Avangrid toughening expectations for suppliers to drive down Scope 3 emissions

Clean energy powerhouse Avangrid Inc. has been reporting all categories of greenhouse gas emissions for five years, but the utility is only now developing an official Scope 3 strategy and reduction target.

"We do our due diligence and ... [we] want to make a full commitment," said Laney Brown, Avangrid's vice president of sustainability, explaining why the company has been slow to join peers who have pledged to tackle Scope 3 emissions, which are indirect and outside the utility's control.

Avangrid is working with more than 100 suppliers with contracts of at least $1 million to help them account for their carbon releases, Brown said. Starting this summer, those suppliers must submit action plans for how they will reduce their operational emissions, known as Scopes 1 and 2.

"In that way, we're setting an expectation for our suppliers to reduce their emissions and making those commitments," Brown said during an interview. "[It] will drive a reduction in our Scope 3 emissions and just overall economywide emissions."

Avangrid suppliers must already complete a 43-question sustainability risk assessment and receive a total score of 51% or greater to qualify as "sustainable."

Suppliers are aware of their scores and get recommendations from the utility on how to improve their numbers. Some suppliers also undergo third-party audits to verify that their adherence to Avangrid's environmental, social and governance metrics is robust. The company expects to roll out an update to its net-zero strategy with a newly minted Scope 3 target in the next couple of years.

Some utilities include caveats in their net-zero goals. Avangrid is determined not to, Brown said, "which I think is a differentiator for us."

That means the Iberdrola SA subsidiary will not hinge a part of its emission reduction goals on whether federal policies or incentives exist to help utilities meet their targets. Avangrid also will not exclude certain emission categories, such as customer procurement of electricity over which the company has no control, Brown said.

As a company, Avangrid is ahead of nearly all its peers in addressing Scope 1 and Scope 2 emissions. The utility announced in October 2022 that it would reach net-zero emissions for those emissions by 2030, five years sooner than initially planned. The company's generation capacity is already 91% emissions-free, according to Avangrid's 2022 sustainability report.

The company's ambitious nationwide renewables program has run into permitting and litigation challenges along the way. But the passage of the landmark Inflation Reduction Act brought some much-needed predictability and sought-after tax credits that will help the company stay on track, Avangrid CEO Pedro Azagra Blázquez said during the Reuters Global Energy Transition Conference in New York on June 8.

Some suppliers reluctant

Pushing an entire utility supply chain to measure, report and reduce greenhouse gas emissions is a daunting challenge. Because Scope 3 emissions are beyond Avangrid's direct control, it takes prodding with a lot of support along the way — especially for small contractors with limited staff and resources.

"They may be reluctant to measure or report on their emissions if they're not sure the data is accurate and they worry it's going to be perceived as too high," Brown said. "Smaller suppliers, especially, are challenged, so balancing that and helping to educate and support them in those processes is important."

Among other things, Avangrid has encouraged 70 of its small and midsize suppliers to attend a United Nations training program on sustainable procurement practices specifically tailored to smaller contractors.

Thus far, 67% of companies in Avangrid's supply chain have earned the sustainability title. The utility aims to have that rise to 80% by 2025. Avangrid's annual grid procurement alone is worth nearly $3.5 billion in contracts.

Accounting guidelines 'far from crystal clear'

Scope 3 reporting and mitigation is also controversial. While at least half of the largest US utilities have set a target for zeroing out Scope 3 emissions, and some report such emissions to the disclosure platform CDP, industry groups and some researchers have questioned the idea of mandatory disclosure requirements.

"It can be challenging for electric companies to understand exactly what may apply to them, how to calculate things, what sort of data to use," Adam Diamant, a technical executive who leads greenhouse gas accounting and climate policy work at the nonprofit Electric Power Research Institute (EPRI). "It's by far from crystal clear, even for those who are trying the hardest to do the best job they can possibly do."

EPRI is running a technical project with 13 member companies to help them navigate Scope 3 emissions accounting based on existing guidelines, "however ambiguous and amorphous they currently are," Diamant said.

Diamant said many utilities are only now starting to dig into what it all means. Some struggle with overlapping emissions reporting challenges, for example, when a natural gas producer sells gas to a utility, which then sells it to a customer — both of which can then report the same emissions as Scope 3.

Not just about the supply chain

From where Brown sits, emissions accounting is doable if you give the task some time.

"It has to be like a crawl, walk, run," Brown said. "I know that there's a lot of discussion going on, but honestly, I think that expectation is happening today, and if you aren't taking action on it, you are not going to be competitive."

The Scope 3 puzzle is not solved once contractors have sustainability down. By expanding its wind and solar generation to the grid in states like New York and Connecticut with ambitious renewable portfolio standards, Avangrid is also driving down indirect emissions that are part of its carbon footprint, Brown said.

The company's 800-MW Vineyard Offshore Wind Project off the coast of Massachusetts is moving forward after a federal judge in May upheld approvals for the project. That installation, along with other wind and solar investments, means Avangrid now has about 1.7 GW of renewables under construction.

"We are really an enabler connecting renewables generation to customers," Brown said. "It drives reductions in emissions both on our Scope 2 and Scope 3."

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