Guarantees of Origin: the green transition in real time?

Renewables in the snow

Written by: 

Laura Malinen
Market Manager, Montel Marketplace

April 11th, 2023

In the second blog in our series which assesses the potential future for Guarantees of Origin, Marketplace Manager at Montel Marketplace, Laura Malinen takes a look at the European regulations which hint at the possibility of hourly GO certificates.

The Guarantees of Origin (GO) system in Europe has undergone several changes over the past few years. Defining what counts as a renewable energy source, has been high on the EU energy policy agenda for example.

With Renewable Energy Directive II (RED II) the conversation now extends beyond electricity. Even if biogas, hydrogen and heating and cooling renewable certificates have yet to be implemented in many European Union countries.

The EU has significant goals for reaching energy self-sufficiency through increased renewable power production. The war in Ukraine has now quickened the initial (and less ambitious) timeline. The main driver of this sped up green transition will be shared, European regulation.

Both RED II and the European standard CEN-EN 16325 are the pieces of regulation most frequently associated with GOs. Together they define their content and validity, confirming them as the key instrument driving the energy transition through renewable generators.

The new pace of change is also reflected on the regulators. While RED II is not yet fully implemented on national levels within the EU, work is already underway on RED III.

The latest drafts of RED III suggest that kilowatt size renewable energy Guarantees of Origin may not be too far away.

This thought is further strengthened by the recently published delegated act for transportation fuels (C(2023) 1087). This outlines the need for hourly matching (and the technical challenges of the implementation) in the context of renewable transportation fuels.

The delegated act defines the criteria for accepting a renewable transportation fuel as renewable within the European Union. It includes both locational and temporal (time) correlation between points of green power production and consumption, when renewable claims are made.

The goal of the delegated act, as well as other initiatives for temporal matching, is to increase additionality and transparency. If these goals are met, this will help to accelerate the green transition significantly.

On the other hand, the criteria also adds another layer of complexity to a system that is not exactly simple. This can act as a barrier to market entry and hinder innovation from private energy sector actors.

Taking a temporal approach will also require additional investment in IT infrastructure from the GO issuing bodies. This is due to the sheer number of certificates and related transactions subsequently involved.

This regulation only addresses the definition of green transportation fuels. However, we may also be able to draw broader conclusions around the hourly matching of GOs from it.

If the hourly matching is introduced to the whole Guarantees of Origin system on the same timeline, we will see it by the end of 2029. This would require swift changes to regulation on both European and National levels.

The delegated act combines temporal criteria with the possibility of increased geographical matching. If this requirement is extended to the large-scale GO system, the market will become increasingly granular on many levels. To maintain the market orientation of the GO system, the amount of mandatory data fields on certificates is likely to increase.

This will reflect on the market as increasingly complex products. There could also be an increased demand for expert traders who understand the regulation behind the products.

While the only constant seems to be change, the market does not seem to mind. Prices seem to be stabilizing on a level that makes entering the system appealing to new market actors, despite the complexities. This helps build liquidity and transparency to the market – a vision we at Montel Marketplace are also happy to support.

To learn more about regulations governing green markets - and how they might change in future, talk to our Advisory team