Article in RECHARGE 06 April 2018
The EU’s new Renewable Energy Directive could supercharge growing clean energy demand in Europe by making a Guarantee of Origin seal of approval mandatory, writes Tom Lindberg
Market statistics from the Association of Issuing Bodies (AIB) underline that demand for renewable energy continues to grow: European consumers and corporates are increasingly fulfilling their green energy intentions by documenting their renewable purchases with Guarantees of Origin (GOs) – Europe’s system for tracking and making renewable energy claims.
In 2017 the total demand for GOs climbed from 367TWh in 2016 to 471TWh in 2017, an impressive 28.3% increase. The market is also more robust and more balanced than ever before.
This growth is primarily being driven by businesses of different sizes and across various industries and sectors that are documenting energy consumption with GOs as a basis for sustainability reporting and CO2 emission calculations.
Households too increasingly wish to document that their electricity consumption comes from renewable sources. This demand for clean energy, combined with more attractive renewable alternatives and a robust energy policy framework, has enabled Europe to set ambitious renewable targets.
But with the EU in the midst of creating a new Renewable Energy Directive (REDII) – with the self-proclaimed goal to “provide the stable legislative framework needed to facilitate the clean energy transition further” — there is a unique opportunity to take GOs to the next level.
There is, however, the potential for certain aspects of the REDII currently being discussed to impact negatively on the GO system. The decisions ahead therefore need to be the right ones if we are to speed the energy transtion in Europe.
Upward market value
Looking at the most recent AIB statistics is revealing of possible REDII outcomes.
Current market prices are reflecting the growing interest in GOs as the market matures. With the balance between supply and demand continuing to improve, the prices in the wholesale market have increased steadily.
With even the lowest current prices hovering around € 0.65 for a standard unspecified GO in the wholesale market, the current market value for GOs can be conservatively estimated to be €450m.
This is more than two to three times higher than a year ago. European policy makers are now deliberating if use of GOs for renewable claims and disclosure should be mandatory. Making use of GOs mandatory for all renewable claims would be another positive boost to the already high demand.
By contrast, voluntary use of GOs, as proposed in the Council’s General approach, would continue to leave the door open to alternative tracking and verification tools, which would make reporting to consumers and corporate purchasers potentially unreliable and misleading.
The prices of GOs would likely never truly reflect the marginal value of renewable electricity, as businesses and consumers would be uncertain regarding the validity of renewable energy claims.
More GOs in the mix
Although the most recent AIB statistics show that hydro power still is the largest source of renewable electricity available, the fastest increase in consumer uptake is experienced from wind and solar sources.
It is likely that the share of wind and solar would be even higher if countries did not limit the issuing of GOs from power plants that have received support. As many of these power plants are either wind or solar, the result is a constricted supply from the newest technologies. All produced renewable electricity should instead be able to receive GOs.
Where financial support is granted via competitive tenders or certificate systems, these have proven to be an effective way to prevent over compensation as renewable producers have to take into account the value of GOs in their bids, which in turn lowers the need for support payments. If support levels are determined administratively, financial mechanisms for new projects can be adjusted in a way which reflects the income derived from GOs.
PPAs still key
An increasing proportion of the growth in GO demand is now coming from corporate power purchase agreements (PPAs). When businesses wish to purchase power directly from a renewable energy producer in the form of a PPA, they also need to document the transaction using renewable energy certificates – GOs in Europe.
Policy makers are currently considering mandatory auctions for GOs. This would be unfortunate, making many PPAs and other commercial agreements irrelevant and less attractive for the corporate buyers.
Mandatory auctioning of GOs for supported production should consequently be avoided. Instead, GOs should remain an integral part of corporate renewable PPAs, as direct traceability of the consumed electricity is inherent to this successful business model.
We are optimistic that the European policy makers will consider these impacts to achieve the best outcomes for the EU28. Demand for renewable energy will continue to grow, but let’s hope that an REDII is set in stone that will facilitate this development and wider energy transtion by strengthening the position of the GO system.
Tom Lindberg is managing director of Oslo-based renewable energy advisory ECOHZ.