This blog was published on 15 March 2024.
Carbon finance is generating much excitement in the distributed solar industry though the opportunity remains tantalisingly out of reach for most companies. In response to this interest, GOGLA has been hosting a six-part webinar series for our members with the aim of a) increasing our collective understanding of this potential revenue stream and b) exploring the requirements for the off-grid solar sector to create and sell high-integrity carbon offsets.
In the fourth webinar of this series, we learned that experts estimate a factor of 100 increase of demand by 2050. During the fifth and most recent session on the 22nd of February, we tried to find an answer to the question where this demand is coming from and what buyers are looking for.
For off-grid solar (OGS) companies, the voluntary carbon market (VCM) will provide the most opportunities in the near future, especially when co-benefits can be adequately monetized. The compliance market and initiatives such as D-RECs (Distributed Renewable Energy Certificates) are set to contribute a growing share of the demand in the longer term, driven by new regulations on all levels (country, sectoral and international) and once the integrity of carbon credit increases. Partnerships and collaboration between local and global stakeholders as well as an increasing awareness of the added value of OGS carbon credits will positively affect demand and help companies enter and sustain both the voluntary and the compliance market.
- Monetizing impact and co-benefits will play a key role in increasing demand for OGS carbon credits. Non-profit investor Acumen believes there is a huge opportunity for OGS companies to monetize their environmental and social impact. If OGS companies manage to showcase their impact and co-benefits, they can increase their attractiveness to potential buyers on marketplaces like Xpansiv, that are trying to connect suppliers and buyers looking for a ‘story’ that matches their interest. Buyers are often willing to pay price premiums for co-benefits, but clear and robust evidence is necessary. Harmonisation of impact measurement across the OGS sector could provide more reassurance to buyers on co-benefits allowing them to make an effective and transparent claim. Prioritizing co-benefits per SDGs, technologies or geographies would help buyers, for example on Xpansiv, to look for the right match and make the verification processes more efficient. Focusing on fairness by sharing the value of carbon credits with the end users can further help to create demand.
- Partnerships and collaboration are crucial to bring more OGS carbon credits to the markets. Partnerships need to be formed and collaboration across stakeholders promoted to support OGS companies in all maturity stages to enter the VCM. Some of the key players in the industry such as British International Investment (BII), Shell Foundation and SunCulture have already joined forces and announced their partnership at COP28. For the smaller-scale companies that are still at the beginning of their carbon credit journey, technical assistance and pre-financing facilities are much needed. Full-service provider atmosfair aims to help companies with carbon credit generation throughout the whole value chain (but does not currently support project developers involved in solar home systems, solar lighting and pico devices).
- Update of Article 6 of the Paris Agreement will be beneficial for the demand of OGS carbon credits. Carbon credit generation from renewable energy took a hit in 2023 with negative publicity around miscalculations and overestimations. But with the demand expected to rise significantly, carbon credits from OGS cannot be overlooked in the future. An updated United Nations Framework Convention on Climate Change (UNFCC) framework and new methodological guidance can raise the bar for the entire VCM, and especially for the OGS sector, where integrity might improve as a result.
- Going forward the compliance markets and initiatives such as D-RECs can provide opportunities for OGS companies. Most of Acumen’s investees, and OGS companies more broadly, are currently selling their carbon credits on the VCM, whilst some tap into other sources, such as D-REC initiatives With new legislation, in particular carbon taxes, enacted in more and more countries, the demand on the compliance market is also expected to increase significantly. The crux will be to make sure the OGS sector is on the radar of the relevant players. If schemes like the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA) with almost 200 participating airlines expand their horizons to OGS, opportunities are endless. So far, however, only very few companies (like SunCulture) have manged to enter the compliance market. Platforms such as Xpansiv can play an important role in facilitating the exchange between global and local market participants, as well as support different market mechanisms, including the price discovery process.
- OGS companies are noy yet “top-of-mind” with potential buyers. Buyers of carbon credits are still lacking awareness of the potential that the broader OGS sector holds for them. There is also an opportunity for OGS companies to diversify from traditional to new buyers. GOGLA as the industry association, other industry associations and initiatives can continue to share the narrative and position OGS on carbon credit marketplaces and platforms. If you believe in the potential of the carbon market for OGS companies, we count on you to help us keep spreading the word.
What’s Next? Learn more about the regulations, country plans and the future of the Voluntary Carbon Market for the OGs sector in our sixth and final webinar on the 28th of March at 14:00h CET. GOGLA Members get free access to this webinar – send an email to p.vanbasten@gogla.org to secure your place.
We would like to thank our partners and speakers – Catherine Allinson, Director, Future Earth; Chris Sturgess, Consultant, Capital Markets, Johannesburg Stock Exchange; Annika Richter, Regional Manager East Africa, Atmosfair and Mercedes de la Vega, Energy Partnerships Manager, Acumen– for their insightful contributions towards the fifth webinar in the series.
The Carbon Finance webinar series is being funded by GET.invest, a European programme that mobilises investment in renewable energy, supported by the European Union, Germany, Norway, Sweden, the Netherlands, and Austria.