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ALERT: CDP Introduces Exemption in its Market Boundary Guidelines

New ruling offers significant benefits to pan-European renewable energy buyers

CDP recently updated the market boundary criteria section of version 7.0 of its Technical Guidance on Accounting Scope 2 Emissions to support corporate renewable energy buyers with imminent or existing sourcing contracts.  The updated guidance, version 7.1, now has a grandfathering clause in its market boundary guidelines that exempts renewable energy contracts signed up to December 31st, 2021

Effective immediately, companies that execute renewable energy sourcing contracts involving transactions outside of identified market boundaries will now be accepted into CDP reporting—so long as those contracts are signed before December 31st of next year and are aligned with the market boundary guidelines issued earlier by CDP (version 6.0, March 12, 2019).

This update is welcome news to corporate clean energy buyers with global sourcing strategies, because it means they can make renewable energy claims using contractual instruments that would otherwise be disallowed under CDP’s new market boundary definition.

The grandfathering clause was introduced to avoid putting companies with imminent or existing renewables contracts at a disadvantage, and to enable a gradual transition to the stricter market boundary criteria released in April 2020.

CDP’s market boundary criteria requires organizations to source renewable electricity within the market boundaries of the location in which they are consuming the electricity.

In most countries worldwide, the market boundary is equivalent to the geographical country boundary. The United States and Canada, as well as European countries that are AIB members, are two exceptions.

Without the grandfathering clause, corporate renewable energy buyers with pan-European strategies and/or existing projects in non-AIB member countries (such as Bulgaria, Hungary, Poland, the UK, and Romania) would have faced significant renewable energy claim restrictions. 

The flexibility to exempt contracts up to December 31, 2021 is good news for current and aspiring PPA buyers with operations in one or more of the mentioned non-AIB member countries—their collective consumption in these markets alone is estimated at 10 TWhs.

“CDP’s exemption clause will greatly benefit the corporate renewable energy market and especially continue to encourage utility-scale clean energy projects in Europe through next year.”

- John Powers, VP of Global Renewables and Cleantech at Schneider Electric

“Organizations with existing or forthcoming projects in non-AIB countries, such as Poland, now have the assurance that the project’s GOs can be applied more broadly throughout Europe—versus only towards their in-country load.  Companies with load in non-AIB countries can also continue looking at other renewables markets and size a PPA to address their load throughout Europe.”

The official exemption clause from CDP can be found in Section 2.3 on page 15 here and is copied below. If you have questions on how this exemption clause may impact individual wind or solar projects, please reach out to our team.

Additional information on Scope 2 guidance and how to make renewable energy marketing claims can be found in our guide: Clean Energy Marketing & Emission Reduction Claims: What You Need to Know.

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Exemption for contracts signed before 31st December 2021

Renewable generation projects are typically financed over a long period (e.g. 15-20 years) and corporate PPAs and Virtual Power Purchase Agreements (VPPAs) can be an important long-term revenue stream to drive project development. To avoid putting companies with existing sourcing contracts at a disadvantage and to enable a gradual transition to the market boundary criteria, renewable energy sourcing contracts involving transactions outside of the identified market boundary signed up to the 31st of December 2021 will be accepted in CDP reporting until the end of the respective contract period. This means that companies can continue to calculate their Scope 2 market-based emissions using the instruments procured before this date that do not meet this market boundary criteria. For transparency, when disclosing the renewable energy sourcing methods in C8.2e, companies are advised to provide the details of the contract i.e. the country of origin of instruments, the volume and the duration of the contract. This exemption only applies to instruments that meet the Scope 2 Quality Criteria – a set of minimum criteria that relate to the integrity of the contractual instruments as reliable conveyers of GHG emissions rate information and claims, as defined in the GHG Protocol.