Building a larger and more robust marketplace for tracked and documented renewable power in Europe

The time to build a larger and more robust marketplace for tracked and documented renewable power in Europe is now. The European Union is launching its “Winterpackage”, looking to reconstruct much of the European energy landscape. This initiative is comprehensive, far-reaching, and is deemed a critical step toward reaching the 2030 climate energy targets.

In this broad energy context, it will be essential to allow market forces to more directly impact a transition to more renewables. Guarantees of Origin is a system that allows for active engagement among all consumers of power in Europe and creates clear purchasing alternatives. It now creates added credibility in the market, and will further fuel the already strong, international demand for access to renewables in the corporate sector.

BACKGROUND – MARKET DESCRIPTION

Demand for renewable electricity (RES) in Europe documented by Guarantees of Origin (GOs), is growing rapidly – year over year by 14% (CAGR). Growth is coming from all types of consumers – households, organisations, cities and businesses. But there is little doubt that the business sector is the strongest driver behind the surge in demand.

The system of GOs was established by the EU already in 2002, and has slowly evolved into a large, valuable and credible market. Much of the development has been driven by the industry itself – and with the EU using more carrots than sticks in ensuring national compliance. This has resulted in a fairly slow deployment, but at the same time a very robust one, where all is based on real market needs and voluntary purchases.

A joint standard for GOs named EECS (European Energy Certificate System) is established and managed by the Association of Issuing Bodies (AIB). AIB is a membership organisation consisting of national GO issuers – in many cases a national grid operator (TSO) or someone with a similar position. AIB has also established an electronic hub for trading, transferring and managing the flow of GOs within the European marketplace. The AIB hub enables full traceability and transparency, and ensures that there will never be double-selling or double-counting of the renewable GOs within this system.

In 2016, there are 20 active AIB countries – fully EECS compliant and using the hub actively.

 

EECS GO countries

·        Austria ·        Finland ·        Luxembourg
·        Belgium ·        France ·        Norway
·        Croatia ·        Holland ·        Slovenia
·        Cyprus ·        Germany ·        Spain
·        Czech Republic ·        Iceland ·        Sweden
·        Denmark ·        Ireland ·        Switzerland
·        Estonia ·        Italy

 

As AIB hub members these countries are part of an open and integrated marketplace for issuing and selling renewable GOs. Renewable power produced and documented in a given country on the hub, can be consumed and purchased by customers in another country on the hub. This open marketplace increases the attractiveness of the different national GOs.

Still there are countries that are not connected to the AIB hub, and either do not have any GO system, or have established their own national GO system – like the UK with their REGO system. National GOs have limited scope, and are restricted in use to the country of origin, and thus cannot be traded on the AIB enabled marketplace.

 

Countries with national GO system
– not AIB integrated
Countries only with GO legislation
– no system
Other countries with interest in joining AIB
·        Bulgaria ·        Malta ·        Serbia
·        Greece ·        Portugal
·        Hungary ·        Slovakia
·        Latvia
·        Lithuania
·        Poland
·        Romania
·        United Kingdom

 

The market has grown steadily and reached approximately 550 TWh of traded and purchased GOs in 2015. This includes GOs from national systems including UK and Spain (joined EECS in 2016). The total volume related to the EECS GOs was the largest share, amounting more than 340 TWh. This is forecasted to grow faster than GOs in national systems the coming years.

Renewable electricity procured in Europe

Total renewable power available in Europe has surpassed 1 100 TWh, now approximately 1/3 of the total power generation in Europe. But it also means 50% of renewable power is tracked and documented in some way.

 

MOVING FORWARD – BUILDING THE MARKET

Moving forward, a natural ambition is to track and document all renewable power with EECS GO, and enable all GOs to be traded in the same, open marketplace. This creates choice for consumers and enables increased value creation and incentives for power producers. Is this still possible and what will it take to get there?

