The Business Case for Granular Energy Certificates

The market for renewable energy certificates has long operated on a fundamental simplification: annual matching. A corporate buyer purchases Guarantees of Origin (GOs) or Renewable Energy Guarantees of Origin (REGOs) equivalent to their total annual electricity consumption, demonstrating that renewable generation somewhere on the grid matched their demand over the course of a year. For institutional investors financing energy assets and corporations reporting environmental performance, this mechanism is now revealing critical limitations.

The emergence of granular energy certificates—particularly hourly time-stamped certificates—represents a structural evolution in how electricity consumption is attributed to generation sources. This shift has material implications for asset valuation, revenue predictability, and the integrity of carbon accounting frameworks that underpin environmental, social, and governance (ESG) reporting.

The Limitations of Annual Matching

Traditional renewable energy certificates operate on a bundled or unbundled basis within annual timeframes. Under the GO system governed by the Association of Issuing Bodies (AIB) across Europe, one certificate represents one megawatt-hour of renewable generation. Buyers retire these certificates against their consumption to substantiate renewable energy claims.

This annual matching mechanism contains an inherent temporal disconnect. A solar farm generates certificates during daylight hours, whilst a data centre consumes electricity continuously. Under annual matching, a corporation can claim 100% renewable electricity despite consuming coal-fired power during winter evenings, provided they purchase sufficient solar certificates generated during summer afternoons. The certificates and consumption occur on the same grid, but rarely at the same time.

For institutional investors, this temporal mismatch creates valuation challenges. The market price of annual certificates reflects neither the temporal value of generation nor its correlation with system carbon intensity. A megawatt-hour generated during periods of high carbon intensity—when it displaces fossil generation—carries the same certificate value as generation during periods when the grid already runs on low-carbon sources. This pricing inefficiency obscures the true carbon displacement value of renewable assets.

Understanding 24/7 Carbon-Free Energy

The concept of 24/7 carbon-free energy emerged from a recognition that real decarbonisation requires matching consumption with clean generation on an hourly—or ideally finer—basis. Rather than balancing renewable purchases against consumption annually, the 24/7 approach seeks to ensure every hour of consumption is matched with carbon-free generation occurring in the same hour.

This framework acknowledges a physical reality: electricity systems operate in real-time. When demand exceeds low-carbon supply in a given hour, fossil generation fills the gap. Annual matching obscures this operational reality, whilst hourly matching exposes it. For a corporate buyer pursuing genuine decarbonisation rather than accounting compliance, this distinction matters fundamentally.

From a market perspective, 24/7 carbon-free energy creates differentiated demand signals. Assets that generate during periods of high residual emissions—such as offshore wind during winter evenings—become more valuable than those generating when the grid already runs clean. This temporal pricing mechanism can enhance revenue predictability for assets whose generation profiles align with high-carbon periods, whilst creating procurement challenges that drive investment in energy storage and flexible generation.

The EnergyTag Initiative and Market Infrastructure

Implementing hourly matching requires infrastructure beyond current certificate systems. The EnergyTag standard provides a framework for issuing, transferring, and retiring energy certificates with granular timestamps. Rather than aggregating monthly or annual generation into bulk certificates, EnergyTag-compliant systems record generation in hourly (or sub-hourly) intervals, creating certificates that specify both the quantity and timing of production.

This granularity demands robust data infrastructure. Issuing bodies must access settlement-grade metering data at hourly intervals, verify this data against market settlement systems (such as Elexon's systems in Great Britain), and ensure certificates cannot be double-counted across jurisdictions or timeframes. The operational complexity exceeds annual certificate systems significantly, requiring integration with metering infrastructure, market settlement platforms, and registry systems.

For investors financing energy assets, EnergyTag-compatible infrastructure introduces new revenue opportunities but also operational requirements. Assets must maintain settlement-grade metering, provide granular production data, and potentially integrate with multiple registry systems serving different corporate buyers. These requirements carry costs, but they also enable premium pricing for generation occurring during high-value periods.

Temporal Carbon Intensity and Market Signals

Hourly matching reveals temporal variations in grid carbon intensity that annual matching obscures. In Great Britain, carbon intensity fluctuates substantially across hours, driven by variable renewable output, demand patterns, and the merit order of dispatchable generation. An hour of consumption during a winter evening—when gas-fired generation dominates—carries materially higher emissions than an hour during a summer afternoon when solar and wind generation meet most demand.

This temporal variation creates differentiated value for renewable generation. Under annual matching, all renewable megawatt-hours command similar certificate prices regardless of when they're generated. Under hourly matching, certificates generated during high-carbon-intensity hours can command premiums, as they displace fossil generation rather than surplus renewable output.

For institutional investors, this pricing mechanism improves risk assessment. Assets with generation profiles correlated with high carbon intensity periods—such as wind farms with strong winter capacity factors—may achieve better certificate revenues than annual matching suggests. Conversely, solar assets generating during periods when the grid already runs on surplus renewables may face pricing pressure. This differentiation enhances the precision of cash flow modelling and asset valuation.

Corporate Procurement and Additionality

Corporate buyers increasingly scrutinise the additionality of their renewable energy purchases. Purchasing certificates from a wind farm built decades ago, operating profitably regardless of certificate prices, demonstrates compliance but questionable environmental impact. The wind farm would operate identically without the certificate sale, meaning the purchase finances nothing incremental.

