Author: Amy Haddon has extensive experience in renewable energy communications, marketing claims, and providing business insights based on market trends.
Credible claims in green power purchasing are a hot topic. Last week, the RE100 released technical guidance on claims at the same time we published a new white paper clarifying the relationship between renewable energy credits (RECs) and financial additionality. We’re also in discussion with our friends over at RMI’s Business Renewables Center on this topic.
The surge in corporate purchasing is what’s driving the conversation. In 2015 alone, corporate purchasers were responsible for 52% of new wind capacity contracts in the U.S. These buyers are typically driven to make renewable energy purchases in order to meet their environmental commitments, to save money, or—and this is the interesting one—to say they’ve partnered on a unique effort , like the slow but steady transition to a renewable grid.
This claim—that a wind or solar project could not have happened without the corporate purchasers support—is what we typically think of when we consider financial additionality. However, as we explore in our paper, there are many types of additionality claims, and many organizations that can make them. An additionality claim in and of itself does not convey actual environmental benefit—it is, effectively, a marketing claim. Additionality claims allow corporate buyers to make highly visible commitments that demonstrate their support for renewables because this support is essential to getting the wind or solar project off the ground.
The environmental claims associated with renewable energy generation itself, rather than the development of the project, is tied to RECs. As a stand-alone commodity, RECs are generated at the same time clean energy is, as a contractual instrument that conveys the environmental attributes of that clean generation. Unfortunately, in a shared electric distribution system like our national grid, there’s no way to trace electrons back to their source. RECs, then, are like clean energy’s birth certificate, the “proof” that the energy was created and joined the grid.
It is the REC that carries the “clean” part of that generation. In order to make clean claims, electric power must be paired, or bundled, with RECs (or other similar Energy Attribution Certificate instruments, such as Guarantees of Origin). Buyers who purchase electricity without corresponding bundled RECs aren’t buying clean energy—even if that energy comes from wind or solar. This applies to all energy buyers: utilities, homeowners, campuses, and businesses.
So, when you buy green power, can you make environmental claims, additionality claims, or both?
The answer isn’t so straightforward. Any buyer that wants to make an environmental claim needs to own RECs. However, RECs themselves don’t generally convey additionality. So, buyers who are looking to make additionality claims will have to consider power purchase agreements (PPAs) or other large-scale, long-term contracting options to achieve their goals. Buyers that want to do both will need a PPA (or similar) and RECs.
Make no mistake—both RECs and additionality play a critical role in the development of renewable electricity markets worldwide. Our clients are sometimes under the impression that one is more valuable than the other. While additionality pushes the development of new projects, RECs are a significant market indicator of demand, an important secondary revenue stream, and under the GHG Protocol’s Scope 2 guidance, may be used to convey carbon-free electricity generation claims.
To learn more on this nuanced topic, we invite you to download our paper, and join the conversation.