The following text will explore three areas:

  1. Steps to grow the total market – 2017-2020
  2. Harmonise and create a more effective market
  3. Strengthen policy framework post-2020

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A    Steps to grow the total market – 2017-2020

There are four ways to grow the volume of the European market for GOs, with the ambition that all renewable electricity produced and delivered on to the European grid shall be tracked, documented and made available for the market.

1.     Issue Guarantees of Origin for all renewable generation

Today a number of AIB countries have chosen to exclude generation that has received support. This exclusion is primarily related to receiving Feed-in-tariffs (FIT). This practice reduces the size of the total renewable market, and contributes to limiting consumer choice.

It would be beneficial for the future credibility of the market that all renewable generation could issue GOs.

The volume excluded from entering the market was approximately 210 TWh in 2015.

Examples of countries that exclude based on FIT: Germany, France, Ireland

2.     Increase the number of countries with established GO systems

In Europe there are still a number of countries that either lack the necessary legislation or a functioning tracking system. The EU should directly or through CA-RES (concerted action) promote the need for countries to comply with the RES Directive, and move faster to implement the necessary policy changes.

Examples of countries without necessary GO legislation: Malta, Serbia, Slovakia, Portugal

3.     Create incentives for power generators to certify new power plants for issuance of GOs

Although the number of countries across Europe that deploy a GO tracking system steadily has increased, there is still a lack of awareness and understanding among local policy makers and key players in local energy markets, of the opportunities that GOs represent. More focus on the value of renewable production is needed in all markets, to ensure that more power producers actively choose to issue GOs.

To enable more power producers to certify their power plants and start issuing GOs, it is critical that local “registry rules” are simple, transparent and “trading friendly”. It is also vital to keep the transaction costs for GOs low, to ensure no cost barriers exist.

  • The volume of produced renewable electricity without issuance of GOs, was in 2015 approximately 350 TWh.

4.     Increase the number of countries transforming their national GO system to EECS and linking to the AIB hub

In 2016 there are 20 countries connected to the joint electronic trading hub of AIB. All other countries with a national GO system, and not connected to the AIB hub, are excluded from the open European market place. They are forfeiting potential value creation.

Examples of countries with national GO system (not EECS) and not on the AIB hub: UK, Greece, Poland and partly Sweden

Although it’s a long term goal to have all countries on the EECS standard and connected to the AIB hub, some are more important than others. The UK and Sweden are critical. The UK has their own standard, the REGOs, and transforming them to the EECS standard would have large and positive impact on the market. Sweden is, alongside their EECS issuance, operating a national system (CESAR), which is 3 times the size of the EECS volume. Moving this to the AIB hub is of high importance.

  • The volume of GOs available as national GOs, but not as tradable EECS, was in 2015 approximately 200 TWh.

Total renewable power generation Europe

 

B.    Harmonise and create a more effective market

Europe has reached a critical volume of trade, and has a market that functions well. This does not mean it cannot be improved. The part of the market that works best is the part where cross-border trade is enabled by the AIB electronic hub, where the EECS standard provides consistency and traceability. The EECS GO system is endorsed by international stakeholders, and provides a trustworthy and relevant basis for purchasing renewables. National GOs are not viewed in the same way, and do not have the same stamp of approval by 3rd party verifiers.

The following section will explore ways to improve the market conditions for EECS GOs on the AIB hub.

Today national EECS deployment varies, often based on national energy policy and regulation. Harmonising national “rules of engagement” across all AIB countries would create a more transparent market place for all involved, and a more level playing field for market players. Creating a more effective marketplace can enable more trade, better value creation for generators and a wider selection (choice) for consumers, organisations and businesses.

There are four key initiatives needed to better harmonise the European marketplace.

1.     Standardise rules for disclosure and deployment of 12-month validity rule

Rules can vary significantly among member states for validity and issuing of GOs. In some member states the lifetime of the GO starts at production date, while in other member states it can be at the end of the production period or even at the time the certificates are requested.

Regarding national disclosure and residual mix calculation, much work has been done to harmonize the rules by the RE-DISS II project, and is now taken over by AIB. But still the validity cut-off dates for issuing and usage vary.

