ICIS VIEW: Can corporate green energy pledges drive demand for guarantees of origin?

LONDON (ICIS)–Corporate renewable electricity sourcing in Europe is expected to be a key driver of demand for guarantees of origin (GOs) in the coming years, with RE100 companies expected to lead this growth.

The RE100 initiative – where businesses commit to 100% renewable electricity procurement by a target year – reached 300 members globally in April. Companies within the initiative account for over 97TWh of green electricity demand, according to the RE100 2020 annual report.

Such commitments are made through claiming consumption of renewable electricity through various criteria, the main being through a credible tracking system such as GOs in Europe.

The growth in the RE100 scheme signals that corporate green energy procurement is expected to be a crucial driver of growth in consumption of renewable electricity, and therefore GOs, within Europe.

EUROPEAN CORPORTATE DEMAND

RE100 companies that have European operations accounted for 31% of total RE100 demand in 2020, with 81% of this consumption being met through renewable electricity.

According to information from the Association of Issuing Bodies (AIB) and UK regulator Ofgem, the 81% of renewable electricity consumption at 24TWh, accounted for 5% of all GO cancellations in Europe (including the UK).

The key sourcing strategy for a corporate presently is direct contracts with suppliers, which sits at around 55% of all RE100 sourced electricity.

Certificates such as GOs comes in second, accounting for 36% of RE100 sourced electricity. While the two numbers are reported differently, as most suppliers in Europe use GOs to prove the origin of their green electricity, it can be assumed that over 90% of RE100 green energy consumption is met through GOs.

This suggests that demand from the corporate sector plays a significant role in overall GO demand and is likely to grow as renewable tracking systems mature and develop.

If it is assumed that this percentage share remains, then based on historical growth rates of AIB cancellations and steady growth in corporate demand in Europe, RE100 companies with operations in Europe could account for nearly 10% of cancellations by 2030.

This is part of the reason why Europe is likely to see a surge in green energy procurement as companies look to drive investment in more established tracking systems such as the GO market.

The other method of sourcing that is on the rise globally, and in Europe, is through power purchase agreements (PPAs). As GOs are also typically bundled in PPA contracts, this could see an increase in volume being sold and purchased as more PPAs are signed. This will be particularly crucial for markets such as the Baltics, where corporate PPAs are emerging as the main investment strategy for renewable build-out.

While it is difficult to estimate the exact figure, the uptick in corporate PPAs and potential easing of regulation surrounding which plants receive GOs by their respective issuing bodies could see a surge in both supply and demand.

An increase in corporate demand could also see countries which do not presently issue GOs look to do so, boosting supply further.

GOs are an electronic certificate which documents the environmental attribute of the generation of one MWh of electricity. GOs enable efficient and accurate tracking of the consumption of renewable electricity.

Please note that issuances refer to the issue of one MWh of GOs, which can be referred to as supply, while cancellations refer to the consumption of one MWh of GOs, which can be referred to as demand.