Guarantees of Origin Roller Coaster – October 2021

During the summer break we were wondering which direction the GOs market would take when the winter would get closer. The past two months have seen prices shift like a rollercoaster. One key element to watch was the level of Nordic hydrological reservoirs , especially in Norway. The verdict came in September: low, unusually low, resulting from poorer rainfall and snowmelt.

GO prices rising quickly.

The professionals managing the exposure to Guarantees of Origin prices responded with buying hydro in the first place, to be sure to be able to supply their contractual obligations, then also the other types of production naturally got lifted as alternatives to hedge the scarce hydro offers. Hydro was the desired source first because many companies are used to purchase it as a preferred attribute. This translated into a price premium between Hydro GOs and the standard renewable GOs (AIB renewable connected) which reached 8 Euro Cents at the end of September. Hydro Nordic 2021 production reached 1.18 EUR at its peak in week 39.

This coincided with the general bull run seen in all energy commodities, such as the perfect storm that happened in the European gas market. There was here a coincidence in fundamentals, but we confidently suspect a sentiment correlation to be responsible for the energic hype we witnessed during the same period. This is not to be underestimated, when we know that the traders in charge of the Energy Attributes portfolio often manage positions in other commodities, typically carbon and electricity.

GO prices falling quickly

Then the reservoirs in the North of Europe filled up again, offering fresh new volumes to satisfy the buying side, and the bull run stabilised. Was the GO market now overbought? –  is the question that typically follows. The market hesitated for a few days. Then it deflated as fast as it had run up during the previous weeks. At the time of publishing 2021 seems to stabilise around the 0.60 EUR mark.

One big news was responsible for the sell-off: the United Kingdom will no longer financially support the imports of CfD GOs for Q4-2021. This could represent roughly 10 TWh that would have to be resold on the continent. Is that enough to satisfy the ever-increasing demand? Many questions remain open on the political risk side only (Norway, Switzerland, Germany, Full disclosure, …). The GO market is definitely not at the end of its roller coaster ride.