Guarantees of Origin in 2020 – Seemingly higher demand but ever lower prices

With trading activities continuing to grow in 2020 and many people working in a more homely setting, it has certainly been a different year in many aspects. With the arrival of December we look back at the developments of 2020 in the guarantees of origin market.

1. Price decline

We will take you back to January 2020 for a moment. The price of AIB Renewable Current Year (the price of green electricity) is set at 0.41 EUR which already is a long way down from its winter 2018-19 peak at 2.35 EUR. The downward trend in prices for guarantees of origin did not stop here. In the course of 2020, the value of a 2020 AIB Renewable certificate has declined from 0,41 EUR to a mere 0,10 EUR.

Price development AIB Renewable 2020 – Source: Commerg Weekly Price Settlement for GOs

The price decline can be partially explained by the natural decline of the validity of the 2020 certificates (Jan 2020 volumes will have to be redeemed by the 31st of Jan 2021). It is only natural that a GO loses its value the closer it gets to its expiration. The decrease in price seems steep for a product that adds tangible quality to electricity.

2. Supply of GOs

The increase in supply of guarantees of origin on the market may be another piece of the puzzle. Nordic and Alpine hydro reservoirs were more filled for most of the year compared to 2018 and 2019:

Source: Argus Media Webinar

More news on the supply side included the addition of Portugal as a member of the AIB system, adding an extra 50 TWh of renewable energy in the AIB network. France kept pouring an additional 46 TWh into the market, without creating or always finding a buyer for them. For reference, the total European demand of guarantees of origin in 2019 was 614 TWh.

No matter the reason of the price decline, we need to ask ourselves in the nearby future: Why is the quality component (GOs) worth only a negligible fraction of the commodity (electricity) itself? Consumers can make a renewable choice about the source of their electricity and it could hardly be cheaper. These price levels aren’t good for the credibility of the tracking system, despite working perfectly well.

Policies have been adopting the Energy Attributes tracking systems such as GO’s, but sadly in most places, only enforced the offer side the market, in an attempt to draw revenues. It is greatly time to rebalance the system with brave decisions that will reinvigorate the demand such as total full disclosure in the AIB countries or a minimum pricing for GOs from fossil sources.