ICIS Power Perspective: Supply of Guarantees of Origin grew faster than demand in 2018 and is set to grow further

Source: Heren

2019/03/14

This story has originally been published for ICIS Power Perspective subscribers on 13 March 2019 at 16:44 CET.

After a dip in 2017, the oversupply of Guarantees of Origin (GoOs) in Europe increased in 2018, according to the latest statistics published on 6 March 2019 by the Association of Issuing Bodies (AIB). Around 602TWh of GoOs for RES were issued (supplied) among the members of the AIB, and around 508TWh cancelled (demanded) last year. Our modelling shows that the supply of GoOs, as a share of forecasted RES generation, is set to grow further with the expansion of RES generation capacity in Europe and to increase to over one petawatt hour (1,000TWh) by 2030.

Background

  • GoOs are an EU traded commodity used to verify the origin of renewable electricity, required by the 2009 Renewable Energy Directive
  • They make it possible for producers to guarantee to consumers that the energy they are receiving comes from a renewable source, and are of the standard size of 1MWh
  • The production, trade and sale of GoOs also allow renewable producers to receive additional revenue, above the price of the physical electricity
  • The implementation of GoOs in the majority of the large EU countries (except for the UK and Poland) and Norway and Switzerland is based on the European Energy Certificate System (EECS) operated by the AIB

New statistics

  • Both the demand and supply of Guarantees of Origin (GoOs) issued for renewable energy production continued to grow in 2018, but the gap between the supply and demand increased, AIB statistics show
    • Around 602TWh of GoOs were supplied and around 508TWh demanded among the members of the AIB (see the graph below)
    • The gap between the supply and the demand increased around 72% from around 53TWh in 2017 to around 94TWh in 2018

  • Including the Polish data, 613TWh were supplied and 524TWh demanded, and the oversupply was around 88TWh
    • Poland is not an AIB member and its data was not included in the annual statistics
    • The Polish regulator URE provided us with the preliminary data on GoOs issued in 2018 – 11.18TWh
    • We used the TGE statistics of 16.85TWh of traded GoOs in 2018 as a proxy for the Polish demand

Supply

  • As in 2017, Norway remained the largest supplier of GoOs among the AIB members (138TWh or 21% GoOs were issued), followed by Spain (102TWh or 15.8%) and Italy (89TWh or 13.8%)
  • Accordingly, Norway was the largest exporter of GoOs (235TWh or around 44% of all exported), followed by Italy (52TWh or around 10%)
  • GoOs for hydroelectricity constituted the majority of GoOs issued among the AIB members in 2018 – 393TWh or around 61%

Demand

  • The country where the most GoOs were cancelled was Germany (around 100TWh or 19% of all cancelled GoOs)
    • German legislation prevents renewable producers awarded state subsidies from also receiving GoOs for the same units of RES electricity
    • Therefore, German consumers need to largely rely on imported GoOs – Germany imported 92TWh or 17.2% of all imported GoOs and was the second largest importer after Norway
  • Three other countries with the most cancelled GoOs were Spain (13%), Switzerland (11%) and the Netherlands (10%)

Analysis

Supply forecast

  • We used the ICIS Power Horizon model to project the European supply of GoOs through 2030 as a part of predicted renewables generation
    • We have used the capacity forecast and fuel prices in our 2018 December base case update
    • For the modelling purposes, we assumed that the regulation of GoOs will not change through 2030, that is that no new countries will stop issuing GoOs for RES electricity supported from national schemes and none of those that currently have such restrictions will relax them
    • In December base case, our modelling covered the same set of countries that the AIB reported, except for Croatia, Cyprus, Ireland and Luxembourg, which altogether generated less than 1% of all GoOs reported by the AIB in 2018
    • We added Polish modelling results to the forecast of GoOs

  • Based on our modelling, the supply of GoOs will grow as European countries keep investing in renewable energy generation capacities or RES generators will fall out of support systems and become eligible for GoOs
    • The supply of GoOs in the AIB members and Poland will increase by 67% compared to 2018 and reach 1.1 petawatt hours ( 1,100TWh) in 2030
    • As the Spanish RES generation capacity is expected to increase from 51GW in 2018 to 106GW in 2030, Spain is forecasted to become the largest supplier of GoOs in Europe, pushing Norway to the second place, where it will remain from 2025 to 2027
    • By 2027, Italy is forecasted to overtake Norway as well and become the second largest supplier of GoOs, with Norway remaining in the third place from 2027 onwards
    • Accordingly, onshore wind will increase its relative share and by 2030 it will overtake hydro and become the biggest supplier of GoOs
    • In Germany and France, renewable producers awarded state subsidies do not receive GoOs for the same RES electricity, a growing number of RES installations will drop-out from participating in the state support system after 2020 and continued generation will, besides technical feasibility, rely on market income, including from GoOs
      • We forecast that German GoOs will increase from around 19TWh in 2018 to around 47TWh in 2030
      • We forecast that French GoOs will increase from around 53TWh in 2018 to around 62TWh in 2030

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

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