May 06, 2022 · 7 min read
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 tangible reductions in emissions? Are some of them just greenwashing?
One way to answer this question is to investigate the extent to which buying clean electricity leads to decarbonizing 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:
In a nutshell, one can say that a purchase is additional if the associated emission reductions would not have happened without that purchase.
To assess additionality is to consider the parallel world in which the purchase didn’t happen. Does the clean electricity get provided anyway? Do the emissions reductions happen anyway? If yes, then the purchase has no effect. If no, then the purchasing action has a real decarbonisation effect.
Additionality historically only considered whether the purchase lead to the installation of more renewables. However, installing more renewables doesn’t always cause reduced grid emissions.
For example, installing a new wind turbine in Norway (which already has 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 reduce emissions.
Therefore, a truly additional purchase doesn’t only consider the effect of installing more renewables, but considers emissions reductions as the effect. This type of additionality is also known as emissionality.
Assessing additionality can therefore be done in two steps:
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 decarbonization project (e.g. a wind turbine) would thus produce two commodities:
These EACs can be sold independently of the associated electricity. 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 guarantee incentivizes its construction as it lowers the investor 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 in order 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 Certificate (EAC) 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.
Different types of purchases have differing levels of additionality (as they have differing potentials to reduce grid emissions).
For example, contributing to projects that have already been built or that 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:
with a long-term revenue guarantee (such as a PPA) is seen as more additional because it:
Note the additionality assessment is based on what would have happened if the purchase had not happened, and subsequently if the project had not been built.
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 (and furthermore reducing emissions), 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 modelling alongside assumptions that are not necessarily agreed upon by experts. In practice, it becomes difficult to unequivocally prove that a certain amount of grid emissions were reduced because of a specific purchase by a consumer, especially since so many actors take part in the decision. Because of that, there doesn’t exist a unique and consensual definition of what constitutes an additional purchase.
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 reduced emissions. 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:
Additionality is a measure of what would have happen if a consumer would not have purchased clean electricity. Additionality is not only about whether or not more renewables are installed: it’s about whether emissions were reduced. Therefore, assessing additionality can be done in two steps:
Assessing additionality is difficult, and we therefore call for more standardisation efforts to better define levels of additionality before associating them to EACs. This will enable consumers to purchase clean electricity while knowing that they truly are funding the energy transition.
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.
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