurementofactualhourlysupplyanddemand.Cleansupply-demandmatchingcanbeachievedvia:Trackingofload-matchingAContinuedmeasurementofsupply,demand,anddisplacedcarbonemissionsinthegrid.Asaresult,flexibilityassetscanbeoperatedtomaximizeload-matching,whileminimizinggridemissions.DesignatedPPAassetsonlyA1DesignatedPPAassetsandcleangridpowerA2LowestcomplexityHighestcomplexityPre-measurementofdesignatedassetsModelingdesignatedPPAassetsagainsthistoricalweatheryearstoensuresystemdesigncanmeettherequirements.Thequalityratingneedstobeindependentlycertified–ideallyusingbothapproachesbelow:ItisrecommendedthatthepowersupplyiscontinuouslymonitoredtoensurecontractualobligationsarebeingmetNotrackingNostandardizedtrackingofcleanpowerdelivery.TrackingofcarbonimpactBMandatorycertificationbythirdpartyApathtowardsfullgriddecarbonizationwith24/7cleanPowerPurchaseAgreementsLDESCouncil,McKinsey&Company34Table1Advantages,disadvantagesandconsiderationsfordifferentmeasurementapproachesMeasurementapproachProsConsConsiderationsforimplementationNotrackingofcleanpowerdeliveryEasytoimplement.LowerPPAcostduetooptiontooptimizedispatchformaximummarketrevenues.Inabilitytoproveround-the-clockcleanpowerconsumption.Higherriskofgreen-washingallegationsNotransparencyonactualperformanceofassets(incl.degradation).Requirescertificationbasedonpre-measurementofdesignatedassetstoensuredesignatedassetsaresizedappropriately.Optiontoimplementannualauditstoensurefullcapacityisstillonline.Trackingofload-matchingfromdesignatedassetsAbilitytoproveround-the-clockcleanpowerconsumption.Fulltransparencyforoff-taker,alsotoidentifyhardwarefailuresleadingtonon-deliveryofpower.PotentiallylowersystemdecarbonizationimpactasinoptionB.Highercost(higherefforttomeetmatchingrequirements).Requiresadvanceddatainfrastructuretotrackhourlysupplyanddemand.Trackingofload-matchingfromdesignatedassetsandcleanpowerfromgridAbilitytoproveround-the-clockcleanpowerconsumption.Easiertomeetmatchingrequirements(duetooptiontousecleanpowerfromthegrid).Emphasizestheneedtoaddcleanpowerresourcescomplementarytothegrid(i.e.,atthegrid’sdirtiesthours).PotentiallylowersystemdecarbonizationimpactasinoptionB.Lowersincentivestodeploycleanflexibility.Riskofdouble-countingcleanpower(e.g.,cleanpowerfromgridalreadysoldasGOs)duetothelackofdataforhourlyresidualgridmix.Requiresadvanceddatainfrastructuretotrackhourlysupply,demand,andcleanpowerfromthegrid.Requiresclearrulesongridemissionsaccounting(e.g.,average,marginal)anddefinitionof“cleanpower”.TrackingofcarbonimpactAllowsformaximizationofsystemdecarbonizationimpact.PotentiallylowerPPAcostthanoptionAduetocorrelationofCO2emissionsandmarketprices(esp.inmarketswithstrongCO2pricesignal).Highimplementationcomplexityduetoneedtodemonstratecarbonimpact.Riskofdouble-countingavoidedemissionsduetosimultaneitywithotherplayers’marginalimpacts.Requiresadvanceddatainfrastructuretotrackhourlysupply,demand,andgridemissions.Requiresthedefinitionofclearrulesforthecalculationofavoidedmarginalgridemissions.A1A2BEachofthecontinuousmeasurementapproacheshasasetofadvantagesanddisadvantagesthatshouldbetakenintoaccountThevariousmeasurementapproaches(andimpliedobjectives)haveimplicationsforcontracteconomics,systemdecarbonizationimpact,abilitytoproveround-the-clockcleanpowerconsumption,andreputationalrisksthatshouldbeevaluated(Table1).Apathtowardsfullgriddecarbonizationwith24/7cleanPowerPurchaseAgreementsLDESCouncil,McKinsey&Company3535Theambitionofthequalityratingscouldincreaseovertime,andanapproachhierarchycouldbedevelopedasthesystem’sdecarbonizationneedsevolvePowersystemneedsarerapidlyevolving.Agrowingnumberofcountriesarerecognizingtheimportancetodecarbonizeelectricitygridsasanessentialleverintheirpathtonet-zero.ThistrendisalsoreflectedintheamountofREScapacityadditions,whichin2020reachedanall-timehighwithalmost280GWaddedtothesystem.25Asaresult,itisacknowledgedthatthequalityratingsandminimumrequirementsshouldberevisitedandtheambitionincreased,asnewtechnologydevelopmentstakeplaceandthegridacceleratestowards100%decarbonization.Alternatively,newqualityratingscouldbeintroducedtoindicateemergingneeds(forinstance,anew‘diamond’ratingwithlowertimegranularitythatisclosertothesettlementperiod,orwithobligationstowardsgridoptimizationorancillaryservices).Thiswouldensuretheframeworkremainsdynamicanddrivesgreatertechnologicalimprovements.Similarly,whileeachoftheabovedispatchoptimizationapproacheshasadifferentimpactontheultimategoalofgriddecarbonization,theyalsorequirevaryinglevelsofsophistication(approachBbeingthemostimpactfulbutcomplextoimplement).Asaresult,whileallapproachesmightbevalidintheshortterm,ahierarchycouldbeintroducedbasedonthelearningsandnotingthatacarbon-optimizationapproachwouldbethemostbeneficialsolutionforthesystem.25“RenewableEnergyMarketUpdate,Outlookfor2021and2022,”IEA,2021Apathtowardsfullgriddecarbonizationwith24/7cleanPowerPurchaseAgreementsLDESCouncil,McKinsey&Company36V.ThepathforwardThereareafewelementsthatcouldbeconsideredtosupportthewidespreadimplementationof24/7cleanPPAs.Launchofaglobally-relevant24/7cleanPPAcertificationprocessbyanindependentgovernancebodyThe24/7cleanPPAmarketwouldbenefitfromthedefinitionofstandardsandadetailedassessmentframeworkbyanindependentbody.Thisgovernancebodywouldneedtoensureareliablecertificationprocessthatcanbeappliedgloballytoavoidmultipleconflictinginterpretationsof24/7cleanPPAs.PotentialgovernancebodiesincludekeyenergycertificationentitiessuchastheAssociationofIssuingBodiesinEurope,M-RETSinNorthAmericaandtheInternationalRECStandardFoundation,whichworksinotherpartsoftheworld.Examplesofalreadyemergingtime-boundenergyprocurementstandardsincludee.g.,TÜVSüd’spowerproductcertificationEE02“Certificationofelectricityproductsfromrenewableenergieswithsimultaneousproduction”,ortheLFEnergyCarbonDataSpecificationConsortiumandtheGranularCertificateSchemeStandardfromenergytag.org.OrganizationslikeUnitedNations’24/7Carbon-FreeEnergyCompact,energytag.organdenergywebarealreadypushingtoeducatethepublic,gainingrealworkknowledgethroughpilotsandareadvocatingforstandardization.Keytotheseeffortswillbethetechproviderswhocanfurnishtheoptimalmeansofvalidatingtheunderlyingpowerflowforthecustomer.Accuratereal-timecarbonaccountingstandardsandcommitmentsfromabroadercustomerbasetoincreasedemandfor24/7PPAsToday,consumerswithambitioussustainabilitytargets,aswellasacademicexperts,aredrivingthemomentumon24/7cleanPPAs.Butalargeenergyconsumerbasewillberequiredtoscalethistobethenextindustrystandard.Thisdemandcanbeacceleratedthroughincreasedindustryawarenessandsupportivecarbonaccountingstandards.CarbonaccountingstandardscurrentlygiveonlylimitedguidanceonevaluatingpowerpurchaseemissionsonanhourlybasisThelocation-basedmethodreflectsfossilgenerationasitis“basedonstatisticalemissionsinformationandelectricityoutputaggregatedandaveragedwithinadefinedgeographicboundaryandduringadefinedtimeperiod”.Moreandmorecompaniesarestartingtoreportinthemarket-basedmethodwhichis“associatedwiththechoicesaconsumermakesregardingitselectricitysupplierorproduct.”Butthisistypicallydoneonanannualbasis,whichresultsinasystematicunderestimationofthetruecarbonfootprintofpurchasedpower.StandardsliketheGHGProtocolwouldneedtoevolvetobebasedonhourlyresolutiontoimproveaccuracyofaccountingandanadvanced“real-time”or“24/7”market-basedmethod.ThiswouldcreatethenecessarymarketdemandforemergingtechnologieslikeLDESandgranularproducts(24/7cleanpowercertificates)thatdrivedeepdecarbonization.Increasedindustryawareness:beyondreportingstandards,companyactivitiesincorporatingthe24/7conceptwouldcreateapulleffectonbroaderindustriesTodayRE100onlyrequiresmatchingannualenergypurchasevolumesto100%by2050latest.Anew24/7labelwouldbebeneficialtoenablethedifferentiationandrewardofmoreambitiousplayers.Furthermore,organizationsthatsetglobally-acceptedcarbonemissionsreportingstandardsandtargets--liketheCarbonDisclosureProject(CDP)andtheScience-BasedTargetInitiative(SBTi)--couldconsiderincludinghourly24/7matchingasarequirementtoboostadditionalcleandispatchablecapacity.TransparentandstandardizeddataecosystemtosetthetechnicalfoundationToenablemeasurementandenforcementof24/7PPAs,datatransparencyandarobustdataecosystemarerequired.Smartmetersarethetechnicalfoundationandkeyenablerforreal-timehourlymatchingofcleanenergy.Datacanalsoinformprojectdesignandcapacitysizing,andimproveflexibilityinoperationofassetsanddispatchtotapintoadditionalrevenuestreams.FurthertransparencyandcoordinationbetweentraditionalEACand24/7EACregistrieswillbecrucialtoavoiddoublecountinganddoubleApathtowardsfullgriddecarbonizationwith24/7cleanPowerPurchaseAgreementsLDESCouncil,McKinsey&Company38claimingofcleanenergyproduced,asthehourlyandtraditionalcertificatesprobablywillbetradedsimultaneouslyforquitesometime.Universalstandardsforprotocols,applicationprogramminginterfaces(API),blockchaintechnology,andsoon,areaprerequisitetoensuretheveracity,trade-abilityandacceptanceof24/7EnergyAttributeCertificates(24/7EACs)inthemarket.Open-sourcesoftwarecollaborationslikeEnergyWebdemocratizethismovement,reducingthebarriersforsmallplayerstomeasureandmanagethematchingofcleanenergyproductionanddemand.Itisimportanttonotethat24/7EACsandtheunderlyingtechsolutionsarekeyenablersforprovingtheactualpowerflowtothecustomer—butproperlydefinedPPAcontracttermsremainimportant(e.g.,foraspectslikeadditionalityofthedesignatedcleancapacity).AsupportivelocalregulatortoeliminatebarriersandcatalyzedeploymentFirst,ensuringmarketsandregulationsaresupportiveofarangeofstorageandcleanflexibilityoptionswouldenableoptimalsystemsolutions.Second,supportingregulationorsubsidiescouldacceleratethe24/7build-outandmobilizecorporateandprivateinvestmentsintothisfield.Additionally,governmentscanalsoplayacatalystroleinbeingaleadcustomerpurchasing24/7PPAsfortheirownenergyconsumption.AnexampleisPresidentBiden’sDecemberexecutiveorderthatcallsfor50%offederalpowertobeemissions-freeona24/7basisby2030and“producedwithinthesameregionalgridwheretheenergyisconsumed.”ExpandingPPAstonewcustomergroupsinthenextwavetoscalebeyondlargecorporatebuyers•Increasedroleforintermediariestocombineandbrokerportfoliostomeet24/7cleanPPArequirements•Newbusinessmodelsenablingsharedassetownership•Digitalplatformsenablingplayerstoaggregateloadandsupply•AdditionalmarketplacesforbundledorunbundledhourlyEACswillbeneededtocreateatradeable24/7producttofillgenerationgapsorcompensateforhigher-than-expectedloadsofbilateral24/7PPAs.Thiswouldrequirefurthercoreelements:hourlycertificateissuers,traders,registries,aggregators,andmatchmakers.ConclusionInaworldwhererapiddecarbonizationofthepowergridisanincreasinglyimportantpriority,thereisanurgentneedtomanagethefluctuationsofsupplyanddemandandpricerisksassociatedwithrenewablepowergeneration.24/7cleanPPAscanincreasetheeffectivenessofemissionreductioneffortsbycreatingaclosermatchbetweenrenewablessupplyanddemand.Acombinationofrenewablesandstoragecreatesdispatchablecleanpower,ahighlydesirablecommodityforcorporateslookingtoreducetheirScope2greenhousegasemissions.Thisreporthasexploredsomeofthekeyeconomicandtechnicalissuesthatneedtoberesolvedinorderfor24/7cleanPPAstoseewideradoption.Keyelementsincludeastandardizedqualityassessmentframeworkwithdifferentgradesofambition,officialcertificationbyanindependentorganizationbasedontransparentcriteria,optimizationofthetechnologymix,and—equallycrucially—aloweringofbarrierstoentryforcorporatesthatwilldriveeconomiesofscale.Whiletherearemanyobstaclestoovercome,thekeymessageofthisreportisthatthisisanentirelyfeasibletask,thatLDESisakeyenabler,andthattheprizeofeffectivepowerdecarbonizationiswellworththeeffort.Apathtowardsfullgriddecarbonizationwith24/7cleanPowerPurchaseAgreementsLDESCouncil,McKinsey&Company3939AppendixA:ModellingMethodologyThemodellingthroughoutthisreportisbasedonanoptimizationdeterminingthecapacitymix(andsubsequentlydispatch)ofasetofrenewablesandstorageassetsrequiredtomeettheproportionofhourlydemand-matchingfromthePPAdesignatedassetsatthelowestcost.ThisresultsinanapproximationofthetechnologycostscomponentofaPPA(RES+StorageLCOE).AdditionalanalysistoincorporatecostandrevenuecomponentsthatimpacttheoverallPPAeconomicsarethenfactoredintoestimatethe“ShapedPPACost,”whichservesasaproxyforthetotalPPApricepaidbyanoff-taker.Anadditionalsetofanalysishasalsobeenconductedtounderstandtheimplicationofdispatchingthestorageassetstomeettheloadversusoptimizingtominimizesystem-levelemissionsormarketprices.OptimalrenewablesandstoragecapacitymixandresultingRES+StorageLCOETheLCOEfromthemodelisreferredtoasthe“RES+StorageLCOE”.LCOEistheratiobetweentheannualizedcostofcapacityandthetotalenergydeliveredbythecapacity.Thisexcludescostssuchaspowerboughtfromthegrid,excessgenerationsoldtothegrid,andcapacityrevenuesfromthestorageassets.TheLCOEhasbeencalculatedasshowninExhibit23.Exhibit23LCOEmethodologyAlreadyinthemodelNotinthemodel𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝑑𝑑𝑑𝑑𝐸𝐸𝐸𝐸𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝑑𝑑𝑑𝑑Levelofmatchedcleansupply-demandxdemandxhoursCAPEXxWACCx(1+WACC)^(projectlifetime)(1+WACC)^(projectlifetime)-1AssumptionsConstraints�𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑅𝑅𝑅𝑅𝑆𝑆𝑆𝑆𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠(𝐴𝐴𝐴𝐴𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝐴𝐴𝐴𝐴𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐶𝐶𝐶𝐶𝐴𝐴𝐴𝐴𝐶𝐶𝐶𝐶𝐸𝐸𝐸𝐸𝐶𝐶𝐶𝐶𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀+𝑂𝑂𝑂𝑂𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀−𝑌𝑌𝑌𝑌𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝑐𝑐𝑐𝑐𝐴𝐴𝐴𝐴𝑐𝑐𝑐𝑐𝐴𝐴𝐴𝐴𝑐𝑐𝑐𝑐𝑑𝑑𝑑𝑑𝑐𝑐𝑐𝑐𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸)∗𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀�𝑅𝑅𝑅𝑅𝑆𝑆𝑆𝑆𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝐴𝐴𝐴𝐴𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝐴𝐴𝐴𝐴𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐶𝐶𝐶𝐶𝐴𝐴𝐴𝐴𝐶𝐶𝐶𝐶𝐸𝐸𝐸𝐸𝐶𝐶𝐶𝐶𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀+𝑂𝑂𝑂𝑂𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀∗𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀Levelofsupply-demandmatchingSOC1initial<SOCfinalProjectlifetime15yearsLi-ion,30-35yearsLDES.WACC6%OPEXvariation1%increaseforbatteries.0%forothercapacity/storagesources.Capacityrevenues0USD/MW/yrPowersoldtothegrid0USD/MWh.Powerboughtfromthegrid(Notinoptimisationbutanalysedseparately)tocomputetotal“ShapedPPA”cost.AssetasymmetryLi-ionhassymmetricpowerforcharginganddischarging.LDEScandecouplecharginganddischargingcapacities.1.Stateofcharge.Apathtowardsfullgriddecarbonizationwith24/7cleanPowerPurchaseAgreementsLDESCouncil,McKinsey&Company40Withtheobjectivefunctionandconstraints,theoptimizationsolvesfortheLCOE(USDperMWh),therenewablescapacity(MW),thestoragecharginganddischargingcapacities(MW),andtheenergystorage(MWh).ShapedPPACostToestimatethetotalcostofownershipfora24/7cleanPPA,the“ShapedPPACost”wascalculatedaftertheLCOEoptimization.Thisinvolvedcomputingthecostsforbuyingunmetdemandfromthemarketaswellasre-sellingexcessrenewablesgenerationproduction.Inthereferencescenario,thecostofbuyingpowerforunmetdemandfromthegridistakenasthepriceoftop(x%)expensivehoursforhistoricalwholesalepricesinthemarketofinterest,wherex=(1-%ofcleansupply-demandmatching).ThecostofsellingexcessrenewablesgenerationwastakenastheMWhofexcessrenewablessupplythatcouldneitherbeconsumedbytheloadorusedtochargethestorageassetsmultipliedbytheaveragepriceofthelowesty%hoursforhistoricalwholesaleprices,wherey=(MWhexcessgenerationproduced/totalMWhproducedbyasset).Inadditiontogridbuyingandgridsellingcosts,afixedcapacityrevenuehasbeenadded(perMW)forthestorageasset.10,000USD/MWforLi-ion,20,000USD/MWforLDES8-24hand30,000USD/MWforLDES24+h.AnalysisonvaryingstorageoperationtooptimizeforsystememissionsormarketThroughoutthereport,thestorageisdispatchedtooptimizeformeetingtheload.However,asdiscussedinChapterIV,optimizingforindividualloadcanbesub-optimalfortheoverallsystem.Twoadditionalvariationsonthestoragedispatchwereruntounderstandtheimplications.Inbothscenariosthemodelwasfirstrunusingthebasecaseassumptionsabove(therenewablesandflexibilitycapacityaresizedtomeettheminimumsupply-demandmatching):•Carbon-optimizeddispatch:thestoragedispatchminimizesgridemissionsbasedonhourlyaveragegridemissionsintensityfactor.26“Net-zeropower;Longdurationenergystorageforarenewablegrid,”LDESCouncil,2021.•Market-optimizeddispatch:thestoragedispatchmaximizesrevenuesfromsellingpowertothemarketbasedonhourlywholesalepricesignals.Themajorcaveatisthatbothoftheseoptimizationsaredeterministic—thesystemassumesperfectforesightoffuturecarbonormarketpricespotentiallyoverestimatingtheimpact.ModellinginputsandassumptionsThegeographiesmodeledinclude:California(US),UK,Germany,andAustralia.ThesewereselectedasgeographiesthatrepresenttypicalarchetypeswhereweseethemostLDESdeploymentduetohighrenewablespenetrationandlimitedlow-carbondispatchablecapacity.Severalfinancial,operations,andtechnicalassumptionswereheldconstantacrossallgeographies.Therenewablestechnologymodeledincludedonshorewind,offshorewind,andsolarPV.Thekeyinputsforeachgeographywerearepresentativeproductionprofile(accountingforatypicalweatheryearandthecapacityfactorforthetechnology)andtechnologycapexandopexprojectionsbasedoncombinationsofsourcesagreeduponbyLDESCouncilmembers.KeysimplificationandcaveatsSeveralsimplicationshavebeenrunforthemodel:whilethereareothersourcesoflow-carbondispatchablepower(nuclear,biomass,hydropower),thesearenotavailableacrossallgeographiesandcannotbequicklydevelopedshouldanoff-takerwanttoincludetheseintheirdesignatedPPAassets.Furthermore,inregionswithhighpenetrationofzero-carbondispatchabletechnologies-weseeasmallermarketopportunityforLDEStechnology.Demand-response,whileasourceofflexibility,isnotconsideredasthiswouldlikelybebothariskinternalizedbytheoff-takerandthusnotpartofthesolutionofferedbyaPPAprovider,andanalternativetoshort-durationstorageassets(Li-Ion)andnotdisplaceLDEStechnologies.26Apathtowardsfullgriddecarbonizationwith24/7cleanPowerPurchaseAgreementsLDESCouncil,McKinsey&Company4141FurtherworkCurrently,themodelisbasedonasingle“typical”weatheryear,duetolimitedconsistentdataavailabilityacrossregions.However,tobemorerepresentative,themodelshouldrunacrossadistributionofseveralweatheryears,toproperlysizeasystemthatwouldbeabletoperformundervaryingconditions.Twosensitivitiesofextremeweathereventswerecarriedout:onebyreducingtheoutputofsolarPVby50%andonshorewindby85%for10consecutivedaysinNovember,andtheotherbyreducingonshoreandoffshorewindgenerationineachhouroftheyearby20%.Withclimatechange,thelikelihoodofextremeweathereventsisexpectedtoincrease.Furthermodellingofvariousextremeweatherscenarioswouldenhancethiswork.Currently,themodelusescostassumptionsforapoolofLDEStechnologiesandnotonespecifictechnology.Further,themodelusesLDEStechnologywhichisasymmetriccharginganddischaringcapacities(MW)butassumesthesamecapexforbothequipments.Researchshowsthecharginganddischargingcostscansignificantlydifferbasedonthesophisticationofunderlyingtechnology,hencepotentiallyimpactingtheLCOEandcapacitymix.FurthermodellingfordifferentLDEStechnologiescanleadtohigheraccuracyintheanalysis.Apathtowardsfullgriddecarbonizationwith24/7cleanPowerPurchaseAgreementsLDESCouncil,McKinsey&Company42AppendixB:SurveyresponsesInordertoidentifykeybarriersforwidespreadadoptionof24/7cleanPPAs,ashortsurveyhasbeenconductedacrosspowersellersandoff-takers.Theresultsaresummarizedbelow.41%41%18%ElectricitysupplierElectricityconsumerOtherSource:LDES24/7PPAssurvey,resultsasof14/02/2022N=14.Whichofthefollowingactivitiesbestdescribesyourcompany?Distributionofresponsesin%Whatisthegeographiccoverageofyourcompany?Distributionofresponsesin%Volumesofelectricityprocured/suppliedGWh/yrDistributionofresponsesin%47%15%32%3%3%150-499<1010-6970-149>500N=34N=34N=3468%62%53%41%41%EuropeAsiaPacificNorthAmericaMiddleEastandAfricaLatinAmericaExhibit24Surveydemographics(1/2):respondentshaveadiversifiedgeographiccoverageandaroundhalfhavesmallelectricityconsumption/supplyApathtowardsfullgriddecarbonizationwith24/7cleanPowerPurchaseAgreementsLDESCouncil,McKinsey&Company4343Exhibit25Surveydemographics(2/2):>30%ofrespondentsareC-suitelevel,andalltheconsumerrespondentsinfluencetheprocurementdecisionsExhibit26Companyambitions(1/3):thecompaniesofallconsumerrespondentshavesustainabilitytargetsinplaceandprocurecleanpowerSource:LDES24/7PPAssurvey,resultsasof14/02/2022N=14.Whichofthefollowingbestindicatesyourlevelofseniority?,Distributionofresponsesin%[Consumers]Areyoufamiliarwithcurrentand/orfuturepurchasingcriteriafor(zero-carbon)electricityinyourorganization?,Distributionofresponsesin%Areyouinvolvedinthecurrentand/orfuturedecision-makingprocesstoset-upguidelines/criteriaforthepurchaseof(zero-carbon)electricitystrategicallyoroperationallyinyourorganization?,Distributionofresponsesin%32%26%26%12%C-suite3%ManagerlevelorequivalentVPlevelorequivalentDirectorlevelorequivalentOther100%0%YesNo43%57%0%0%IamoneoftheprimarydecisionmakersIamnotawareofthedecisionmakingprocessIamawareofthedecisionmakingprocess,butdonotinfluencethedecisionmakingprocessIinfluencethedecision-makingprocess,butamnotaprimarydecisionmakerN=34N=14N=14Source:LDES24/7PPAssurvey,resultsasof14/02/2022N=14.