What challenges do energy producers face with Guarantees of Origin?

What challenges do energy producers face with Guarantees of Origin? 

We outline how Guarantees of Origin (GOs) certify and verify that electricity in Europe comes from renewable sources. They help to support Environmental, Social and Governance (ESG) goals of businesses by making it transparent to investors and consumers the source of their purchased energy. While a useful tool for power consumers to promote the use of energy from green sources, the producers of the energy face a range of obstacles—from complex certification processes and limited market liquidity to regulatory misalignment and double-counting risks. We take a look at some of the operational, regulatory, and market challenges associated with Guarantees of Origin (GOs) in Europe. 

1. Operational and administrative challenges in Guarantees of Origin

Power producers seeking to enter the Guarantee of Origin market must meet stringent requirements to operate. Power plants must generate renewable energy and be regarded as ‘renewable non-fossil energy sources’. Acceptable sources include solar, wind, biomass, biogas, landfill gas, aerothermal, sewage treatment, hydropower, hydrothermal, and ocean energy.  

2. Complex registration and issuance processes 

Power producers must then undergo a stringent registration and issuance process. A producer account must be generated, including declarations, and then approved by Ofgem. All generation data then needs to be submitted on a monthly, annually or unsubmitted month between April and March. 

3. Fragmented national registries across Europe 

Currently, there is an obvious lack of consistency across national registries in Europe for Guarantees of Origin, as different regions employ varying methods for the transfer, issuance, and use of Guarantees of Origin. Local renewable energy certification schemes also often struggle to integrate Guarantees of Origin on an international basis, making the transfer of such guarantees across Europe difficult.  

4. Time lag between production and certificate issuance 

There is a time lag associated with Guarantees of Origin between the exact time that the energy is generated and when the Guarantee of Origin is generated. This period typically lasts for 12 months. If the Guarantee of Origin is to be used, it must be used within this 12-month period.  

5. Manual tracking and data integrity issues 

Data needs to be provided to industry governing bodies Ofgem and GEMA in good time for review, and to clarify any issues ahead of deadline dates, particularly in the case of manual data tracking. Ofgem and GEMA must be kept updated on any changes to energy generation, alongside mandatory data supply deadlines. If you fail to keep Ofgem and GEMA supplied with the required data, they can apply to withdraw accreditation of your Guarantees of Origin due to inaccurate data provisions, which can have both financial reputational implications.  

Market and pricing uncertainty with Guarantees of Origin

In certain circumstances, smaller businesses may have limits on the amount of funding that they may need to enter the Guarantee of Origin market. Issues they may encounter include higher interest rates, secured loans or short repayment periods, which could mean they cannot invest in Guarantees of Origin at all, leading to market inconsistencies.    

Volatile and opaque Guarantee of Origin pricing can compound this, leading to market and pricing uncertainty.  

Lack of long-term contracting options can also be an issue. Renewable energy products can sometimes lack long-term contracting options. This is because a full catalogue of contractual agreements doesn’t currently exist in all markets for Guarantees of Origin; however, one enabler of long-term revenue stability is Power Purchase Agreements (PPAs), which can often be a condition in renewable energy financing.  

Regulatory and policy misalignment 

Because each regional government prioritises different factors of green energy when developing carbon reduction policies, inconsistent GO rules can occur across different EU countries. Because different verification and identification processes have also been developed, there are additional challenges associated with cross-border trading. This can cause issues for businesses operating in cross-border regions, particularly due to unclear rules surrounding corporate claims and disclosure.  

Risk of double counting and greenwashing 

Double counting is a process when carbon offset units are counted twice, either because they’re declared by the producer and then sold on as part of Guarantees of Origin or because they’re sold to two different Guarantee of Origin procurers.   

Issues with residual mix and scope 2 emissions 

Residual mix represents the energy not covered by Guarantees of Origin, which can often have significantly higher carbon emissions. This can also pose an issue in separating the two, potentially leading to double-counting of Guarantees of Origin.  

Risks to corporate credibility and auditability 

While Guarantees of Origin is undoubtedly a positive step towards carbon neutrality, it doesn’t address the actual physical carbon reduction step that businesses need to take. Implementing operations to store renewable energy in personal accounts, such as investing in renewable energy sources directly, means that carbon reduction efforts can continue as these pipelines are established. In contrast, purchasing Guarantees of Origin from other companies prevents this from happening, which could lead to a Guarantee of Origin purchasing company being perceived as engaging in greenwashing. Being involved in cases of double counting can also affect a company's credibility and make auditing more difficult. Growing scrutiny from regulators and consumers has put added pressure on power producers, leading them to employ more robust methods to verify the source of renewable energy.  

How can energy producers navigate challenges with Guarantees of origin?

Best practices for certificate management and auditing can include maintaining an accurate inventory, allowing power producers to see exactly what has been offset and what hasn’t. This enables them to avoid double-counting issues and report accurately and on time.  

Some businesses are also opting to leverage digital Guarantee of Origin platforms and automation tools, which can enhance traceability, transparency and efficiency.  

Working with aggregators and market facilitators is important, as it connects consumers interested in purchasing Guarantees of Origin with power producers, while also verifying the sources of the certification.  

Above all, monitoring regulatory changes and industry standards is crucial to power producers operating in the Guarantee of Origin sphere.  

Overcoming GO challenges demands better processes, digital tools, and regulatory alignment to ensure credibility, efficiency, and renewable growth.