Hourly matching strengthens additionality signals. Corporate buyers pursuing 24/7 carbon-free energy must either procure from a diverse portfolio of renewable assets spanning different generation profiles, or invest in energy storage to time-shift generation. Both approaches drive incremental investment beyond what annual matching supports. A corporation achieving 90% hourly matching demonstrates genuine demand for generation during challenging hours, potentially supporting investment in technologies like long-duration storage or offshore wind with high winter capacity factors.

This dynamic creates opportunities for asset developers and investors. Projects offering generation profiles that complement variable corporate demand patterns can negotiate premium power purchase agreements (PPAs) with hourly matching requirements. These PPAs may achieve higher average prices than standard fixed-price structures, reflecting the temporal value buyers assign to difficult-to-procure hours.

Data Infrastructure and Verification

Granular certificates demand granular data. Issuing hourly certificates requires settlement-grade metering data at matching intervals, verified against market settlement systems to prevent double-counting or fraudulent issuance. In Great Britain, this means integration with Elexon settlement data; across Europe, alignment with ENTSO-E transparency platforms and local transmission system operator (TSO) data.

For investors and asset operators, this infrastructure requirement translates to operational complexity and cost. Assets must maintain metering systems meeting settlement standards, provide data feeds to certificate registries, and potentially support multiple registry systems if serving buyers across jurisdictions. However, this infrastructure also enables new services beyond basic certificate issuance, including real-time consumption matching, portfolio optimisation, and granular carbon accounting.

The verification challenge extends beyond metering. Hourly matching requires confirming that certificates haven't been retired multiple times, that generation occurred on the same grid as consumption, and that temporal claims align with actual system conditions. Registry systems must integrate with market settlement platforms, maintain audit trails meeting financial reporting standards, and support the complex contractual structures that corporate buyers employ.

Implications for Asset Valuation

The shift toward granular certificates affects how institutional investors value renewable energy assets. Under annual matching, certificate revenues depend primarily on total generation volumes and undifferentiated certificate prices. Under hourly matching, revenues depend on temporal generation profiles and their correlation with carbon intensity, demand patterns, and competing renewable output.

This introduces new variables into discounted cash flow models. Assets must be evaluated not just on capacity factors and generation volumes, but on when generation occurs. Two wind farms with identical annual capacity factors may achieve materially different certificate revenues if one generates predominantly during high-carbon-intensity hours whilst the other operates during surplus renewable periods.

Portfolio construction also evolves. Investors pursuing optimised certificate revenues under hourly matching may prioritise diversity across generation profiles—combining solar, onshore wind, offshore wind, and potentially storage—rather than concentrating in the lowest-cost generation technology. This diversification mirrors the procurement strategies of corporate buyers pursuing 24/7 carbon-free energy, creating aligned incentives between asset investors and certificate purchasers.

Market Development and Liquidity

Granular certificate markets remain nascent compared to annual GO markets. Liquidity in hourly certificates is limited, price discovery incomplete, and standardised trading infrastructure underdeveloped. For institutional investors, this creates both risks and opportunities.

The risk lies in revenue uncertainty. Annual GO prices, whilst volatile, benefit from established markets with observable price history and multiple buyers. Hourly certificate prices lack comparable market depth, making revenue projections more speculative. Long-term corporate PPAs with hourly matching requirements can mitigate this risk, but such contracts remain uncommon and often require bespoke structuring.

The opportunity emerges from market development potential. Early movers in granular certificate markets may achieve premium pricing as corporate buyers with 24/7 goals compete for limited supply of certificates during difficult hours. As markets mature and infrastructure develops, these premiums may compress, but investors entering early can capture first-mover advantages.

Regulatory Considerations

Existing regulatory frameworks for renewable energy certificates were designed for annual matching. Adapting these frameworks to support granular certificates requires addressing technical standards, registry requirements, and accounting methodologies. The AIB, which operates the European GO system, must evolve standards to accommodate hourly granularity whilst preventing double-counting across timeframes.

In Great Britain, Ofgem's oversight of the REGO scheme would need to address granular certificate issuance, potentially requiring changes to metering requirements, registry functionality, and audit procedures. Across the EU, member states implementing granular systems must ensure interoperability whilst maintaining the integrity of existing annual mechanisms during transitional periods.

For investors and operators, regulatory uncertainty around granular certificates creates planning challenges. Projects may require dual certification systems—maintaining both annual and hourly certificates—until markets and regulations converge on standardised approaches. This operational complexity increases costs but also creates barriers to entry that may protect early movers.

Strategic Implications

The evolution toward granular energy certificates represents more than a technical refinement of existing systems. It signals a fundamental shift in how electricity consumption is attributed to generation sources, with material consequences for asset economics, corporate procurement, and carbon accounting integrity.

For institutional investors, this transition demands enhanced analytical capabilities. Asset valuation must incorporate temporal generation profiles, grid carbon intensity patterns, and the emerging market for hourly certificates. Risk assessment must account for technology-specific generation characteristics—the winter bias of offshore wind versus the summer concentration of solar—and how these profiles align with corporate buyer demand.

The infrastructure requirements for granular certificates—settlement-grade metering, registry integration, data verification—create both costs and competitive moats. Operators investing in robust data infrastructure position themselves to serve sophisticated corporate buyers whilst establishing barriers against competitors lacking such capabilities.

Ultimately, granular energy certificates align market incentives with physical reality. By recognising that electricity systems operate in real-time and that the carbon intensity of consumption varies by hour, granular certificates create pricing signals that reward genuine carbon displacement rather than accounting compliance. For investors financing the energy transition, understanding these mechanisms is essential to deploying capital effectively in an evolving market landscape.