GO consolidation in oversupply – July 2020

During the last weeks, the Guarantees of Origin (GOs) markets have seen less activity and little excitement. The contango of the second and third delivery years diminished, in solidarity with the curve flattening fashion. We identify the reason for this in the oversupply of GOs in the short term. The production years 2019 and 2020 seem to be stuck on the bottom, under the selling pressure of full hydro production reservoirs. This makes the farther deliveries prices come down too, reducing the current premium built previously in expectation of price surge previsions.

The GOs auctions in France, main price crusher of the last months, have now raised their floor price to 18 cents per GO, helping the product maintaining some value. This value is essential for the future of investments in renewable energy. As we have repetitively said, political decisions need to help the buying side too, not just the offer side of the market if they want to create and efficient renewables market which can eventually replace expensive national subsidies.

We are now in continuity of a market consolidation at low prices. The consumption of renewable energy and the use of Energy Attribute Certificates such as GOs keeps increasing and there is enough offer to satisfy it. This situation has been dominating the market in a stable manner, making it lose some volatility and consequent appeal.

Interestingly, we currently observe a reduction of price difference (spreads) between the different origins, both countries and type of fuels. This is probably a sign of oversupply too. This can also be an indication that the market cares for renewable energy, more than of its national components. This is good news for a more liquid and solid market. Commerg’s index “AIB Renewable” is more and more followed as the European price for renewable electricity.

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