Guarantees of Origin: market trends 2024

Most European Guarantees of Origin (GOs) are issued in countries which are members of the Association of Issuing Bodies (AIB). The increase in issuances reflects increasing EU investments into renewable energy production. 

The graph below shows just how fast the growth in GO issuances has been over the past year. More than 185 TWh of GOs have been issued across AIB countries in 2023 compared to the previous year. 

Naturally, the impact of this has also been reflected in GO prices. Many of the upcoming demand drivers that will be discussed later in this blog were not yet applicable in 2023. This plays a large part in explaining the price development of GOs in 2023. 

The price development graph clearly shows that the demand for Guarantees of Origin did not keep up with the increasing supply. 

As we are expecting 2024 to be another record year for issuances, it will be interesting to see how the expected demand drivers influence GO market prices.  

So far, the market expectation seems to be that demand will catch up with the increasing supply in 2024. Further out, in 2025, market actors may even find themselves hedging 2025 production with Guarantee of Origin prices significantly above those that we are seeing for CAL2023 today: 

Hourly matching 

Hourly matching, or granularity for renewable certificates, remains a hot topic. While hourly matching has been discussed as a theoretical concept in the field for years already, the Renewable Energy Directive III (REDIII) left the door open for EU-member countries to start adapting this approach in practice. 

REDIII allows member countries to issue GO as fragments of the default size of 1 MWh. This change is fundamentally important to the adoption of hourly matching, as those certificates would have to be issued on an hourly basis. 

It is, nevertheless, still unclear how EU countries will use this opportunity. As already discussed in a previous blog post, the introduction of hourly matching would require significant investments in IT infrastructure by National Issuing Bodies. Furthermore, It is not impossible this could lead to regional variations in GOs legislation. 

 In 2024, we will see how national regulators approach both REDIII and Renewable Fuels of Non Biological Origin (RFNBO). These regulations will require hourly matching in 2023 for claims made relating to renewable fuels for the transportation sector.

Demand drivers: ESRS, CSDRD, Green Claims directive

The European Union has taken a firmer approach towards greenwashing and lax sustainability reporting. These changes are reflected in the new regulation that will effect an increasing amount of European companies in the coming years. These changes are discussed in more detail in this blog post. 

These changes will affect a significant number of European companies. For instance, the sustainability reporting criteria set out in the Corporate Sustainability Directive will influence the reporting duties of over 50,000 European companies.  

As sustainability reporting becomes an increasingly integral part of financial reporting (as outlined by the Sustainable Investment Taxonomy) related matters such as using renewable power will have a level of influence like never before.  

For instance, procuring Guarantees of Origin to evidence a business' renewable energy guarantees could profoundly impact the financing terms a business receives. 

Additionally, the Green Claims Directive requires any green claims made to be precise, scientifically verifiable and relevant to the product as a whole.  

While energy origin related claims have been backed up GOs for years, it is possible that the green claims directive could makes the use of Guarantees of Origin more attractive to companies that have sought to reduce their carbon footprint in other ways up until now.

Power to X and Power to gas 

Several new large scale Power to X and Power to gas projects are also planned across Europe in 2024. We can reasonably expect the developers of these projects to want to be producing green gas. This means that Guarantees of Origin need to be cancelled for any power used in the process, further increasing demand. 

If most of the planned projects go live on time, we can expect them to reserve a significant chunk of the issued Guarantees of Origin, either as parts of their Power Purchase Agreements (PPA) or as unbundled certificates bought from the markets. 

Power Purchase Agreements 

The European Union is now making a push to ensure the accessibility of PPAs. These are often a part of the financing of new installations of renewable power. With the current interest rates, their significance in the business cases of new projects is increasing. 

Guarantees of Origin are typically considered a part of PPAs. They can be bundled with the power to be fully part of the agreement or only used partially.  

As they become increasingly common, an increasing amount of the Guarantees of Origin from new installations will be tied to PPA arrangements.  

This means that the amount of tradable, unbundled certificates will not grow at the same pace as the installed volumes. This could influence the prices of Guarantees of Origin from newer installations - especially those which are RE100 compliant.

2024 will be an interesting year in the Guarantee of Origin markets. We can certainly expect to see traded volumes and liquidity improve. What remains uncertain however, is how member states adapt the European level regulatory developments into practice. 

All of this will of course be taking place after 12 months of unforeseen market volatility.  

It will be interesting to see how the ongoing changes will reflect onto the price levels of GO and whether the volatility will continue this year, too.