CARBON FORWARD 2019 – EU renewable credit prices stumble ahead of France auction debut

Published 08:39 on August 22, 2019  /  Last updated at 11:20 on August 22, 2019  / Ben Garside /  Africa, Americas, Asia Pacific, Australia, Aviation/CORSIA, Bavardage, Canada, Carbon Taxes, China, Climate Talks, EMEA, EU ETS, International, Japan, Kyoto Mechanisms, Mexico, Middle East, Nature-based, New Zealand, Other APAC, Paris Article 6, RINs & LCFS, Shipping, South & Central, South Korea, Switzerland, US, Voluntary

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European green certificate prices have collapsed within a year, beaten down from record highs as France’s efforts to cash in on surging corporate renewables demand risks flooding a market already swamped with resurgent hydro-based supply, according to analysts Greenfact.

Benchmark Guarantees of Origin (GO) prices are trading at €0.37/MWh, barely a fifth of their all-time peak of €1.97 reached a year ago when dry weather curbed generation, a level that marked the culmination of a 300% price increase in less than a year.

“Supply pressure eased as Nordic hydro levels returned to normal but prices haven’t recovered since,” said Greenfact’s managing director Alexandra Muenzer.

“Trade has slowed and there is significant hesitation from buyers, who are waiting to see what prices emerge from the first French auctions in September,” added Muenzer, who will present at the 4th annual Carbon Forward conference in London over Oct. 16-18.

The three-day Carbon Forward conference and training day aims to equip companies with strategies on how to make best use of environmental markets to achieve net zero emission goals and align with the Paris Agreement.

This includes deploying appropriate tools such as internal carbon pricing, developing credible strategies for offsetting, and effective sourcing of renewable electricity via GOs, the electronic certificates that ensure power has been produced from a renewable source.

The early stages of that massive GO price rally to €2 is widely attributed to the growing appetite for renewables procurement by companies seeking to boost their climate credentials.

“Last year’s run-up for GOs for the first time forced buyers to think about their purchasing strategies and changed the outlook of everyone in the green certificates market,” said Muenzer.

*** FEATURE: Europe’s GO price boom falters as ‘sleeping giants’ stir ***

“The France auctions could provide a new pivotal development, with upwards of 40 TWh a year of new GO supply,” she added, noted that represented a sizeable chunk of the market that sees about 300 TWh’s worth of wholesale trade out of some 600 TWh of GO-underpinned annual renewables capacity, and rising.

She was referring to the benchmark 2019 Nordic hydro GOs that still represent the reference level to which other GOs trade at a premium, despite their share reducing to around 60% of the market from above 90% in 2012 as new wind and solar capacity has come online across the continent.

Muenzer attributed the early part of the massive price rally partly to the growing appetite for renewables procurement by companies seeking to boost their climate credentials.

Since the 2015 UN Paris Agreement, hundreds of multinational firms have flocked to sign up to voluntary emission-reduction programmes such as the RE100 and Science-Based Targets Initiative, setting the GOs against their Scope 2 emissions from electricity use. A multitude of national schemes are also attracting demand from smaller firms.

GO prices also rose sharply due to a longer-standing demand-boosting trend for power suppliers to offer green tariffs to commercial and household customers that began when GOs prices were below €0.50.

GO issuance has been growing at an average of 18% a year since 2012, according to data from the Association of Issuing Bodies (AIB), which tracks GO issuance and promotes a standardised European system for GOs to encourage cross-border trade that currently has more than 20 governments as members.

Sellers expect European market growth to continue well into the next decade as a result of the revised Renewable Energy Directive, which has extended EU clean energy goals to 2030 and reinforced the GO system by making mandatory the use of the units by member states for tracking their renewable consumption targets.

As subsidies are falling away as renewables generation costs decrease year-on-year, France is poised to enter the GO market in September with the launch of monthly state-issued GO auctions.

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  • When?  16-18 October 2019
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