A way for companies to buy green electricity that really makes a difference

A Nordic broker has launched a new product aiming to ensure that renewable energy certificates known as Guarantees of Origin actually lead to additional clean power

Article in Foresight 7 September 2018 by Elza Holmstedt Pell


Corporate renewable energy demand is rising, but the effectiveness of buying Guarantees of Origin (GOs), arguably the simplest way for businesses to support renewable energy production, is often questioned. Naysayers claim there is no way to prove these renewable energy certificates support the development of additional clean power. A product designed to combine GOs with the financing of new projects may be about to change this.


Any financial product used by large commercial corporate companies to prove they are “doing good” is bound to receive some criticism. Everything from green bonds to corporate power purchase agreements (PPAs) have been brushed off at some point by observers as marketing ploys with little actual impact. Guarantees of Origin (GOs), Europe’s market-based and tradable renewable energy certificates, have long received such criticism, but a Nordic broker is working to change this.

A GO is an electronic certificate proving that one megawatt hour (MWh) of power used by an end-customer has been generated from renewable sources. The certificates allow energy suppliers to show how much renewable power they sell. Other companies buy GOs to meet their corporate social responsibility (CSR) goals. More than 140 large corporates have committed to source 100% of the energy they use from renewables under the global RE100 initiative and can look to the GO market to fulfil this goal.

But some question the extent to which GOs play a role in promoting renewable energy. The question of “additionality”, whether companies are increasing the pool of green power, or simply buying renewable energy that is already being generated and not bringing any added value, is a key sticking point.

“If you buy a GO that can verify you are supporting the development of new renewable power, I don‘t have a problem,” says Ole Løfsnæs from the Federation of Norwegian Industries. “But that is not the case with most GOs.” In his opinion, they do not contribute to climate improvements or additional renewables capacity. Statistics support Løfsnæs’s claim. Hydropower made up almost 70% of GOs traded in 2017, most of which will be incumbent as solar and wind account for most new renewables installations.

Paying a premium

ECOHZ, one of the largest GO brokers in the Nordics, is working to solve the problem. Responding to demand from corporates to support the development of new renewables, the Norway-based company launched a product called GO² around two years ago. A GO² consists of a regular GO the corporate can use to prove part of its energy consumption is generated from renewables, plus a premium paid by the customer that goes into a foundation set up by ECOHZ. The foundation uses this extra capital to finance new small-to-medium scale European renewables projects.

The premium is €3.2 per MWh per GO for clients looking to play a key role in financing a specific asset. These would usually be larger corporates, says Tom Lindberg, managing director of ECOHZ. Smaller clients would pay a premium of €0.60/MWh. This contribution goes into a pool of capital the foundation invests in projects in its pipeline. The premiums are paid on top of a GO, whose price varies. According to a report by ICIS, the chemical and energy market news service, the average price of a GO in 2017 was around €0.70/MWh, but prices have climbed recently with a standard GO trading in August 2018 at around €1.8/MWh, Lindberg says.

So far, GO² customers include Swedish fashion retailer H&M, whose GO²s helped finance the 6 MW Tagerod wind farm in Sweden, and Dutch technology company ASML, whose GO²s contributed to financing the 1 MW Sandvik hydro plant in Norway.

The corporate buying the GO² gets no equity in the new renewables project or any of the power it generates through the transaction, Lindberg says. This means the decision to buy a GO² is neither about financial returns nor power hedging.

Speeding things up

So what is in it for the purchasing companies and why are they stumping up the extra cash? “We tell our customers that if they invest, this power will be realised now partly because of their decision,” says Lindberg. “Our intention is to bring more renewable power to the grid sooner rather than later, and so it might not be completely additional, but it makes sure these projects are built now rather than in three to four years.”

Corporates interested in GO²s have often looked into signing PPAs with renewable energy generators but decided against it. This could be because the company’s energy consumption is spread across many different geographies and so locking itself into a long-term PPA for a project in one specific location would not make sense. “The good thing is a lot of corporates want to do more good. Whether it’s for marketing, internal reasons or other things, we don’t really care,” Lindberg adds.

Avoiding the complexity associated with signing a long-term PPA could certainly be one of the drivers for corporates to get behind GO²s. “We have been looking for ways that our renewable electricity procurement could more clearly contribute to the building of more renewable capacity, while still being easy to implement. GO² ticks those boxes,” says Anna Gedda, head of sustainability at H&M.

“It sounds a little funny to me from an economics point of view,” says a financial adviser at a UK-based advisory firm. “It’s funny to stick some kind of charitable donation into a scheme that’s meant to be doing good anyway. But, on the other hand, if you buy cheap GOs and get your RE100 commitment through an operating hydro asset and then the marketing value of somebody doing some good [for a new project], that I guess it is quite additive.” Løfsnæs of the Federation of Norwegian Industries agrees it is “better than nothing”, before adding: “We’re talking really small projects here […] so it’s not going to change anything.”

Filling a gap

GO²s make up a small part of ECOHZ’s business, Lindberg admits, with only 7 MW of GO²-backed capacity being operational so far. But by developing the concept of a GO², ECOHZ is positioning itself to benefit from the increasing corporate interest in financing new clean power.

Its focus on small to medium-scale assets also makes it well-placed to fill a funding gap holding back projects from completion. Lindberg explains how ECOHZ uses the GO² premiums to finance up to 15% of a renewables project to help a developer bring it to financial close. The financing is effectively a mezzanine loan, short-term, riskier financing than a bank project finance loan. The repayment term is usually around four to five years, with a certain amount of flexibility, Lindberg says. He would not be drawn on the interest rate of the loan, saying it would vary from project to project. “But it’s not what you would normally associate with top financing — as in very expensive,” he says.

It is easy to see how the offering of cheaper-than-normal top financing with flexible repayment terms could be attractive to smaller developers working on small-scale assets. As Petter Elmstedt, CEO of Waros, the Swedish developer of the Tagerod wind farm, puts it: “Before we heard of GO², we were 5-10% short of the financing needed to build the wind farm”, with a gap between the company’s own equity and the loan banks could offer.

The difficulty, rather than attracting developers to the scheme, is for ECOHZ to find the right assets. “In theory, there are a lot of them out there,” Lindberg says, but some smaller players lack the sophistication needed for a third-party financier to get involved. “We’ve been very careful because we wanted to make sure the first projects were done well, but the next round will see more and larger projects.”