Google-backed study calls for reform of European clean energy guarantees

Forcing corporates to buy European clean energy certificates locally could see wind and solar developers multiplying their revenues from the scheme in key markets like Germany, a new Google-backed analysis has found.

Increasing local requirements in the Guarantee of Origin (GO) trading scheme could bring broad benefits for the broader European renewables sector, according to new analysis from Aurora Energy Research commissioned by Google.

GOs are certificates that show electricity has been generated from a clean power facility.

Corporates like Google buy GOs when they may not be able to directly purchase clean power for their own facilities but still want to support clean power generation. They use the certificates to show their green credentials when accounting for their carbon emissions.

Currently, a corporate with a factory that is using power from fossil fuel generation on the grid for a factory in Germany can buy a GO from a clean energy facility in another country – for example, a hydropower plant in Norway – to mitigate its emissions in its carbon accounting. It can also buy GOs long after it used the power for which it is accounting.

The new Aurora analysis explored the potential impact of a "100% local" scenario, where no cross-border GO trading is permitted. It found this would “significantly increase” GO prices in countries that are net importers of GOs.

By the end of 2030, GO prices in Germany, Ireland and the Netherlands – those countries most dependent on GO imports currently – could increase by three to five times under a 100% local scenario, increasing the profits of renewables developers generating this power, found Aurora.

This would improve the business case for building more new wind and solar farms to meet demand, it said. Wind and solar currently capture 59% of GO demand, however, under a 100% local scenario, this could increase 17%.

That would cover around €18bn ($18.9bn) or 6% of total renewable energy investment needs between 2025 and 2030, said Aurora.

“The simplest way to do that from an analytical perspective is to assume that you can only buy green power from producers in your market.”

Currently, wind and solar producers in GO-importing countries like Germany are effectively being “pushed out of a lot of the market” by cheaper certificates that can be bought elsewhere, he said. Some form of localisation requirement would help change that.

Bad news for the Nordics?

This re-balancing of the European GO market would come at the expense of current net exporters of the certificates.

Norway and Sweden — both of which boast high levels of renewable energy on their grids and abundant hydropower assets that can generate GOs on demand — could see the price of their GOs drop by 80% under a 100% local scenario.

This could reduce cumulative hydropower GO revenues by €2bn but Aurora said would “allow developers of new renewable projects in markets with lower renewables penetration to re-capture some of this value.”

Requiring that GOs be generated in the same hour that corporates use the power they are accounting for could help preserve their market value in the Nordics and elsewhere, said Aurora.

The fact corporates can currently buy GOs to offset fossil fuel power they used six months ago doesn’t really make sense, said Alexander. “Because actually, at that point in time, you were using fossil power, there's no way around it.”

There is now more “pressure” in the energy sector to have a system that “places value on green power more accurately,” he said.

The analysis investigates the implications of what would be “radical” changes to the GO market, said Alexander. “We're not suggesting this is absolutely what has to happen.”

“What we're doing here is making a clear statement in terms of, directionally, how would the market look? And we can see that it would be better for solar and wind and it would create a lot of pent-up demand for local renewable technologies.”