How guarantees of origin can accelerate the energy transition

Author: Naida Taso, Electricity Market and Renewables Expert, Energy Community Secretariat

The shift towards a low-carbon economy based on energy from renewable sources is underway in the Energy Community Contracting Parties. Governments across the region are working to roll-out renewable energy projects. Following the EU’s ambitious climate goals, the development of National Energy and Climate Plans to set renewables targets for 2030 and beyond is under way to steer this transformation. An effective system for guarantees of origin could support the energy transition and boost renewable energy investments in the region. Consumers in the Energy Community increasingly want to play an active part in the energy transition, and guarantees of origin would enable them to do so as well.

The primary goal of renewable energy certification is to enable disclosure, revealing the source of energy sold to final consumers. Guarantees of origin (GOs) allow consumers to choose the origin of their energy.

Guarantees of origin allow consumers to choose the origin of their energy and in that way empowers them to contribute to the energy transition

Once electricity enters the grid, it is not possible for consumers to physically track whether a certain amount of electricity received from the grid is coming from renewable sources or fossil fuels. Energy certification via guarantees of origin proves to consumers in the Energy Community Contracting Parties that the energy they purchased genuinely comes from renewable sources and empowers them to contribute to the energy transition.

Benefits of using renewable energy certification for green electricity

While their primary purpose in the EU is disclosure, there are multiple factors that make GOs certificates an attractive instrument to drive the uptake of renewables. GOs are in a sense a commodity, encouraging investments in renewable energy (RE) generation and attracting investors that are committed to using electricity from renewable sources to a country. In this way, GOs indirectly contribute to reaching renewable energy targets.

As governments increasingly seek zero-subsidy and market-driven models to support RE projects, GOs can provide great value by helping to decrease the cost of support schemes over time. Issuing GOs and selling them on the market through auctioning could help to avoid double subsidies, as the revenue gained by the auctions would be used by the state to offset the cost of renewable support.

Profit from the sale of GOs could help decrease the cost of support schemes charged to final consumers

Auctioning is currently becoming increasingly common in EU Member States. Croatia, France, Italy, Luxemburg and Slovakia have already set up auction schemes for GOs from RE producers receiving public support. In most of these cases, the profit from the sale of GOs goes back to the treasury and is used to decrease the cost of the public support scheme.

GOs are becoming increasingly interesting for RE producers and suppliers in the Energy Community Contracting Parties. GOs can mean an additional income for RE producers that do not fall under a support scheme and enable suppliers to prove the source of RE on the consumer’s electricity bill. On the demand side, GOs can boost a company’s image, making them more attractive for the environmentally conscious consumer, and increase competition between suppliers. They also give consumers a sense of empowerment since they are able to support the energy transition by purchasing electricity with GOs.

For producers of renewable electricity that do not fall under a support scheme, GOs also mean an additional income

The corporate sector is the main demand driver for RE GOs, which have grown rapidly at the global level. With 317 TWh per year, RE100 member companies are already driving enough renewable electricity demand to power a medium-sized country.  Demand for GOs often comes from international companies with targets of sourcing their electricity from renewables. This means that corporations might direct their investments solely to countries that have established green electricity certification systems. Also, smaller enterprises can benefit from GOs for Corporate Social Responsibility (CSR) purposes or to increase their competitive advantage by proving the share of electricity from RE sources. GOs can help companies to attract customers and investors.

A regional framework for the Energy Community

Given the wide-ranging benefits, the Energy Community Ministerial Council tasked the Secretariat to prepare a Discussion Paper examining options to implement the guarantees of origin system in the Contracting Parties. The Secretariat’s assessment showed that while all Contracting Parties have the legal basis and the competent bodies to manage the schemes in place, only Serbia has a fully functional system.

Serbia is the first Contracting Party to implement a functional GO system and become full member of the European Association of Issuing Bodies (AIB)

To support and speed up implementation, the Secretariat proposes to facilitate the development of a regional system allowing for the effective issuance of national guarantees of origin and transfer among the Contracting Parties. It could constitute the first step towards integration with the European market. Importantly, the regional system would encourage a harmonised process and simultaneous progress, saving costs for the individual Contracting Parties.

Issuing bodies have until 11 April 2021 to confirm their interest in establishing a regional scheme with the Secretariat’s support.