The third quarter of 2023 has not been the most exciting for the traders of Guarantees of Origin (GOs) due to rather poor liquidity and volatility, accompanying a slow downtrend which started many months before. It could have been a steeper price drop, in the light of the AIB statistics which are accounting for a clear surplus of certificates, coupled with an above-average level of hydro reservoirs across the continent. As Ivan Debay of Origo describes it in the Linkedin article the price of GOs seems disconnected from its fundamentals.
Having resilient prices is a good thing for the valuation and incentive of renewable assets. Having a market that navigates away from its fundamentals, however, can be a dangerous thing. As we said in our previous market comment, the price might just be at a level that satisfies most participants, leaving little incentive to push it in a direction or another. The uncertainty about the estimate of forward demand is certainly also a hurdle against gaining confidence and positioning oneself in this market.
We can also analyse what composes the offer side and the demand side in the GO market. Hypothetically, the demand side is made of corporate buyers who committed to sustainability objectives, and who purchase GOs indirectly via consultancy firms, utilities and trading houses. Due to their reputational requirements, they are less sensitive to prices than a company whose business success is correlated to the rate. On the offer side, we find companies who are overly sensitive to the value of a GOs. They might opt for quality over quantity when it comes to selling strategies.
Such strategy would be hard to implement in a highly competitive environment. But we might be here in a market with less sellers than buying entities, leading to more competition on the demand side than on the offer.
Can this market maintain its current price levels despite the surplus of GOs? In the view of the expired loads wasted, we probably can see the answer to this question.
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