The Additionality Gap
A PPA that helps add a new renewable energy project to the grid often gets a premium over a PPA connected to an existing renewable energy project.
This is because certain buyers - especially those motivated by ESG goals - value the ability to claim that their investment helped decarbonize the grid.
This is known as "additionality," and it is notoriously difficult to quantify.
We dug in to see if additionality impacted the bid-offer spread for new solar PPAs on RenewaFi. The results surprised us.
Throughout 2023, the bid-offer spread was - on average - $13 for development-stage projects and only $1 for operating projects.
This $12 difference indicates that offtakers on RenewaFi may have actually preferred operating solar to avoid development risk.
In speaking with LSEs, banks, merchant power shops, and REPs over the past year, we learned that many of them have been burned by development issues from previous PPAs.
These offtakers - who are primarily driven by market signals rather than ESG goals - were more aligned with counterparties on RenewaFi whenever additionality was off the table.
