How Granular Energy’s founder made the case for hourly REC matching

More than a decade ago, Toby Ferenczi started hearing a question he couldn’t quite answer.

He was running a demand response program for the British energy supplier OVO, which had acquired VCharge, the electric vehicle charger demand response company Ferenczi founded. OVO marketed 100% clean energy to its customers. But it also asked them to shift their consumption to times when the company could source clean energy. 

This confused customers. If all of OVO’s energy was clean, why ask customers to join a demand response program? 

The answer centered around renewable energy credits, or RECs. OVO purchased RECs from clean energy generated elsewhere, or energy generated at a different time. 

“I could buy all of my energy from a solar farm in the summer and claim to use that energy throughout the year, including at nighttime” because the RECs were accounted for on an annual basis, Ferenczi said on the With Great Power podcast. 

Ferenczi felt this approach to REC accounting — matching supply and demand on an annual basis — needed to evolve. He wanted to see RECs tied more closely to clean energy production. Doing so, he argued, could incentivize building more renewable energy generation, as well as energy storage, on the grid. 

So in 2020 Ferenczi founded the non-profit Energy Tag to develop a protocol for matching renewable energy purchases to their time and place of use to allow for hourly accounting — or “matching” — of RECs. Then in 2022, after leaving Energy Tag’s executive team, he founded Granular Energy, a for-profit that sells utilities software based on the Energy Tag standard to support hourly matching.

As Ferenczi pivoted careers, debate was growing around how corporations should make clean energy purchase commitments. Large corporate energy buyers have converged around two camps.

One camp says companies should use hourly matching to show that they are buying clean power at times and from places where dirty power would otherwise be produced. The 24/7 Carbon-Free Coalition, which includes Google, Vodafone, and a handful of other corporations across industries, committed to this in September.

The other camp focuses on total emissions impact, not granular time-and-use tracking, of clean energy purchases. Its goal is to look for opportunities to offset as much dirty energy production as possible by procuring clean energy. The Emissions First Partnership led by Amazon, Meta, and several other companies, has been advancing this framework since late 2022. It’s how Amazon managed to supply all of its energy from clean sources seven years ahead of schedule. 

Ferenczi and Granular Energy side with the 24/7 carbon-free energy camp. Ferenczi points to companies making big investments in funding renewable energy generation in places like India, where the electric grid relies on dirty fuel, despite not having any operations in India 

“That's fine, but that's got nothing to do with your own emissions,” he argued.

But because tech companies are already headquartered in parts of the U.S. with abundant renewable energy, one counter-argument says they should fund clean energy elsewhere. 

Ultimately, Ferenczi says, the Greenhouse Gas Protocol dictates how corporations account for the greenhouse gas emissions associated with their operations, or scope two emissions. 

Currently, the protocol allows annual REC purchases to be considered 100% clean energy, but many stakeholders are pushing for an update to the protocol. The outcome of that update could change how corporations go about decarbonizing their operations, says Ferenczi — and also how they’re perceived by consumers. 

“It's a big potential cost difference to these tech companies between these two methods,” he said. “And in order to have a license to operate, they need to be able to show we’re not kind of destroying the planet every time we go on chat GPT.”

For the full conversation with Toby Ferenczi, listen to his interview on season 4 of With Great Power.

This is partner content, brought to you by GridX. It borrows from an interview that appeared on With Great Power, a Latitude Studios partner podcast.

With Great Power is a show about the people building the future grid, today, produced by Latitude Studios for GridX. Follow on Apple, Spotify, or wherever you get your podcasts.

Transcript

Brad Langley: During the forced solitude of COVID lockdown, Toby Ferenczi found himself ruminating on a puzzle.

Toby Ferenczi: I think like a lot of people, I had a bit of extra free time on my hands because I wasn't commuting to work anymore.

Brad Langley: But it wasn't a jigsaw puzzle he was trying to solve for. It was an energy puzzle. At the time, he was working for the British energy supplier, OVO, which had acquired Ferenczi's Startup V-Charge, an EV charger demand response company.

Toby Ferenczi: Because I was still running this demand response business trying to get customers to shift their consumption from one time of day to another. But at the same time, we had a product offering which was labeled 100% renewable energy. Customers would say, "Well, if you've just sold me 100% renewable energy, then why do I need to do this demand response program? Why does it matter when I'm using my energy? Because if it's 100% renewable, surely it shouldn't matter."

