The History and Future of Guarantees of Origin Markets: A Q&A With Marie Christine Bluett

IncubEx and EEX Launch Guarantees of Origin Futures Contracts

On September 2nd, IncubEx and EEX (European Energy Exchange) launched Guarantees of Origin futures contracts to support the growth of Europe’s renewable energy market.

The newly introduced GO futures include:

• EEX European Hydro GO Future
• EEX European Wind GO Future
• EEX European Solar GO Future
• EEX European Power GO Future (covering GOs from any renewable technology: hydro, wind, solar, biomass)

This launch comes at a pivotal time for European renewable energy markets, as policy and market trends continue to evolve. The launch of these contracts marks a significant step forward in market development.

We spoke with Marie Christine Bluett, Director of Renewable Markets at IncubEx about the history and evolution of the GO market and the potential for GO futures on EEX. 

Interview: The Evolution of the Guarantees of Origin Market

How has the Guarantees of Origin market evolved over the years? 

The European Guarantee of Origin market is older than many might suspect. The first trades go back about 15 years. The 2009 RE Directive required EU member states to set up national Guarantee of Origin systems. This meant countries needed to set up an issuing body and a registry. Pickup was rather slow, and the number of market participants remained low. Renewable energy producers in the Nordics and utilities on the continent that were first movers in offering green tariffs to their customers have been active in this market from the beginning. 

Anyone wanting to offer a green tariff in Europe must buy a GO and redeem it on the behalf of an end consumer. Therefore, the GO market can be described as a semi-compliance market. No one is required to engage in it, but if you want to make any sort of renewable electricity claims, you must use a GO for it.  

Over the following five years, the market as we know it today was formed. RECS International started working on harmonising renewable electricity certificate markets across Europe. The Association of Issuing Bodies connected the increasing number of different member states’ registries via the “AIB hub” allowing for smooth transfers of GOs across European registries.  

Even though issued and transferred volumes grew steadily year on year, prices remained low and sank almost below issuance cost levels at one point.  

In 2013, EEX listed GO Futures for the first time, but many European countries had not yet formed their own GO systems. Back then, liquidity came from a handful of market participants and traded volumes were less than one-third of what they are today.  

In 2016, the Greenhouse Gas Protocol published its Scope 2 guidance document defining how corporate consumers should account for and reduce their emissions from electricity. Energy Attribute Certificates (EACs), the general term under which European GOs fall, were identified as the instrument with the highest precision when reporting renewable electricity consumption.  

Beyond Europe, we also saw the formation of the I-REC market. The International REC Standard was formed in 2016, offering a solution for consumers wanting to make claims of a comparable nature in markets that did not have national certificate systems. Europe’s GO market and the North American REC markets are considered one market, respectively, but in other countries, consumers must buy EACs produced within the same country where the consumption is taking place. I-RECs operate with a central registry. 

And in the US, we have seen the development of REC markets, driven by state Renewable Portfolio Standard (RPS) programs, which set renewable energy goals. Currently, 29 states and Washington D.C. have mandatory RPS programs. Compliance as well as voluntary REC markets in North America have grown significantly in recent years, and are supported by registries. IncubEx and Nodal have worked together since 2018 and now list the broadest set of compliance and voluntary REC futures and options products.    

With the global availability of these products, utilities and corporate consumers form a strong, impactful new segment of market participants that are driving increased demand for certificates worldwide.  

What causes price fluctuations in the GO market?  

Basic economics tells us that markets form prices based on supply and demand. When looking at the supply side, renewable electricity gets produced when it rains for hydropower, the sun shines for solar or the wind blows for wind power. The dominant technology in the GO market is still hydropower, although it is less dominant than it was 10 years ago. Supply fluctuations can mainly be attributed to whether Europe – and especially the Scandinavian countries – has a rainy year or not.  

On the demand side, a big renewables push came after the Fukushima disaster in 2011 and Germany’s policy shift away from nuclear. Everyone wanted to “be green” and so the result was a massive demand spike coming from the middle of Europe.  

As German renewable energy policy stipulates that subsidised renewable electricity production cannot receive a GO, German RE buyers must look elsewhere to buy GOs. Alpine and Scandinavian wind and hydro production were and still are the most economical choices. Solar from Italy or wind from the Netherlands used to trade at a premium for a long time. 

Why is it the right time to launch futures on GOs? 

With the current market structure and policy support, the GO market has the pieces in place to continue its growth trend. European RE regulation strengthens the GO in each new iteration of the Directive. More and more trading firms have started to adopt GOs into their portfolio. Spot trading and auctions have become valuable additions to the OTC GO market. The only thing that was missing was fully cleared futures trading.  

This is a key step in the evolution of these markets that started over 15 years ago. GO markets, like all markets, have price fluctuations that require firms to manage that price risk. EEX offers standardised contracts, transparent prices and enables the transfer of counterparty risk through its clearinghouse, European Commodity Clearing (ECC).  

Building a market takes time and we are off to a promising start. We believe the GO market is ready to take the next step forward. 

To learn more about GOs and Guarantees of Origin futures contracts on EEX, visit IncubEx’s GO page or EEX’s integrated GO offering here.