Welcome to the first in a series, Additionality You Can Count On, from Colin Murchie tackling the issue of additionality and transparent accounting for environmental claims.
About the Author: Colin Murchie is Senior Director of Customer Energy Services at Sol Systems
Colin helps Sol Systems’ corporate and institutional customers navigate the wholesale markets to obtain utility-scale solar resources. Additionally, he oversees solar policy analysis and initiatives.
At a recent corporate renewables conference, I was asked to judge the comparative “additionality” of various renewable energy project scenarios. The think tank running the exercise had set forth a variety of scenarios – projects new and existing, in a variety of state markets, with their power and their renewable energy credits (RECs) sold off in various tranches, timelines, and mechanisms.
We were then asked to evaluate whether the buyer of the energy had a strong or weak claim to “additionality.” If you are not familiar with the term, more or less, additionality is whether a corporate renewable energy purchaser can stand up to their customers and constituents and say:
“My energy is renewable because if not for me, this project would not have existed.”
Suffice it to say, there was little agreement among renewable energy developers, customers, and NGOs over when a renewable project would be able claim additionality, and when it could not. The slightest tweak to the scenario’s variables resulted in developers, customers, and NGOs immediately spreading over a spectrum of opinion as to whether the buyer could make that statement. It was a frankly strange discussion, largely philosophical, and it got me thinking:
- Is additionality divisible?
- Is the REC the right tool to do that division?
- And can we give credit where credit is due in a way that preserves transparency without tying ourselves in logical knots?
It was clear both that additionality was one of the customers’ biggest concerns and desires, and that it was the least well defined one. So, exactly what is this additionality, and where does it come from?
“Additionality” is a term of art which entered the renewables world by way of carbon accounting. In its original usage, it meant separating climate-beneficial activities that would have happened anyway, from those which would not, so that renewable energy purchasers can take credit for the carbon by paying for the action. Simple.
However, this means that additionality rests on a counterfactual – and that means proving single-party additionality requires you prove a negative. “But for” a renewable energy purchasers action, there would be no power plant. Therefore, a purchaser may take credit for that renewable energy power plant coming to be.
That method works best in two situations:
- Simple, single revenue source transactions. No one was going to go out and strap duct tape around Russian gas pipelines or afforest that barren hillside recreationally, so the person who paid the tab can take the credit. Or the power plant that installed a scrubber to get well below emissions standards gets extra credits they can sell on to others.
- When what you want out of your renewable project – and the only credit to be shared and given for its existence – is carbon savings. One of the “payloads” inside most RECs is its carbon equivalent, and it is a simple, necessary means of exchange to ensure that no two people are patting themselves on the back for the CO2 reduction from the same project.
The problem is that project finance is nearly never a single action taken by a single actor in response to a single payment. Without that clean cascade of motivation, everything turns into a question that seems like a Zen koan (You know, one hand clapping, trees falling no one hears, etc.).
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Over the last eight years, Sol Systems has delivered 650MW of solar projects for Fortune 100 companies, municipalities, universities, churches, and small businesses. Sol now manages over $650 million in solar energy assets for utilities, banks, and Fortune 500 companies.
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