European Renewable GO demand surpasses production by 100 TWh in Q1 2021

Demand of European Renewable Energy Guarantees of Origin outweighed supply by nearly 100 TWh in the first quarter of 2021, AIB data showed.

Transaction-based issuance, or supply, of GOs totaled 234 TWh in Q1 2021, while transaction-based cancellation, or demand, totaled 334 TWh.

Although GO demand, including both own-domain and ex-domain cancellation, outweighed supply by more than 40% in the first quarter, oversupply was down on the year with demand 90% higher than supply in Q1 2020, the data showed.

Demand for GOs fell 15% year on year, while supply increased by over 10% with major technologies hydro, wind and solar all recording an increase in supply but fall in demand.

According to some market participants, demand for GOs was lower compared to data for Q1 2020 due to national restrictions and lockdowns. One GO trader said, "Q1-2020 was basically not impacted by COVID at all where Q1 2021 was globally hit."

GO prices traded sideways in the first quarter of the year as the market stagnated on a lack of liquidity. Trading sources told S&P Global Platts that while sellers were holding out for higher prices on the expectation that demand for renewable products will only increase in the future, buyers had closed large shares of their positions in 2020 when GO prices were low and were getting by with spot deals from time to time. "[Traders saw that] the GO prices were very low to begin with, so those with logical brains concluded that the odds of prices dropping further down were small."

Another source said, "2020 is the main reason that a lot of energy suppliers are being oversupplied because of -- the obviously unexpected -- lower demand. So they are being cautious proceeding for the current year. My expectation is that ... demand will pick up again and will surely meet the growing supply."

GO market liquidity and prices saw a significant increase in April 2021 as buying appetite surged. While the spike in prices seemed sudden, market sources saw it as a culmination of the ever-growing interest in renewable products as the energy transition picks up pace. Another source said, "there has been an increase in demand of everything related with renewable energy."

According to Platts data, both current-year and year-ahead Nordic hydro GO prices recently hit the highest levels on record, according to data that goes back to September 2019, while EU wind equivalent contracts climbed to the highest post-pandemic levels.

While demand dropped compared to Q1 2020, supply of GOs hit the highest quarterly levels since before 2019, with supply of hydro, solar and wind GOs all up year on year.

A GO trader said: "Demand will absolutely keep growing, but it could be reasonable to believe that supply will grow even faster. It's all about the balance between the demand and supply." The supply will rise too since "most added AIB members are net exporters so that must skew the balance a bit there."

The data showed that GO supply typically peaks in the first quarter of the year, when hydro and wind generation hit their highest levels. In Q1 2021, supply of hydro GOs was up almost 20% on the year, and up almost 30% from Q1 2019. A winter that saw temperature remain consistently below average levels supported power demand and European hydro generation through the opening months of the year.

In the Nordic region, home to Europe's largest reservoirs, hydro stocks began the year at almost 10% above the long-term median but stocks had fallen to just 6% above the long-term median by the end of March, Nord Pool data showed.

The supply/demand stack of GOs was little changed year on year, with hydro GOs continuing to dominate the market, accounting for 60% of both supply and demand. Both wind supply and demand accounted for around 25% of total supply and demand, down slightly on the year, while the solar share of supply and demand was also little changed.