Guarantees of Origin: Driving Decarbonization
Overview:
In recent years, the market for Guarantees of Origin (GoOs) has shown significant growth, driven by the increasing demand for decarbonized energy and the rapid increase in their prices. Initially launched by the European Union in 2001 as a tool to facilitate the decarbonization of the power sector, GoOs have evolved to become a critical component in the business case for renewable energy projects.
Market Dynamics:
- Volume Growth: From 370 terawatt hours (TWh) in 2015, the GoO market doubled to 747 TWh by 2021.
- Price Fluctuations: Prices soared from €1-€2 per megawatt hour (MWh) in 2018-2019 to €10/MWh in 2022, before reducing by about 30-40% in 2023. Notably, the UK's Renewable Energy Guarantees of Origin (REGO) market reached £23 at the time of writing.
- Market Complexity: The GoO market is characterized by high volatility and complexity due to regulatory drivers, such as the "doppelvermarktungsverbot" in Germany, which limits the supply of GoOs.
Strategic Implications:
- Corporate Demand: Corporate demand for GoOs is expected to rise due to new sustainability reporting requirements, such as the EU's Corporate Sustainability Reporting Directive.
- Customer Requirements: Customers are increasingly hedging their GoO exposure, focusing on long-term contracts and demanding regional or local GoOs.
- Supplier Strategies: Suppliers must secure forward liquidity and full-volume offtakes to match the growing demand for GoOs, emphasizing the importance of the green premium for incentivizing renewable energy investments.
Future Outlook:
- Market Challenges: The market remains uncertain, influenced by fluctuating prices, supply constraints, and evolving customer and regulatory requirements.
- Opportunities for Suppliers: Opportunities exist for independent players, like STX, to provide specialized services and capabilities that smaller developers lack, facilitating access to the GoO market.
Conclusion:
Guarantees of Origin play a pivotal role in driving decarbonization efforts within the renewable energy sector. Despite facing challenges related to market volatility and complexity, the increasing demand for GoOs presents opportunities for both suppliers and customers to align with sustainability goals. As the market evolves, strategies that focus on long-term contracts, regional specificity, and transparent pricing will likely become essential for navigating the complexities of the GoO landscape.
