By: David Sarkisian, Principal Policy Analyst
The concept of additionality is an important consideration for purchases of renewable energy certificates (RECs) by large corporate customers. Corporate purchases of unbundled RECs have been criticized for not actually increasing the amount of renewable energy available, particularly when the RECS are sourced from areas without renewable portfolio standards (RPS) and large surpluses of renewable energy. Many corporate purchasers have tightened their standards for renewable energy purchases, seeking contracts with specific renewable energy projects or seeking out utility programs that offer dedicated renewable energy capacity.
Additionality, Renewable Portfolio Standards, and Emissions Reduction Programs
Many utilities offer voluntary renewable energy programs, often referred to as green pricing programs or green tariffs (there is some difference in the meaning of these terms, but they have similar relationships to additionality). These programs allow customers to purchase RECs that are then retired by the utility or transferred to the customer. These programs or state laws may contain mechanisms to ensure that any renewable energy procured through them is additional to business-as-usual, although additionality is not required to claim the use of renewable energy using RECs. For utilities in states with RPS policies, this means that the renewable energy procured through a green tariff cannot be used to satisfy the requirements of the RPS (another term for additionality in this context is regulatory surplus). When a REC is used both to meet utility RPS requirements and customer renewable energy claims, double counting occurs.
State Clean and Renewable Energy Targets (Feb. 2024)
For states where the achievement of RPS requirements is based on possession of RECs, additionality can be ensured when the RECs from the green tariff program are retired by the utility on behalf of customers or transferred to customers; they then can no longer be used by the utility to meet the RPS. For states where renewable or clean energy requirements are not satisfied with RECs, other adjustments are necessary to make sure that green tariff renewable energy is additional. The emergence of clean energy standards and carbon emission reduction plans has complicated the relationship between RECs and additionality, as multiple sets of environmental attributes may be generated by one resource. Some states have both RPS policies and other emission reduction policies, so retirement of RECs alone does not guarantee additionality.
Additionality as Acceleration
A common practice in states with both RPS policies and utilities with green tariffs is to remove the load served by green tariff programs from the total load served as part of the RPS compliance calculation. For example, say a utility’s total load is 1,000 MWh and there is an RPS requirement of 50%. Without a green tariff, the utility would need to procure 50% of 1,000 MWh, 500 MWh, in renewable resources.
Now say customers procure 50 MWh of renewable energy through a green tariff. That 50 MWh is removed from the 1,000 MWh total load to give an effective load served of 950 MWh, meaning the utility must procure 475 MWh of renewable generation under the RPS. The total renewable resources provided is 525 MWh, which is more than the original 500 MWh, but not by the full amount procured under the green tariff.
The additional renewable energy provided in these situations is greater at lower RPS percentages and lesser at higher RPS percentages; when the RPS percentage is 100%, none of the green tariff renewable energy is additional. In the 100% RPS situation, requiring green tariff renewable energy to be additional would require that more total energy be procured than is needed to serve load. Additionality or regulatory surplus can thus be thought of as accelerating the renewable energy transition, rather than procuring energy in excess of grid needs.
Availability of Utility Green Tariff Programs
Image Source: Clean Energy Buyers Association, data as of October 2023
Green – Approved Green Tariff(s)
Blue – Approved Green Tariff(s) and Tariff(s) Pending Approval
State Examples
California
Although California is not included in the Clean Energy Buyers Association (CEBA) map above, California does have a program known as the Green Tariff Shared Renewables program. The law establishing the Green Tariff Shared Renewables program explicitly requires renewable energy resources under the program to be in addition to the state’s RPS.
In calculating its procurement requirements to meet the California RPS Program, a participating utility may deduct from total retail sales the kWh generated by an eligible renewable energy resource that is credited to a participating customer pursuant to the utility’s Green Tariff Shared Renewables program.
Colorado
Xcel Energy’s Renewable Connect program retires RECs on behalf of participating customers (or transfers them to the customer, if requested). Energy generated by Xcel’s voluntary programs is deducted from Xcel’s total portfolio in computing Xcel’s Certified Renewable Percentage. This program is Green-e certified, indicating that it does provide regulatory surplus.
