Where does the energy come from to power your facilities? Even if your company claims to be 100% renewable energy, you might be surprised to learn that much of your power comes from natural gas or even coal. Keep reading to understand this paradox.
Renewable Energy Certificates
Just as there is a market for carbon credits, companies can purchase renewable energy certificates (RECs), also called renewable energy credits, to reduce their Scope 2 greenhouse gas (GHG) emissions. If you want a refresher, see my first Sustainability 101 blog from 2021 that defines Scopes 1, 2, and 3.
RECs can be bundled (sold along with electricity from a local utility) or unbundled (sold independently). Unbundled RECs might represent electricity generated far from the purchaser’s site. They allow buyers more flexibility than bundled RECs, especially for locations without access to local sources of renewable energy.
Some companies buy RECs in a quest to claim that they are powered 100% by renewable energy. For example, Intel has purchased enough unbundled RECs to offset all electricity generation at its U.S. and EU facilities. However, this does not mean that Intel’s plants consume no electricity from fossil fuels.
Unlike carbon credits, RECs do not directly reduce emissions. Instead, each REC represents one megawatt (MW) of electricity generated from renewable energy. Some RECs specify the type of energy (solar, wind, etc.), and others are more general. Ideally, income from selling RECs allows renewable energy producers to expand supply to meet future demand. REC income can be used to build solar panels, wind turbines, energy storage, or otherwise fund the transition away from fossil fuels.
Unfortunately, the relatively low cost of some unbundled RECs means that suppliers don’t have as much funding as it might appear. Also, building renewable energy capacity far from the facility that purchased the RECs does nothing to change the local electricity supply.
Semiconductor Industry Expansion and Growth
Without building new fabs, the much-touted path to becoming a trillion-dollar industry can’t happen. Construction is underway in several U.S. states, including Arizona, Idaho, Ohio, New York, and Texas. Those facilities demand more electricity than local grids can provide. Estimates suggest that these fabs will require 2.1 gigawatts (GW) of electricity beyond what is currently available.
The expansion of semiconductor manufacturing in the US can be an opportunity to accelerate the industry’s transition to renewable energy. That isn’t automatically going to happen, however. The companies building the facilities face a choice. They can invest in renewables, stick with whatever form of electricity is available from their local utilities, or do some combination to meet demand. If they choose renewables, several options are available. Their actions affect how local utility companies respond.
The evidence so far is not promising. In their report, “Clean Clicks or Dirty Chips,” Stand.earth notes that “semiconductor giants like Intel and TSMC have not followed the lead of data center operators like Apple, Google, and Meta in matching their expansion with additional renewable electricity projects.”
Instead, Fabs rely primarily on unbundled RECs to meet their 100% renewable goals. This is problematic for sites with minimal locally available renewables, such as Arizona.
Unless fabs invest in power purchase agreements (PPAs) to buy renewable energy, local utilities will expand fossil fuel production to meet expected electricity demand.
The expansion of fossil fuel capacity is already happening. An Arizona utility expanded a gas power plant in 2023, and Intel’s new facilities were partially responsible for that decision. Another utility company in Arizona delayed retiring a coal plant because they needed to keep it running to meet demand.
Letter vs Spirit of the Law
The Greenhouse Gas Protocol allows companies a great deal of flexibility in meeting their Scope 2 commitments. This approach is helpful in the short term when the availability of renewable energy varies depending on location, but it also perpetuates the easy way out.
The point of powering facilities with renewable energy is to reduce the global consumption of fossil fuels for electricity or, at the very least, not to increase it as capacity grows. Credits that don’t expand the availability of renewable energy fulfill short-term claims of being 100% powered by renewables while ignoring the long-term consequences. They meet the letter of the law but not the end goal behind it.
Having targets for GHG emissions is better than not having targets and continuing business as usual, but it matters how those targets are met.
The Renewable Energy Mix
The ability to power fabs with renewable energy is limited because the local grids are primarily fossil fuel-based. Companies in our industry can change that, but it will require going beyond the least expensive way to meet their Scope 2 commitments.
On-site solar power is one approach. Companies can install solar panels on rooftops and parking lots to meet a portion of their electricity requirements. There isn’t enough capacity to power an entire fab this way, but it’s a start.
Since fabs run 24/7, and sunlight is only available for a fraction of those hours, solar panels alone are not a complete solution, even if located off-site and purchased with PPAs. Energy storage can help, but that still won’t do it.
A reliable supply of renewable energy will rely on multiple sources, including solar, wind, and perhaps nuclear. Nuclear power has the advantage of 24/7 availability that doesn’t depend on the number of daylight hours or the weather.
In October 2024, Google announced a deal to buy energy from several small nuclear reactors in California to power its data centers. A month earlier, Microsoft arranged to reactivate Three Mile Island to power its AI operations.
Readers who are my age or older may associate Three Mile Island with a nuclear accident in 1979. I remember watching news coverage with my parents on the brand-new color TV in the living room. Even so, nuclear power is safe and efficient, and accidents are rare. More safeguards are in place than ever, and I believe nuclear should be part of the energy mix.
Takeaways
Semiconductor industry growth is inevitable. Powering fabs and other facilities with fossil fuels and buying unbundled RECs to make up for that is not. Investing in on-site renewable energy or buying PPAs costs more per MW of electricity, but it’s the right thing to do.
