Nokomis Energy

Are you in a sustainability role at your organization? Do you manage your organization’s renewable energy strategy? If so, you may be thinking about the additionality of your strategy, not just about its legitimacy. As we’ll explore in this post, onsite solar provides the gold standard claim to additionality. In this regard, your organization may benefit more from onsite solar relative to other renewable energy options, including the popular off-site virtual power purchase agreement (vPPA).

What is additionality and why does it matter?

Additionality is commonly defined by reference to two words: “but for.” For example, a solar project on your land could not exist but for your decision to build it. Or, an off-site solar project could not exist but for your (or someone else’s) decision to buy the energy it produces.

To use a metaphor, if all the renewable energy in the world is represented by a pie, an organization can buy a slice – i.e. buy existing renewable energy – and legitimately claim the use of it, but to truly make an impact, it needs to help grow the size of the pie (i.e additionality).

If you participate in carbon markets, you might be used to thinking about the legitimacy of a claim and its additionality to be inseparable concepts. But, it’s different for renewable energy. For renewable energy projects addressing scope 2 emissions, additionality is not necessary to make a legitimate emissions reduction claim; simply the use of renewable energy is sufficient.

As a result, additionality in a renewable energy context is a way for organizations to distinguish themselves and go beyond what’s merely sufficient.

How do different renewable options compare on additionality?

As we’ll see, onsite solar is the gold standard for additionality. However, it’s not the only renewable energy option you’re likely considering. Let’s take a look at these different options, remembering that additionality ultimately comes down to the “but for” question: But for your organization’s actions, would a particular renewable energy project exist?

Unbundled RECs

Renewable energy certificates (RECs) represent the renewable-ness of one megawatt-hour (MWh) of electricity. RECs can be sold separately (“unbundled”) from the underlying electricity a project produces. Buying unbundled RECs does little to create additionality. This is because the RECs are almost always sourced from projects that are already operating. To put it simply, you cannot cause a project to exist if it already exists.

However, the sale of unbundled RECs do represent a real revenue stream for project owners. So, there’s some sense that the existence of an unbundled REC market causes some marginal projects to be built that would not have otherwise. Still, there’s a tenuous relationship between the unbundled REC market and any claim to additionality.

Green Tariffs

When utilities bundle electricity with RECs and sell them together, that’s a green tariff. However, bear in mind that there are many variations on this simple construct and not all green tariffs look alike. Still, most green tariffs share a relatively weak claim to additionality. Just as with unbundled RECs, green tariffs usually source electricity and RECs from projects that are already operating. This can help meet emissions reduction targets, but won’t have much of an impact beyond that.

Off-Site PPAs

Off-site PPAs have a solid claim to additionality. These solar or wind projects, typically structured as either physical or (more commonly) virtual power purchase agreements (pPPAs or vPPAs), enable buyers of renewable electricity to contract with projects that might be hundreds or thousands of miles away. In the case of a virtual PPA, a solar project in Texas could contract with a buyer anywhere in the United States, be it in California, Minnesota, or Maine.

An off-site PPA can be said to create additionality in the sense that the buyer’s commitment to buy the electricity from the project enables the project developer to secure the financing needed to build the project. But for a buyer’s commitment through a power purchase agreement, the project would not be built.

Onsite Generation

Onsite generation, typically solar, is defined by its installation on or adjacent to the electricity buyer’s land. Different contracting structures can be used, including ownership, power purchase agreements, and leases.

Onsite generation derives its additionality claim from two sources: (1) like with off-site generation, the buyer’s commitment to buy the electricity enables the project to get financed, and (2) the project could not exist without the permission to build on the buyer’s land.

Why does onsite create more additionality than off-site?

Organizations are frequently confronted with the choice between onsite and off-site generation. One may provide more economic benefits than the other. One may offer an easier contracting process. But when it comes to competing on the question of additionality, onsite generation clearly comes out ahead.

Why is onsite generation the gold standard for additionality? It comes back to the “but for” logic. An off-site project could not exist but for the commitment of a buyer. An onsite project could not exist but for the commitment of one specific buyer (the site owner).

Said another way, an off-site project might have many potential buyers for the electricity it produces. In the case of a virtual PPA, potential buyers could include any significant consumer of electricity in the United States, weakening the “but for” logic. Attractive project economics are even more damaging: the more economically attractive the project (typically a good thing), the longer the roster of potential buyers – and the harder it would be for any one of them to say the project would not exist but for their commitment.

Onsite projects, however, avoid all these challenges. An onsite project, at a particular site, can only exist if the site owner wants it to exist. Even if the onsite project is especially economically attractive, there’s no one else – other than the site owner – who can build it. The key take-away, then, is that if your organization has a good opportunity to build onsite generation, this will drive additionality and is something only your organization can do! You can build a very economically attractive project – that saves you a lot of money – without sacrificing your claim to have brought new renewable energy into existence.

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Nokomis Energy is a clean energy developer based in Minneapolis, Minnesota. Our mission is to identify opportunities to create clean, low-cost energy projects for our customers. We work directly with our customers and partners to implement and build clean energy solutions that work for your specific needs. [/vc_column_text][/vc_column][/vc_row]