Illinois
Illinois’s Self-Direct Program allows large electric customers to reduce their RPS charges by retiring RECs (customers typically pay a portion of their utility bill for RPS charges). RECs retired through this program do reduce REC requirements for their corresponding utilities, so the program does not provide regulatory surplus. However, the requirement that participating customers offset at least 40% of their load with RECs is meant to accelerate REC procurement relative to the RPS, which has an overall requirement of 22% for 2023-2024.
Michigan
Michigan’s RPS policy uses RECs to demonstrate compliance. Under the RPS, the load attributable to customers served by utility voluntary green pricing customers is removed from the calculation of total load for RPS compliance purposes. It also states that a REC shall not be granted for renewable energy the renewable attributes of which are used by an electric provider in a commission-approved voluntary renewable energy program.
Minnesota
Otter Tail Power has proposed in Docket 23-512 to remove its voluntary offset program (the My RECs Rider) load from its calculated load for the state carbon-free standard. The stated reason for this treatment is to ensure that the utility does not have to generate double the amount of carbon-free energy for participating customers. Xcel Energy’s Renewable Connect program also operates in Minnesota and is Green-e certified.
Nevada
Under NV Energy’s Schedule NV GreenEnergy Rider, the utility must first retire RECs in compliance with Nevada’s RPS, and then the utility will retire an amount of RECs representing the difference between the amount of energy purchased under the rate and the RPS. This description indicates that the program does not provide regulatory surplus.
New Mexico
Under New Mexico law, electricity provided by voluntary renewable energy programs offered by utilities must be in addition to electricity provided by the utility to satisfy RPS requirements. Renewable energy provided through the voluntary programs is excluded from total retail sales used to determine RPS requirements.
North Carolina
North Carolina’s Carbon Plan emission reductions requirements are not based on RECs. The Duke Energy companies have proposed two voluntary customer renewable energy programs that would use renewable energy that would otherwise be procured under the Carbon Plan, which has raised objections from some stakeholders. The Center for Resource Solutions, a nonprofit organization that runs the Green-e certification program for voluntary renewable energy purchases, has stated that the proposed Duke programs would not be eligible for the Green-e program due to the lack of regulatory surplus. Some have suggested program modifications be made to ensure that the programs result in at least some regulatory surplus.
The Public Staff of the North Carolina Utilities Commission has recommended that some of the capacity in the utilities’ voluntary programs be designated as regulatory surplus capacity and come from dedicated resources outside of the Carbon Plan. This capacity would be “rolled off” after five years; that is, after five years, the utilities would no longer need to include additional capacity for voluntary program commitments. This process is somewhat similar to the denominator reduction that other states use in that it causes customer renewable energy commitments to accelerate, but not permanently increase, renewable energy capacity installations.
Oregon
Oregon law prohibits electric utilities from using electricity procured through customer green power rates from being used to satisfy the requirements of the state’s RPS. However, renewable energy used to supply community green power programs, which serve local governments, can be used to meet RPS requirements.
Virginia
Under Dominion Energy’s green tariff, RECs purchased through accelerated renewable buyers’ contracts do not count towards the company’s RPS requirements, and load associated with these contracts is removed from the company’s load for RPS compliance purposes. Interestingly, purchasing energy through the green tariff program does reduce customers’ RPS-based charges on their utility bills in proportion to the percentage of their load covered by renewable energy contracts.
Washington
Washington’s clean energy standard excludes MWh delivered to an electric utility's system from a renewable resource through a voluntary renewable energy purchase in which the RECs associated with the MWh delivered are retired on behalf of the retail electric customer from retail electric load for the purpose of standard compliance.
Conclusion
Additionality, or regulatory surplus, occurs when voluntary renewable energy programs procure additional renewable energy beyond what is required by existing policies. As state clean energy policies have progressed from REC-based renewable portfolio standards to other policies like clean energy standards and carbon emission reduction programs, ensuring additionality for voluntary renewable energy programs has become more complicated. Some states and programs do not necessarily try to ensure additionality, and even in states where additionality is required, voluntary green energy programs typically accelerate the renewable energy transition rather than increase the total amount of energy to be added to the system.