Brad Langley: He kept thinking, you know what? You're right, it shouldn't matter, but it did. Because what allows an energy provider to offer 100% renewable energy are these tradable certificates called Renewable Energy Credits or RECs. One REC represents one megawatt hour of clean fossil free energy.

Toby Ferenczi: If you use like 100 units of energy in a year and you buy 100 of these certificates, you can say you are 100% renewable.

Brad Langley: And that's because RECs had traditionally been brokered on an annual basis.

Toby Ferenczi: And, of course, what that means is I could buy all of my energy from a solar farm in the summer, and you claim to use that energy throughout the year, including at nighttime.

Brad Langley: So despite offering rate payers a 100% renewable option, a utility might also enroll those same rate payers in a demand response program to reduce demand for power at night, when those electrons were actually coming from a gas power plant. But Toby didn't think that just doing away with RECs was the answer.

Toby Ferenczi: They provide this really good way to track every unit of energy that's generated and kept on a central registry by an authority like the ISO or regulator, and then consumers can make that choice without any risk of double counting.

Brad Langley: Instead, he thought tying clean energy to its use, a concept called matching, was the solution to the puzzle. And it became his pandemic project, a nonprofit called Energy Tag, which developed a protocol for hourly rather than annual matching of RECs. It turned out to be the right idea at the right time.

Toby Ferenczi: We got a grant from Google, but support from hundreds of other businesses from the United Nations. It was really kind of an idea that seemed to catch on really quickly.

Brad Langley: Now, fast-forward two years and Toby took much of what he learned at Energy Tag to launch a new startup. Granular Energy provides a tool for utilities to match renewable energy generation with where and when it was consumed down to the hour. It's something Toby hopes will keep the clean energy transition moving at a rapid pace.

Toby Ferenczi: Whether that transition takes the next 30 or 40 years compared to the next 15 to 20 years, that is really going to be the deciding factor on whether or not we have a planet that we can live on, in terms of the impact of climate change.

Brad Langley: This is With Great Power. A show about the people building the future grid today. I'm Brad Langley. Some people say utilities are slow to change, that they don't innovate fast enough. And while it might not only always seem like the most cutting edge industry, there are lots of really smart people working really hard to make the grid cleaner, more reliable and customer-centric. Today my guest is Toby Ferenczi, CEO and co-founder of Granular Energy. We talk about the history of RECS, the parallels between carbon tracking and carbon offsets, and why renewable energy credits have become a big tech battleground. But first, I asked Toby to explain how Granular Energy works with utilities.

Toby Ferenczi: So if you're a customer of a utility that works with us and uses our software, your energy company will be able to actually tell you exactly where your energy has come from. So down to the specific power plant, not only whether you've bought renewable energy or fossil fuels, but actually which wind farm or which solar farm down to the specific hour when the energy was generated and when it was consumed. And that's really becoming increasingly important for many businesses trying to eliminate fossil fuels from their supply chain. And many of them are now being required to actually report their carbon emissions at the end of the year. And so we're really hoping to open up the energy industry to give customers that transparency and then by doing so, we're hoping that's going to accelerate the transition to a carbon-free energy system.

Brad Langley: Can you dig in a little to how RECS have evolved and why you think hourly matching has become so important?

Toby Ferenczi: So how the system works today as it has been done for the past 20 years is it's about matching supply and demand over a one-year period. And this I think actually made total sense when these systems were introduced. Back then there were no renewables on the grid, so this whole timing issue, this whole supply and demand issue of clean energy wasn't so much a problem. So you would always be displacing fossil fuels, but you fast-forward now to grids where we're starting to see significant duck curves like in California where you're seeing negative electricity prices in certain hours, real congestion issues, timing is everything. And what we want is for clean energy to send an efficient price signal to the market to incentivize the technologies that are most needed. And when you have this annual matching process, what that means is you are valuing clean energy at the same price regardless of time of day.

So regardless of supply and demand and so to be an efficient price signal, we want clean energy to be slightly cheaper when it's in oversupply and slightly more expensive when it's in short supply. And that really is then incentivizing the right technologies, not only more renewables, but also things like energy storage and flexibility, particularly things like long duration energy storage. There's been some great academic research on this topic. Great group run by Jesse Jenkins out of Princeton who have modeled the impact of what would happen if we make this transition to hourly matching of clean energy. And you really send an important price signal, which hasn't really emerged yet for some of these technologies that can store clean energy for not just a couple of hours, but for tens of hours or even days. We need to start deploying them quickly to start getting the cost down. And so that's really the argument.

