UK to remove cost exemptions for imported green energy, to stop recognizing EUGOs

The UK Government is set to end exemptions for imported green energy in Feed-in Tariffs and Contract for Difference schemes with a target date pending legislation of April 1, 2023, it said in an update to a consultation on the move posted on its website July 27.

It links those exemptions to the acceptance of EU Guarantees of Origin in the UK, which are certificates for the provenance of green energy that will also no longer be recognized, in a move that may put some pressure on their price, according to traders.

The Contract for Difference scheme supports electricity generators pursuing renewable energy projects in the UK by reducing their exposure to volatile wholesale prices and instead links their output to an indexed price over a 15-year period.

Payments are funded by a compulsory levy on UK electricity suppliers in proportion to their share of the local electricity market, with an exemption for renewable energy generated in the EU and imported into the UK, for which suppliers use EU Guarantees of Origin certificates.

The same approach is used for the Feed-in Tarrif scheme to support renewable energy, which closed to new applicants in April 2019.

Following the consultation which ran from late March to May 2022, the UK Government said that it has decided to implement an option which will "repeal the availability of the green import exemptions for the Contract for Difference and Feed-in Tariff schemes."

It said that it will seek to amend legislation such that the changes come into force from April 1, 2023, and "for UK recognition of EU Guarantees of Origin to cease from 1 April 2023."

"This was viewed by government as the most straightforward option and would ensure a fair opportunity for all potential trading partners," the update said. It would "restore a level playing between all GB suppliers, in that each supplier's contribution to CfD and FIT costs would match more closely their market share of GB electricity sales, thereby removing market distortions and red tape."

UK changes to put pressure on EUGOs

The cost of EU Guarantees of Origin is at record high currently, according to Platts assessments from S&P Global Commodity Insights dating back to 2019.

The most liquid of these, Nordic Hydro 2022, was on July 27 assessed at Eur2.655/MWh, with contracts for later periods even more costly.

The high values came in part from surging values for natural gas in Europe, according to traders.

"Everything is going up because of the gas panic," said one trader.

There could be some downward pressure to come, though, traders said, on the back of the UK move to stop recognizing the certificates. The traders said as much as 70 TWh of EU certificates had been destined for the UK market and that those would now need to be absorbed elsewhere.

"Prices for the [EU] GOs will go down. [There are now] 10% more GOs to sell in the EU," another trader said.

There hadn't yet been a change in prices for the UK equivalent certificates -– UK Renewable Energy Guarantees of Origin, or REGOs – according to traders, though some thought that higher values could be around the corner.

The UK move "will lead to an increase in prices for REGO 22-23, but we think this is already priced in," said one trader of the UK certificates.

"Essentially, they are just going to cut supply [of REGOs]," another trader said.

Platts on July 27 assessed the Non-Bio CP 21 REGO contract at GBP4.15/MWh, unchanged on the day.