2.     Standardise communication of renewable electricity

In many countries, communication related to “documented renewable electricity” is complicated by using a wide array of less objective words and expressions. Examples of expressions used instead of the word “renewable” is typically green, sustainable, clean, and environmentally-friendly. The use of such “subjective” expressions open up discussions. Many people may have different opinions about what really is green or sustainable, while most will agree what constitutes a renewable energy source. By using only “renewable” to describe renewable power, many misunderstandings will be avoided.

Norway is a good example of a country that has regulated the communication. Consumer interest organisation and the power industry have come together and agreed on an “Industry norm/standard” for Guarantees of Origin.

3.     Defend the principle of unbundling physical power and the GO

By unbundling the physical power and the renewable value (GO) the EU enabled a new marketplace to develop for renewable power.

For many consumers and households, it will make most sense to purchase documented and guaranteed renewable power from their local supplier – packaged together in one tariff.

While for larger purchasers in the corporate sector it is critical to have the option to purchase the renewable power separately. This gives flexibility and purchasing power.

Unfortunately, some AIB countries are limiting this possibility indirectly through limiting who can act as market player in their national domain. Thus creating a challenging and unfair marketplace, and limiting customer choice.

4.     Harmonise country implementations and “rules of engagement”

Implementation of a GO system in a member state is often linked to an overall energy policy, and various local needs. An overreaching goal of such an implementation is to create a robust, but seamless environment for promoting trade, and thus enabling value creation for the power industry. Unfortunately, a number of countries having linked its local registries to the AIB hub, have implemented rules and restriction that make trade more complex and limiting customer choice.

Some examples of local restrictions follow below. These types of restrictions are very sub-optimal, and should obviously be avoided.

a) Only physical electricity suppliers can have GO accounts

In some countries there are requirements to be a physical power supplier in order to have an account in the national GO registry. This is contradictory to the principles of attribute tracking systems and the implementation of the Guarantee of Origin. This limits the consumers’ ability to purchase renewable electricity and provides a monopoly position for physical power suppliers operating in a given Member State.

Currently the practice in Ireland.

b) Only nationally registered companies can participate on the registry

In at least two member states there is the requirement that only market players physically located and registered in the member state are able to open an account in the registry. Not only does this discourage small market players from entering the market (due to limited resources to open a satellite office in the country) but it is clearly a violation of the EU’s open markets principle.

Currently the practice in The Netherlands and Ireland

c) Only individual electricity suppliers can deliver (cancel) GOs

In some markets only the consumer’s individual electricity supplier is allowed to sell Guarantees of Origin. This limits the role of third-party providers and discourages a market for GOs beyond consumer’s individual physical supplier. If a consumer is unsatisfied with the product offerings of his supplier and cannot find a supplier that meets his particular product needs, there is no method for purchasing unbundled GOs. This can be a particular problem for PPAs and financing arrangements that are contingent upon a certain party receiving the GO attributes.

There are three variations:

  1. The sales and delivery must be done by the same supplier. Must be customers’.

Currently the practice in Austria

  1. The sale and delivery can be done by two different parties, including sales by a third party. The supplier must be customer’s own supplier.

Currently the practice in Germany, Belgium (Flandern & Brussel)

  1. The sale and delivery can be done by two different parties, including sales by a third party. Supplier does not need to be customer’s own supplier.

Currently the practice in Italy, Ireland

d) GOs cannot be cancelled for customer specific use – only on supplier level

While the market demand is driven by a surge in customer specific need for documented renewable power, some countries do not allow delivery/cancellation on a customer level. Creates a barrier for establishing and delivering real customer choice.

Currently the practice in Austria, Ireland, Belgium (Wallonia)

e) Making some EECS-GOs ineligible for cancellation because of national origin

Some member states have previously excluded valid EECS-GOs because the country from which the certificates originate are not EU members but are part of the EEA. This is not in line with the principles of the RES Directive – which defines the use and purpose of the GO.

f) Creation of market barriers

Instead of moving toward a gradually more harmonised market, new countries joining AIB bring in new variations, barriers and market intricacies, that makes the market-landscape very challenging to manoeuvre in.