As well as the whole trust thing, it's like the sun doesn't shine at night, believe it or not. So having an accounting system that is not really reflective of the real world of the actual physics of the power system doesn't really engender a lot of trust, which is important if we're trying to convince people that they should choose to buy clean energy instead of buying fossil fuels.

Brad Langley: And so how are you able to work with utilities to match generation of clean energy with consumption on an hourly basis? Maybe address how you guys have developed the software and what it does to be successful in this effort.

Toby Ferenczi: It's really a tool for sophisticated management of these energy attribute certificates, so we enable utilities to track their inventories of these certificates to understand what their position is, how many they've sold to customers, what they need to buy from the market, and so where are they long, where are they short? And really helping understand that initial position. And then we support the allocation to end customers, so if you're an energy utility and you're... Or a retail energy provider and you're buying clean energy from hundreds of different generation assets and you've thousands or tens of thousands of customers, how do you decide where each of these individual clean energy certificates should go? How to assign them to each customer according to their requirements? And we've developed some very cool algorithms to optimize that process. And then off the back of that, once you've made those allocations, how do you report out to customers?

How do you give them the information about which units of clean energy they have received or they've purchased and what are the corresponding carbon emissions? So all of the end customers who are benefiting from the solution actually get a mapped reading, showing them the location of all of the power plants, their carbon emissions, and if desired on an hourly level, exactly the technology breakdown in which power plant... All of that is ingested into our tool, we manage those allocations of volumes and reconcile them with the certificates and then automate all of that reporting off the back of it. It's a fairly complex piece of enterprise software, it's also an accounting tool. So we can provide assurance, verifiable reports that can be audited. Some of this work used to be covered by spreadsheets, which is kind of okay when you're... If you've just got to annually match a handful of customers. But if you want to do this on a program basis down to the hourly level, it's where you really need a tool.

Brad Langley: And can any utility use this software? Is there a sweet spot for this kind of service that you guys provide or is it any utility?

Toby Ferenczi: I mean the sweet spot... The starting point is any utility or energy supplier that has a green power program, that's offering as an option to their customers clean energy in some shape or form. But in the US there's many different types of utilities and energy suppliers that do that today. We work with some very large regulated IOUs, some municipal utilities, some CCAs in California and some big retail energy providers. We have a project with Constellation, for instance. So it is a broad mix, but that key is, is the utility interested in offering a clean energy product to their customers.

Brad Langley: There's a dust-up right now between some big technology companies around REC accounting. We've got Google and Microsoft on one side of the debate and Amazon and Meta on the other, tell us about what this debate is about.

Toby Ferenczi: Yeah, it's become quite a heated debate. I think that there are some things which all of the tech companies can agree on, which is that we need good accounting systems for the carbon emissions associated with energy consumption. We are going to see a massive, massive increase in demand from the tech industry to support AI and data centers. And it's really important that we ensure that this new load is served with clean energy because otherwise we could set the energy transition back 20 years if we go and install another fleet of gas-fired electric turbines. What's different about the two approaches that are being advocated is Google and Microsoft, they're saying we want to match our load with clean energy on a time and location basis, so we can kind of demonstrate corresponding to the physical nature of the grid that their energy is coming from a clean energy source each hour of the day.

Amazon and Meta are going for a slightly different approach where they're saying, "Okay, well maybe it's less important to match clean energy to our consumption. What we want to do is go build new renewable energy projects in the places which have the most carbon emissions." And then essentially calculate what's called the avoided emissions. So I build a project in West Virginia where you have a lot of coal in the grid, you build a solar project. Can I calculate the impact of the CO₂ reduction that building that project has had? And then can I essentially turn that into a credit and offset it with my consumption? So it's a bit like this offset model where you calculate and avoid emissions from doing a project and then match it up. And so you can certainly see the argument on both sides, Google and Microsoft saying, we just want to make sure that our electricity consumption is as low carbon as possible. And whereas the other side is like, well, we don't care so much about that. We just want to have the biggest impact possible.

