Wind, solar and other renewable projects that displace fossil fuel generation. Their credits face a stronger additionality test than most.
How the credits are calculated
A renewable energy project generates electricity that would otherwise come from fossil fuel sources. Credits reflect the emissions avoided by displacing that generation, using a grid emission factor. The result depends heavily on how the grid is assumed to operate.
The additionality problem
Renewable energy is often required by law or already economically viable, which means it would have been built anyway. Credit-based finance can then be unnecessary to make the project happen. Registries have tightened their tests in response, and buyers increasingly ask for evidence that the revenue was needed.
Why buyers are cautious
Many renewable projects that were issued credits in the early days of the voluntary market are now seen as non-additional. The sector remains important, but buyers should check the methodology, the additionality analysis and the date the project started.
Questions to ask before you rely on these credits
- Would the project have been built without carbon finance? Is there a published analysis?
- What grid emission factor does the methodology use, and is it current?
- Did construction start before the registry's cut-off date?