Both private and corporate electricity consumers have the ability to procure clean electricity with the ambition to fund the energy transition. However, do all purchases lead to an actual addition in renewable energy capacity? Are new renewable projects enough to decarbonize the grid?

One way to answer this question is to investigate the extent to which buying clean electricity leads to the addition of renewable energy capacity to the grid. This can be done by investigating the effect that the purchase has, a concept which is called additionality. According to wikipedia,

Additionality is a determination of whether an intervention has an effect, when the intervention is compared to a baseline.

In this case:

• the intervention is the purchase of clean electricity
• the baseline is a world in which the purchase did not occur
• the effect investigated is the addition of renewable energy generation capacity

In a nutshell, one can say that a purchase is additional if the associated renewable energy generation capacity would not have been added without that purchase.

To assess additionality is to compare the actual situation with a parallel world in which the purchase didn’t happen. Would that same capacity have been added without the purchase of clean electricity? If yes, then the purchase has no effect. If not, then the purchasing action has a real effect.

Energy attributes certificates

Practically speaking, in order to equip consumers with means to fund the energy transition by purchasing clean electricity, one must first introduce a tradeable financial instrument that represents the funding of a project.

A clean electricity project (e.g. a wind turbine) today produces two commodities:

• An Energy Attribute Certificate (EAC), which can be bought by a consumer. It gives the holder the ability to claim that this unit of electricity came from e.g. wind energy.
• The electricity itself, which is sold on a different market (the electricity market). It doesn’t give the buyer the ability to claim that this electricity comes from wind energy as the “wind attribute” of electricity has already been sold as part of the EAC.

These EACs can be sold independently of the associated electricity, as so-called unbundled certificates. This generates a second income stream for generators, which can motivate their construction.

Alternatively, EACs can also be bundled as part of a more extensive contractual agreement such as e.g. a Power Purchasing Agreement (PPA), which guarantees the selling price of future electricity generated and sold by a project. This price guarantee secures future revenue for the project and thus incentivizes the project’s construction as it lowers the investor’s risk.

EACs are typically issued with a monthly or yearly granularity, but new efforts such as EnergyTag, M-RETS, and Energinet’s Project Origin are working towards hourly EACs to better represent the intermittent nature of electricity production (especially wind and solar power). These can create price signals that stimulate new investments into technologies and projects that deliver electricity at the times when it’s most needed.

Energy Attribute Certificates (EACs) have different names in different parts of the world. They are called Renewable Energy Certificates (RECs) in the US and Guarantees of Origin (GOs) in Europe.

Which purchases are additional?

Different types of purchases have differing levels of additionality. Measuring and assessing additionality can be difficult. Some guidelines are provided by the Greenhouse Gas Protocol, and consequential accounting can be used to establish the additionality of purchases.

However, there are a large number of factors influencing whether or not a purchase leads to a project being built, ranging from the network operators (who are ensuring that the grid will be able to cope with the new project) to developers (who will build the project), operators (who will run it), etc…

Assessing what happens if the purchase doesn’t happen requires introducing complex modeling alongside assumptions that are not necessarily agreed upon by experts. In practice, it becomes difficult to unequivocally prove that a certain amount of renewable capacity was added because of a specific purchase by a consumer, especially since so many actors take part in the decision. Because of that, a unique and consensual definition of what constitutes an additional purchase currently does not exist.

Instead of a binary measure, we therefore suggest addressing the level of additionality by assessing the extent to which a purchase is likely to have added renewable capacity. The more evidence is collected about additionality, the more likely it is that the purchase is additional.

Here is a tentative list of things to consider when attempting to assess the level of additionality of a project:

• has the project already been built (or was the project being decommissioned)?
• how much government subsidy does the project receive?
• to which extent does the purchase finance the project?
• how much revenue certainty does the purchased contract provide to the project?
• what is the likelihood that the project replaces fossil generation?

For example, contributing to projects that have already been built or are already receiving government subsidies are seen as less additional, as these projects already have secured funds and are thus unlikely to have been built because of the purchase of a contract.

The purchase of EACs by themselves (such as unbundled GOs or RECs without an associated electricity contract) is also seen as less additional, in case they are too cheap to cause enough additional revenue sufficient to incentivize the construction of new projects (see this, this and this).

On the contrary, supporting a project which:

• is yet to be built
• doesn’t already receive existing subsidies
• is located in a grid where it will displace fossil generation

with a long-term revenue guarantee (such as a PPA) is seen as more additional because it:

• would probably not have been built in the absence of the contract (lack of subsidy and lack of revenue guarantee increases risk for investors)
• would probably cause more emissions on the grid if the project hadn’t been built

More renewables vs. reduced emissions

Historically, additionality only considered whether the purchase led to installing more renewables. However, installing more renewables doesn’t always cause reduced grid emissions.

For example, installing a new wind turbine in Norway (which is already largely powered by clean electricity) will probably have a very limited effect on reducing grid emissions. However, installing the asset in Poland (mostly coal-based) is more likely to replace coal production and thus more likely to have a stronger effect of reducing emissions.

Therefore, a truly additional purchase doesn’t only consider the effect of installing more renewables but also considers emissions reductions as the effect. This type of additionality is also known as emissionality.

Assessing additionality can therefore be done in two steps:

• does the purchase lead to the development of a new project?
• if yes, then does this new project also cause a reduction in grid emissions?

The risk of emissions reduction without additionality

The effect of a purchase should be measured by the actual emissions reduction it leads to, which is core to the concept of emissionality. However, the credibility of emissionality relies on whether additionality is considered in the purchase or not. Omitting additionality requirements from the concept of emissionality can lead to credibility concerns about whether investments lead to actual emissions reductions. 

Additionality requirements become even more crucial when these investments are used to compensate for emissions and claim carbon neutrality. The lack of additionality in such compensations is an issue that is often raised and publicly criticized. For instance, an article from the Guardian highlighted that more than 90% of carbon reductions sold by a leading global organization in rainforest carbon credits did not translate into an actual emissions reduction. Claiming emission reductions without solid proof of additionality is a potential risk that corporations should be aware of.

Conclusion

Corporate action to combat climate change is essential to achieving our climate targets. However, current instruments run the risk of overestimating renewable capacity expansion and emissions reductions. A core part of reducing this risk is to focus on testing for the additionality of actions. Assessing additionality can be done in two steps:

1. does the purchase lead to the development of a new project?
2. if yes, then does this new project also cause a reduction in grid emissions?

Assessing additionality is difficult. Therefore, we call for more standardization efforts to better define levels of additionality before associating them with EACs. This will enable consumers to purchase clean electricity while knowing that they truly are funding the energy transition.

Additional reading

• Describing Purchaser Impact in U.S. Voluntary Renewable Energy Markets (2018) by Letha Tawney, Mary Sotos and Ed Holt
• What is additionality: part I and part II (2012) by Michael Gillenwater

Thank you to Killian Daly (EnergyTag), Bruno Menu (Granular), Sébastien de Menten and Greg Miller (UC Davis) for the insightful discussions leading to this article.

This article was edited in March 2023 to include the section titled “The risk of emissions reduction without additionality”. The original article was written in May 2022.

‍