And I think the debate has got a lot of confusion because they're really measuring two different things actually. And if anyone wants to read up on this topic, just Google the Greenhouse Gas Protocol. And that's what this is all coming to because the Greenhouse Gas Protocol is like the Bible when it comes to carbon emissions accounting, and they have something called Scope 2 emissions accounting, which is basically the emissions associated with your energy consumption. And when it comes to Scope 2, this is actually not supposed to measure what is the impact of the stuff that you're doing, this is about measuring your inventory where you're trying to measure what are the emissions associated with your activities. And then there is actually a different set of guidance also in the Greenhouse Gas Protocol called project accounting. It's a different accounting method for a different purpose. And I really think that that's the way to resolve this debate is to separate those two.

One is the inventory accounting. What are my emissions from my energy consumption? And then the second thing is, what's my impact? And so maybe one quick way to think about it is if I have a data center in California and a data center in West Virginia, I can use hourly accounting to work out what are my emissions associated with that data center in each location. And if I find that, okay, I've got a really high hourly matching score in California because there's lots of renewables available, but only a 30% matching score and higher emissions in West Virginia, then absolutely at that point focus your efforts on decarbonizing the West Virginia facility, sign some more contracts to buy clean energy for that facility and work on that first before going back to California.

But if you've got some people saying, "What about doing something in India?" Where you have zero operations, but you have a very dirty grid. Hey, that's fine, but that's got nothing to do with your own emissions. So anyway, that's just my view. The whole debate is going to run for another couple of years as the Greenhouse Gas Protocol makes its decision. The reason why it's so fierce is because it actually matters, it's a big potential cost difference to these tech companies between these two methods. And in order to have a license to operate, they need to be able to show they're not... We're not destroying the planet every time we go on ChatGPT.

Brad Langley: Are there strong arguments in favor of carbon matching?

Toby Ferenczi: For me, you put it in the same bucket as voluntary carbon offsets. Because that is what offsets our carbon matching. It's like, I've produced this much CO2 in one location, I've reduced CO2 in another location, I'm going to match the two. And I think once you make that conversion to CO2, it makes no difference whether that's from a renewable energy plant or rain forest protection or carbon removal credits. And so do I think there's a role for voluntary carbon offsets? Yeah, I do. A lot of these projects need to happen. I mean, you can have some debates around direct air capture and so on in terms of how are we going to protect the rainforest and prevent logging. I really think a well-run and better regulated voluntary carbon market could go a long way to getting and driving investment in some of these projects. But it really needs to be well regulated. These systems are based on trust, and if people can't trust the system, then the whole thing breaks down.

Brad Langley: So last question for you, it's a bit of a fun one. We call this show With Great Power, which is a nod to the energy sector. It's also a famous Spider-Man quote: with great power comes great responsibility. So what superhero trait do you bring to the energy transition?

Toby Ferenczi: I guess I'm not sure I'd call it a superpower, but when I was doing this nonprofit, I was just on the phone all the time speaking to all of the relevant people, anyone who had an interest, who was influential. And to a degree, we created a movement that's now impacting the way the system works. And I think what maybe got people switched onto the idea was my conviction and my belief that this is an important change for the industry. And so I think just having passion and conviction, it gives everyone a superpower in some ways.

Brad Langley: Couldn't agree more. All right, well Toby, thank you so much for coming on the show. I really enjoyed our conversation.

Toby Ferenczi: Thank you so much. Really enjoyed being here. Thanks.

Brad Langley: Toby Ferenczi is the Co-founder and CEO of Granular Energy. With Great Power is produced by GridX in partnership with Latitude Studios. Delivering on our clean energy future is complex, GridX exists to simplify the journey. GridX is the enterprise rate platform that modern utilities rely on to usher in our clean energy future. We design and implement emerging rate structures and we increase consumer investment in clean energy, all while managing the complex billing needs of a distributed grid. Our production team includes Erin Hardick and Mary Catherine O'Connor. Anne Bailey is our senior editor. Steven Lacey is our executive editor. Sean Marquand composed the original theme song and mixed the show. The GridX production team includes Jenny Barber, Samantha McCabe, and Me, Brad Langley. If this show was providing any value for you, and we really hope it is, we'd love it if you could help us spread the word. You can rate or review us with Apple and Spotify, and you could share a link with a friend, colleague, or the energy nerd in your life. As always, thanks for listening, I'm Brad Langley.