GOs contango deepens as demand-supply gap shrinks

ICIS Editorial


By Federica Di Sario

LONDON (ICIS)–The European guarantees-of-origin (GO) market is poised to see an ever-growing demand from corporates and households reducing the oversupply that has plagued the market for years, stakeholders told ICIS.

Views were backed by recent upward movements across nearly all technologies resulting in a steeper price contango. This suggests that demand is expected to increasingly balance out supply in the coming years.

GOs are electronic certifications that verifies the origin of electricity delivered or consumed. As of today, the trading of certificates constitutes a mainly voluntary market, meaning consumers are not forced by law to demonstrate the origin of their electricity.


In the past weeks, the market reported a 20% price increase across nearly all technologies as signals pointing towards a potentially short 2021 emerged.

Rodolphe Schennen, managing director at Commerg, a brokerage firm for renewable energy certificates, pointed the finger to Nordic hydro.

“Despite a firmly rainy summer season in the rest of Europe, rainfalls in the Nordics proved limited, which made for an unexpectedly short [GOs] market.”

The cumulative GO average for all technologies was reported to have reached €0.75/MWh for 2021, while 2022 is now exchanged at €1.25/MWh and 2023 at €1.30-1.35/MWh.

Only a few months ago, prices hovered above €0.30/MWh, sources told ICIS.

Nordic hydro is Europe’s GO benchmark, supplying a great number of large corporations across the continent.

Nordic hydropower reservoirs were only 66.6% full in week 37, that is over 11 percentage points below the 2016-2020 average, data collated by ICIS showed.

Schennen added that the upward momentum filtered through to wind and solar GOs too, although less so on biomass, due to a structurally lower buying interest for the product.

According to Ivan Debay, CEO of Origo, a company specialised in providing GOs in France, the current situation is similar to 2018, when the price of certificates surged for the first time up to €2.50/MWh, precisely because of limited availability in Nordic hydro stocks.

However, back then France had not set up its auction scheme yet, which currently brings to the market a monthly volume of roughly 2-3TWh.

“We are talking of a yearly market. For this reason, whether the market will be short or long will become clear only by the end of the trading year, that is when GOs will be cancelled,” he explained.

“Until that moment, nobody really knows where the market is heading.”

Yet, another signal strengthening the case for a short market is the spread between Nordic and the European hydro GOs being rather tight, which would suggest that the market is fearful of limited production across Europe.

“In a long market, you would see demand for Nordic hydro being easily replaced by French or Italian hydro, but that’s far from what’s happening at the moment,” Debay added.


If recent bulls were primarily caused by a tightness in Nordic hydro, a broader shift in market dynamics is at work in the long run.

A white paper recently published by trade association RECS International argues that “the market gap between the supply and demand of all certified renewable energy in Europe has been falling steadily since its peak in 2016-17.”

Buying interest for both solar and wind was said to have caught up and even surpassed supply in the period 2018-2020, to the extent that the market differential turned negative.

Yet, partially tempering optimism, the report admitted that significant downside potential could be unlocked in the future due to the huge amount of currently uncertified renewable electricity, which is estimated at around 500TWh against a total 700TWh of certified renewable energy.

In mid-July, the European Commission tabled a recast of the Renewable Energy Directive (RED), the main legislation regulating the matrket, calling for every MWh of renewable power to be certified.

Consequences may be huge, sources said, because this would imply a sharp increase in the overall number of credentials in circulation, thus heaping renewed pressure on the price of certificates.

For example, regulation in Germany does not currently allow the issuance of GOs for renewable electricity that has benefited from a support scheme.


Market participants agreed that 2021 marked a tipping point for the GO market, with an ongoing linear increase in demand from households being complemented by a rapidly unfolding corporate interest.

Data from Eurostat showed that final renewables and biofuels consumption by households in the Euro area moved from 276TWh in 2010 to 425TWh in 2019.

Since the Commission announced the European Green Deal in December 2019, spontaneous global initiatives like RE100 and the Carbon Pledge have proliferated among big corps, for which buying GOs represent one of the instruments.

Green certificates are in fact recognised as valid tracking tools to offset Scope 2 emissions.

“As brokers, we’re seeing a fundamental demand from industrials seeking to source GOs for the entirety of their locations, which means each firm can come to us for hundreds of GWh each year”, Schennen said. “This didn’t exist before.”

Firms are said to be increasingly positioning themselves not only in response to stricter government stances, but also because they are encouraged by the idea of potential incentives coming from recovery plans and Green Deal initiatives.

“The corporate world is waking up and they all want to position themselves because they don’t want to miss out the opportunity.”

Furthermore, while in the past companies could get away with a poor environmental score without incurring any significant risks, being downgraded is now a real possibility if they do not live up to higher standards, he noted.


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