European GO demand 'will have to grow' to avoid price impact from RED revision

Demand for European Guarantees of Origin (GOs) will need to grow substantially to offset potential price impacts of the European Commission's revised renewable energy directive proposals, market participants have told S&P Global Platts.

On July 14 the European Commission proposed removal of Member States' right not to issue GOs to producers that receive financial support as part of its massive Fit for 55 climate package.

"Demand will have to rise too, otherwise prices will fall drastically," one trader said.

While some countries like Greece and the UK already issue GOs to supported renewable assets, other major markets such as Germany and France have not.

Wider issuance of renewable GOs would help drive uptake of renewable power purchase agreements, the EC said July 14.

In order to provide access to supporting evidence for those concluding PPAs, "all renewable energy producers should be able to receive a guarantee of origin without prejudice to Member States' obligation to take into account the market value of the guarantees of origin if the energy producers receive financial support," it said.

At the same time the EC's RED revision proposes that Member States actively promote PPAs "by exploring how to reduce the financial risks associated with them, in particular by using credit guarantees."

Member States are to ensure PPAs are not subject to disproportionate charges, and that "any associated guarantees of origin can be transferred to the buyer of the renewable energy under the renewable power purchase agreement."

Full disclosure disappointment

Meanwhile GO market participants were underwhelmed by the failure of the EC to move GO compliance to mandatory full disclosure, the executive merely proposing that Member States "may arrange for guarantees of origin to be issued for energy from non-renewable sources."

Mandatory disclosure across all generation sources, not just renewables, is seen as a logical end point for sector transparency, driving customer choice towards decarbonized options.

"With full GO disclosure end customers can check whether the company producing and supplying their energy is keeping to its promise of focusing on increasingly green production and eliminating coal, for instance," a market participant told Platts.

"I would have thought they would have done more on full disclosure, as this would help a lot," another trader said.

Growing trend

Within the EU only Austria and Netherlands have implemented a full disclosure system. Outside the EU, Switzerland has full disclosure while France is to start voluntary full disclosure from 2022.

Finland is currently revising its GO legislation, extending it reach to renewable heat and cooling, waste heat, renewable gases, and nuclear power by 2022.

Sentiment from traders around full disclosure had been positive in most EU countries but opponents have argued full disclosure ignores the physical reality of electricity flows, making it difficult for suppliers to trace electrons back to source. This would be made easier in future, they say, via technologies such as blockchain.

However, whether market participants were in favor or not was immaterial, a market source concluded. "The same argument happened with market coupling. The mechanism went ahead despite imperfections because the political will was there at EU level."

The EC's proposals now go into what are expected to be lengthy interservice consultations with the EC Council and European Parliament. While the Council has said it wants to finalize its position by June 2022, adoption of the package could take two years.