A current example is Spain, the latest country to join the AIB. It has implemented numerous rules and restriction that are unique for Spain, and that only works to limit the scope of trade.

 

C.    Strengthen the policy framework post-2020

The European Union’s Renewable Directive is currently being revised for a post-2020 setting. A broad round of consultation has been completed in 2016, with wide interest and contributions from numerous interest organisations. A first draft of a new RES Directive will be published early December 2016, and will be the basis for further discussions and negotiations.

There has been a drive from many key stakeholders to establish a framework for GOs and the related fuel disclosure text in ONE directive, and not as it is today – split in two separate directives – the Renewable and the Internal Market Directives.

More important is still to reinforce certain principles to improve quality of national deployment as well as spurring market growth. There are four principles that should be either reinforced or added to the new Directive:

1.     Expand the system of GOs to all technologies

The GO is in principle technology agnostic. This means it can and should be used to track the production of all power generation – not just the renewable part. This would create a much more precise tracking and monitoring system for power in Europe, and would improve and simplify the national fuel mix calculation, including the residual mix.

An all-technology system would also emphasize to customers the real choices they have, and show more explicitly that the alternative to a renewable choice, is a fossil or nuclear product.

2.     Creating an explicit link between the GO and CO2

The main rationale for documenting renewable purchases is to reduce the GHG emissions related to energy usage. This means that the GO already carries the implicit value of the related CO2 emissions, when used and reported. It would still be a step forward if the Directive more explicitly would express this link. Especially in a new Directive where the role of the GO system is expanded to document all power generation – covering all technologies.

3.     Implement a regime for DUAL reporting on national level

Alignment with national renewable targets
One of the weaknesses of the current implementation is the lack of linkage with the national 2020 renewable targets. Targets are measured based on production figures, while the GO system allows for market based consumption figures.

Alignment with corporate reporting
The leading corporate CO2 accounting standard (GHG Protocol, Scope 2) has implemented a principle for corporate renewable claim reporting based on a concept of dual reporting. This means that corporates report their energy consumption and CO2 reductions related to BOTH 1) a national electricity production mix, as well as 2) their consumption based on market based instruments (Guarantees of Origin).

Creating REAL rationale beyond «do good» for household consumers
This is a principle which would increase the relevance of the Guarantee of Origin system – allowing consumers and corporate buyers a direct influence on achieving national renewable targets, while still keeping focus on the supply/generation side of the market.

4.     Mechanism for enforcement of member state deployment

The current RES Directive and the text describing the system of Guarantees of Origin, is well intentioned, and has resulted in an EU wide implementation. But this process is still underway, and a number of countries still have not completed the necessary legislative changes, neither taken the practical steps toward establishing a real system linked to the European market through AIB. As described earlier, national deployments also vary greatly in how they interlink with national energy policy.

The established market for Guarantees of Origin is a great success – showing that voluntary demand for access to renewable power is important enough for households and businesses that they are willing to pay a premium price for their electricity.

The roll-out across member states has been far too slow and could have been much more harmonised than what we have experienced so far.

In the new RES Directive, clearer guidance and expectations in terms of national deployment is a critical new component. The Commission should consider a “tool-box” of both sticks and carrots – to further incentivize the member states to speed up implementation, and be more loyal to the intentions of the Directive text.

 

CONCLUDING REMARKS

The time to build a larger and more robust marketplace for tracked and documented renewable power in Europe is now. The European Union is launching its “Winterpackage”, looking to reconstruct much of the European energy landscape. This initiative is comprehensive, far-reaching, and is deemed a critical step toward reaching the 2030 climate energy targets.

In this broad energy context, it will be essential to allow market forces to more directly impact a transition to more renewables. Guarantees of Origin is a system that allows for active engagement among all consumers of power in Europe, and creates clear purchasing alternatives, now creates added credibility in the market, and will further fuel the already strong, international demand for access to renewables in the corporate sector.