European renewable certificates at all-time high amid hydropower shortage

The market for European renewable energy guarantees of origin (GOs) has been heating up in recent weeks, with prices breaking the Eur6/MWh mark due to a persistent shortage of hydropower and strong demand from corporate buyers.

Platts, part of S&P Global Commodity Insights, assessed the most actively traded GO certificate, Nordic hydro 2022, at a new all-time high Eur6.08/MWh on Oct. 28.

That GO and others like it, which are tradeable certificates associated with green energy production, have not fallen in value since early September, the data showed. As recently as late 2021, GOs were selling for less than Eur1/MWh.

A lack of rain across Europe following a summer of drought has been limiting the supply of hydropower GOs, pushing prices higher, according to market players.

"There is a lack of hydro all around Europe," one market participant said, adding that production from five major European producers -- Austria, France, Italy, Norway, and Sweden -- could be down by as much as 10% year-on-year. Assuming that shortfall "it will be a lack of supply of around 35 TWh in an 800 TWh market, not counting wind and solar variation," the source said.

At the same time as supply was being squeezed, demand from corporate buyers looking to meet their net-zero goals with renewable certificates was growing. The upcoming COP27 UN climate change conference running Nov. 6-18 in Egypt was expected to contribute to the trend and raise the profile of GOs, according to certificate traders.

"For sure demand will increase, a lot of corporates will stress now how committed they are in the net-zero goals. Regardless of the energy crisis, this became a responsibility rather than a nice thing to do," a GO trader said. "I think it will depend on whether granularity is a major topic for them."

The term granularity refers to an industry push to align renewable energy certificate trade frequency with that of the electricity they relate to. Changes could see certificate trading windows of a year or more cut to an hour or even 15 minutes, leading to a big increase in market size.