February 6, 2018
Renewable Energy Impact v. Additionality: How and Why PPAs Matter
By Edison Energy Renewables Team
While additionality has become a key buzzword for corporate renewable energy buyers looking to reduce greenhouse gas (GHG) emissions, help create new renewables on the grid, and tell a compelling story to their stakeholders, it’s critical to understand the basis of an additionality claim, how carbon offsets are different than renewable energy certificates (RECs), and why renewable energy “impact” is a better metric for demonstrating leadership.
Moving from additionality to impact is another evolution in the conversation around voluntary renewable energy purchasing, which has changed dramatically over the last few years. Buyers have gained a better understanding of the role of “unbundled” renewable energy credits (RECs) and their impact — or lack thereof — on driving new generation compared to a long-term power purchase agreement (PPA).
While RECs have played an important role in state-level Renewable Portfolio Standards and getting large-scale buyers involved in the voluntary renewable energy market, RECs in and of themselves are not a clear cause of incremental generation on the grid. But renewables purchases are often driven by sustainability goals, such as GHG reduction targets, and many buyers want to know their purchase will have the direct effect of increasing renewable energy generation.
These effects are commonly referred to as “additionality,” a term borrowed from the carbon offsets market, where it describes projects that result in real and verifiable emissions reduction or avoidance. It is important that buyers understand the difference between the renewables and carbon markets so their related — yet distinct — tradeable attributes (RECs and offsets) are not conflated, and so that buyers can achieve their sustainability objectives.
This can be a confusing subject, and I hope to bring some “additional” clarity to the issue in a new Edison Energy White Paper that is now available for download. Through a series of questions and answers, it argues that the term additionality should ideally only be used in the carbon offset context, and organizations should instead focus on the “impact” they have on renewables generation through their purchases. While I won’t reproduce the whole FAQ here, I’ll provide some of the basics to whet your appetite.
Why use “impact” vs. “additionality?”
The concept of additionality originated in the carbon offsets markets. A GHG or “carbon” offset is a unit of carbon dioxide-equivalent (CO2e) that is reduced, avoided, or sequestered to compensate for emissions occurring elsewhere. Buyers can use offset credits, measured in tons, to reduce their GHG inventory as an alternative to making their own direct reductions.
For an offset project to be deemed “additional,” it must meet several stringent tests. For instance, it cannot be common practice or required by regulation, its emissions reduction/avoidance/sequestration must be “in addition to” a business-as-usual scenario, and the financial incentive from the offset market must be reasonably found to have enabled the project.
While additionality has these very specific requirements for carbon offsets, the term is often used in the voluntary renewable energy market as well, but without a similar set of tests. Here, additionality is generally used to describe when an organization’s purchase (e.g., an agreement to offtake power via a PPA) contributes to the construction of new clean energy facilities.
Even though additionality has become a ubiquitous term in the renewables market, its use can cause confusion as organizations struggle with the complexity of carbon accounting and the differentiation of offsets and RECs. There is a significant risk of conflating “carbon additionality” (which helps to ensure that carbon has been reduced or avoided in the atmosphere) and “renewables additionality” (which has no similar carbon reduction claim), though they each have different meanings. Saying that a renewables project is additional also could imply that it is reducing or avoiding carbon emissions, which may not always be the case.
Whereas carbon additionality is a binary state — a project is either additional or not — there are many ways organizations can have impact in the renewables market. Rather than risk conflating carbon offsets and renewables purchases, buyers should move away from discussing additionality and instead look to demonstrate leadership by describing the impact their renewables purchase will have on building new generation and its potential to avoid emissions. This way they can communicate a clear and credible story to stakeholders.
The United States Environmental Protection Agency’s (U.S. EPA) Green Power Partnership (GPP) describes it in this way:
Some organizations … desire to claim that their green power purchase has had a direct impact on the deployment of a new renewable energy project. This claim requires that a buyer engages with a project prior to its construction and ensures that the buyer’s type of engagement substantively contributes to the project’s financeability. [emphasis added]
The FAQ looks to answer many of the common questions buyers have regarding the sustainability aspects of a renewables purchase. In addition to defining basic concepts such as RECs, offsets, and PPAs, it explores how buyers can think about the impact they are having with differing PPA attributes, and how those impact claims differ from the purchase of unbundled RECs.
The decision to enter a renewable energy PPA is a complicated one that combines many financial and sustainability criteria, and it is important to engage an unbiased advisor who can provide insight on the complete landscape and potential impacts of various scenarios. That way, when the final contract is signed, the buyer can confidently communicate to its stakeholders the impact it has had in supporting new renewable energy generation and the transformation of the electricity grid.
Get access to the Edison Energy Additionality FAQ here