ICIS Power Perspective: Council and Parliament agreed on issuance of Guarantees of Origin to supported RES electricity

Source: Heren

2018/07/06

The final compromise between the Council of the EU and Parliament on the recast Renewable Energy Directive changes the issuance of Guarantees of Origin to renewable energy producers that receive support from national schemes. However, these provisions will mainly apply in countries that have distributed national support in non-competitive settings.

Background Supply of GoOs As required by the 2009 Renewable Energy Directive (RED), all EU countries must have a Guarantees of Origin (GoOs) mechanism in place GoOs of the standard size of 1 MWh are issued in response to a request from a producer of energy from RES to prove the origin of the electricity to the final consumer Members of Association of Issuing Bodies (AIB) in the first four months of this year issued GoOs corresponding to 204TWh of electricity or 40% of last year’s GoOs volume, 512TWh

Supply of Guarantees of Origin by countries 2011-2018

Depending on national implementation, GoOs can be sold with or without electricity for which they were issued and bring additional income to RES producers GoOs can be imported/exported across borders Price The outcome of “trilogue” negotiations between the Council and the Parliament on the recast Renewable Energy Directive (recast RED) on the provisions of GoOs could have impact on their price The GoOs provisions in recast RED concerned their issuance, thus, the supply side of GoOs Most of GoOs trade takes place bilaterally or via brokered agreement; therefore, most of the prices are not publicly available However, the weighted-average price for GoOs transactions on an organised exchange in June in Poland was 0.39 PLN/MWh In some countries for prices may reach €3-4/MWh, according to market participants Final compromise On 27 June the Council’s Permanent Representatives Committee endorsed the compromise text of the recast RED agreed in the preceding “trilogues” The final compromise mainly contains the Council’s Presidency proposal from May 2018 From 2021, member states will formally treat RES producers that receive financial support from national support schemes differently, compared to now, in issuing GoOs to them Although in the initial position the Parliament sought to apply the new provisions only to RES installations that were commissioned after the entry into force of the Directive (2021), this limit no longer remains in the final compromise The market value of the GoOs for the same production of RES electricity will have to be “appropriately taken into account in the relevant support scheme” However, it would be considered that the market value of GoOs is taken into account in competition based settings, such as: The national financial support is granted in tendering Support is granted via tradable Certificates of Origin (CoOs, often called “green certificates”) The GoOs are not issued directly to the RES producer but to a supplier or consumer who buys the renewable energy either in a competitive setting or in a long-term corporate renewables power purchase agreement The market value of the GoOs could also be administratively taken into account: Administratively in the level of financial support awarded to RES producers A member states may issue a GoO to a RES producer (for statistical purposes) and cancel it immediately The final compromise no longer contains a provision on auctioning GoOs The Commission proposed to issue GoOs for power generated by producers that receive national support and transfer them to the market by auctioning, with the revenues used to offset the costs of renewables support The Council endorsed such a position while the Parliament did not support it, but the possibility was mentioned in the presidency’s proposal in May Next steps The European Parliament should adopt the compromise text at first reading, which is planned in October, and communicate it to the Council Subsequently, the Council should adopt an identical text After co-legislators reach an agreement, these steps are rather a formality The recast RED covers 2021-2030 Analysis As we analysed before, the final compromise will have little additional impact on the supply and demand balance of GoOs Impact of auctioning If the auctioning proposal had remained in the final compromise, it could have moved the GoOs supply and demand balance in either direction depending on national choices It could have instigated countries that currently do not issue GoOs for the electricity supported in national schemes to start issuing and auctioning them According to AIB, Croatia, France, Germany, Ireland, Luxemburg and Portugal do not issue GoOs to supported electricity, where altogether 237TWh RES electricity was supported in national schemes in 2016 National choices The final compromise regarding GoOs will only impact countries that used to distribute RES support via non-competitive procedures or are still doing so Leaving aside the countries that do not issue GoOs to supported RES (above), the countries that have been distributing RES support in a market-based manner, will not be significantly affected by the new regulation of GoOs Belgium, Norway, Poland (transitioning to auctioning), Romania, Sweden, the UK (renewable obligation scheme, closed in March 2017) used to have CoOs systems in place or still have them The Netherlands, Denmark (for offshore wind, and increasingly to other technologies), France, Italy, Slovenia, Spain and the UK organise auctions The countries where producers will be affected most likely will be Austria (application for FiT), Bulgaria (application for FiT), Cyprus, Czech Republic, Denmark (for some technologies only, moving to auctioning), Estonia (application for FiT), Greece (auctions only since recently), Hungary (auctions only since recently), Lithuania (for installations before the introduction of auctioning in 2012), and Slovakia Many of those countries have recently transitioned to auctioning/tendering or are preparing to do so It is likely that those member states will change their laws to administratively take into account the market value of GoOs in the level of financial support, or issue GoOs to supported producers and cancel them immediately Mainly they are small power markets; therefore, even if some of these countries choose to cancel GoOs, the impact on the total  EU's GoOs supply would be insignificant

Vija Pakalkaite is Analyst - EU Carbon & Power Markets at ICIS. She can be reached at Vija.Pakalkaite@icis.com

This story has originally been published for ICIS Power Perspective subscribers on 05 July 2018 11:49 CET .

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