[Consumers]Doesyourcompanyhaveanysustainabilitytargetsinplace(e.g.,greenhousegasemissionreductiontargets,renewableenergyprocurement)?,Distributionofresponsesin%[Consumers]Isyourcompanycurrentlyprocuringzero-carbonelectricity?,Distributionofresponsesin%[Suppliers]Isyourcompanycurrentlysupplyingzero-carbonelectricity?,Distributionofresponsesin%100%0%YesNoN=14N=14N=12100%0%YesNo17%100%83%100Suppliers<500GWh/aYes0%Suppliers>500GWh/aNo100N=2Apathtowardsfullgriddecarbonizationwith24/7cleanPowerPurchaseAgreementsLDESCouncil,McKinsey&Company44Exhibit27Companyambitions(2/3):15respondentscurrentlysupply/procurecleanpowerusingPPAs,themajorityusingpay-as-producedor—consumedExhibit28Companyambitions(3/3):RespondentsdonothaveaclearpreferenceforRESovermoregeneralcleanpowerordecarbonizationstandardSource:LDES24/7PPAssurvey.[Consumersandsupplierswithzero-carbonelectricity]Howdoesyourcompanyprocure/supplyzero-carbonelectricity?,Numberofresponses[ConsumersandsupplierswithPPAs]WhattypeofPPAdoesyourcompanyprocure/supply?,NumberofresponsesN=18N=151311109873OtherGreenprocurementfromutilitiesUnbundledEACsVirtualPPAsOnsitegenerationOnsitePPAsPhysicalPPAs886441Pay-as-producedPay-as-consumedBaseloadannualOtherFixedshapeBaseloadmonthly15companiesintotalusePPAsSource:LDES24/7PPAssurvey.[Consumersandsupplierswithzero-carbonelectricity]Whatistheoverallpreferenceofyourcompanyregardingzero-carbonelectricityprocurement/supply?Distributionofresponsesin%Whatdoyouthinkshouldbethedecarbonizationstandardforpowerin2030?Distributionofresponsesin%N=18N=3456%44%Cleanelectricity(includingnuclear,low-carbonhydrogen,carboncapture)Renewablesourcesandflexibilitysolutionsonly35%32%32%Matchinghourlyproductionwithconsumptionviacleanelectricitycontracts,withproduction,flexibilityandconsumptionindifferentnetworksMatchingcleanpowerproductionorCO2offsetswithconsumptiononanannual/monthlybasisMatchinghourlyproductionwithconsumptionviacleanelectricitycontracts,withproduction,flexibilityandconsumptioninthesamenetworkApathtowardsfullgriddecarbonizationwith24/7cleanPowerPurchaseAgreementsLDESCouncil,McKinsey&Company45Exhibit29Driversandbarriers(1/5):>25%iscurrentlyprocuring/supplying24/7cleanandnearly90%isconsideringdoingitinthefutureExhibit30Driversandbarriers(2/5):themajordriversofcompaniescurrentlyprocuring24/7cleanPPAsarecapitalmarkets,regulatorytargetsandstrategicpreparationforthefutureSource:LDES24/7PPAssurvey.Areyoufamiliarwiththeconceptof24/7firmzero-carbonelectricity?Distributionofresponsesin%N=3488%12%NoYesIsyourcompanycurrentlyprocuring/supplying24/7zero-carbonPPAs?Distributionofresponsesin%Isyourcompanyconsideringpurchasing/supplying24/7zero-carbonPPAsinthefuture?Distributionofresponsesin%44%44%8%Idon’tknow4%Yes,inthenearterm(before2025)NoYes,inthenearterm(2025-2030)N=34N=2574%26%YesNoSource:LDES24/7PPAssurvey.Isyourcompanycurrentlyprocuring/supplying24/7zero-carbonPPAsDistributionofresponsesin%N=3474%26%YesNoWhatarethekeydriversforyourcompanytoprocure/offer24/7zero-carbonPPAs?Distributionofresponsesin%SupplierN=4,ConsumerN=578%44%78%78%56%44%22%44%22%22%44%44%Branding&end-customerexpectationCapitalmarketsorcreditorsexpectation11%Strategicpreparationforfutureregulationand/ordemandBettereconomics(hedgepricevolatility)Regulatoryrequirementsandtargets11%DigitalsolutionsthatallowtrackingconsumptionvsdemandVeryrelevantNeutralNotrelevantIdon´thaveanopinionApathtowardsfullgriddecarbonizationwith24/7cleanPowerPurchaseAgreementsLDESCouncil,McKinsey&Company46Exhibit31Driversandbarriers(3/5):Regulationtargetsandtheabilitytohedgepricevolatilitycouldincreasethewillingnesstoprocure24/7PPAsExhibit32Driversandbarriers(4/5):Thecostpremium,thelackofcarbonaccountingincentives,andthelackofflexibilitytechnologiesareseenasthehighestbarriersSource:LDES24/7PPAssurvey.Isyourcompanycurrentlyprocuring/supplying24/7zero-carbonPPAs?Distributionofresponsesin%N=3474%26%YesNoWhichofthefollowingwouldincreasethewillingnessofyourcompanytoprocure/supply24/7zero-carbonPPAs?Distributionofresponsesin%SupplierN=10,ConsumerN=11,OtherN=464%76%92%64%64%24%24%16%20%28%56%12%20%8%4%4%Branding&end-customerexpectation4%CapitalmarketsorcreditorsexpectationBettereconomics(hedgepricevolatility)RegulatoryrequirementsandtargetsStrategicpreparationforfutureregulationand/ordemandDigitalsolutionsthatallowtrackingconsumptionvsdemand0%0%0%4%4%4%8%VeryrelevantNeutralNotrelevantIdon´thaveanopinionSource:LDES24/7PPAssurvey.Whatispreventingyourcompanyfromprocuring/supplying(more)24/7zero-carbonPPAsinthenearterm?Distributionofresponsesin%N=34VeryrelevantNeutralNotrelevantIdon´thaveanopinion24%29%41%50%21%62%56%59%53%38%32%35%32%21%24%26%29%32%38%56%38%29%21%24%47%9%3%Wedon’tbelievein24/7procurementasakeydecarbonizationlever6%3%3%6%Lackofflexibilitytechnologies(e.g.,large-scalestorage,hydrogen)Itisnotimportantforourcustomersand/orshareholders6%LimiteddatatransparencyatsystemlevelLimiteddatatransparencyatcompanylevelLowvolatilityofelectricitypricesLackofstandardizationofPPAproductsandqualityCostpremiumandcompetitivenessrisk3%Lackofcarbonaccountingincentives(e.g.,scope2emissionsofGHGProtocol)3%6%Lackofinternationalcertificateschemes(RECs,GOs)withhighertemporalresolution6%6%6%6%12%Apathtowardsfullgriddecarbonizationwith24/7cleanPowerPurchaseAgreementsLDESCouncil,McKinsey&Company47Exhibit33Driversandbarriers(5/5):themajorityofrespondentsexpect24/7PPAswillbecomemorerelevantinthefutureSource:LDES24/7PPAssurvey.N=34VeryrelevantNeutralNotrelevantIdon´thaveanopinionPleaseselectupto3barriersthatyouthinkwilldecrease(andthereforeincrease24/7PPAsrelevance)overthenext5-10yearsNumberofresponsesDoyouthink24/7zero-carbonPPAsprocurement/offeringissomethingthatWILLBErelevantinthefuture(2025to2035)?Distributionofresponsesin%N=3420181511877554LackofflexibilitytechnologiesatlowcostLackofstandardizationofPPAproductsCostpremiumof24/7PPAscreatingcompetitivenessriskNotbeingrelevantforourcustomersand/orshareholdersLackofcarbonaccountingincentivesLimiteddatatransparencyatsystemlevelNotbeingconsideredakeydecarbonizationleverVolatilityofelectricitypricesLimiteddatatransparencyatcompanylevelLackofcertificateschemeswithhighertemporalresolution85%88%71%15%24%Fortheregulationsinregionsyouoperatein?Fortheindustryyouoperatein?Foryourowncompany?12%6%Apathtowardsfullgriddecarbonizationwith24/7cleanPowerPurchaseAgreementsLDESCouncil,McKinsey&Company48Underembargountil11May08:00CET

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