Guarantee of origin of electricity from renewable energy sources
Guarantees of origin (GOs) have conceptually been envisioned as tracking instruments serving as evidence that electricity has been produced either from:
- renewable sources (Directive on promotion of renewable energy sources - RED I and RED II Directives) or
- high efficiency cogeneration (Cogeneration Directive 2004/8/EC and later Directive 2012/27/EU of the European Parliament and of the Council of 25 October 2012 on energy efficiency).
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Under the Directive 2009/28/EC of the European Parliament and of the Council on promotion of renewable energy sources (RED I) renewable energy sources denoted renewable non-fossil energy sources such as wind, solar, geothermal, wave, tidal, hydropower, biomass, landfill gas, sewage treatment plant gas and biogases. There is no change in this regard in the Directive (EU) 2018/2001 of the European Parliament and of the Council of 11 December 2018 on the promotion of the use of energy from renewable sources (RED II - integral part of the Package Clean Energy for the Europeans), save for small additions (“energy from renewable non-fossil sources, namely wind, solar (solar thermal and solar photovoltaic) and geothermal energy, ambient energy, tide, wave and other ocean energy, hydropower, biomass, landfill gas, sewage treatment plant gas, and biogas”).
Pursuant to Article 3(9) of the RED I all European Union Member States were required to establish and maintain a renewable energy guarantees of origin certification scheme. The scheme provided an increased level of transparency to customers, allowing them to choose to purchase renewable or non-renewable electricity.
Renewable energy guarantees of origin appeared firstly in the Directive 2001/77/EC (the predecessor of the RED I), which introduced a duty on all Member States to develop a reliable scheme in that regard (in practice, the detailed architecture of each Member State’s scheme might differ). The RED I clarified the purpose of guarantees of origin as evidence of the origin of electricity generated from renewable energy sources and specified the minimum information, which each guarantee should contain. The RED I defined the guarantee of origin (Article 2(j)) as "an electronic document which has the sole function of providing proof to a final customer that a given share or quantity of energy was produced from renewable sources as required by Article 3(6) of Directive 2003/54/EC", this definition is also upheld by Article 2(12) of the RED II (the word: “proof” has only been replaced with the word: “evidence”). The RED I underlined inherent differences between the so-called "green certificate" (used for support schemes) and the guarantee of origin (the purpose thereof is transparency and reliability of the information). The RED I allowed for transfers of guarantees of origin between Member States:
"Member States shall recognise guarantees of origin issued by other Member States in accordance with this Directive exclusively as proof of the elements referred to in paragraph 1 and paragraph 6(a) to (f). A Member State may refuse to recognise a guarantee of origin only when it has well-founded doubts about its accuracy, reliability or veracity. The Member State shall notify the Commission of such a refusal and its justification".
However, if the European Commission finds that a refusal to recognise a guarantee of origin is unfounded, the Commission may adopt a decision requiring the Member State in question to recognise it.
The above framework is in principle maintained by the RED II. The RED II in Recital 53 explains that:
- guarantees of origin issued for the purpose of the said Directive have the sole function of showing to a final customer that a given share or quantity of energy was produced from renewable sources,
- a guarantee of origin can be transferred, independently of the energy to which it relates, from one holder to another,
- with a view to ensuring that a unit of renewable energy is disclosed to a customer only once, double counting and double disclosure of guarantees of origin should be avoided,
- energy from renewable sources in relation to which the accompanying guarantee of origin has been sold separately by the producer should not be disclosed or sold to the final customer as energy from renewable sources.
The new Directive underlines, as before, the need to distinguish between guarantees of origin and green certificates used for support schemes. Member States may arrange for guarantees of origin to be issued for energy from non-renewable sources (Article 19(2) of the RED II).
Under the RED II guarantees of origin of energy from renewable sources are issued for the purposes of “demonstrating to final customers the share or quantity of energy from renewable sources in an energy supplier's energy mix and in the energy supplied to consumers under contracts marketed with reference to the consumption of energy from renewable sources”. For these purposes guarantees of origin are valid for 12 months after the production of the relevant energy unit. All guarantees of origin that have not been cancelled expire at the latest 18 months after the production of the energy unit. Guarantees of origin are issued, transferred and cancelled electronically.
A guarantee of origin must specify at least:
(a) the energy source from which the energy was produced and the start and end dates of production;
(b) whether it relates to:
(i) electricity;
(ii) gas, including hydrogen; or
(iii) heating or cooling;
(c) the identity, location, type and capacity of the installation where the energy was produced;
(d) whether the installation has benefited from investment support and whether the unit of energy has benefited in any other way from a national support scheme, and the type of support scheme;
(e) the date on which the installation became operational; and
(f) the date and country of issue and a unique identification number.
Simplified information may be specified on guarantees of origin from installations of less than 50 kW.
The GOs' schemes are still evolving and have national variations.
The document of the Norwegian Energy Regulatory Authority (NVE-RME) of 6 January 2020 “Changed trading behaviour in long-term power trading, An analysis of the recent development in power purchase agreements in Norway" notes that GOs "have been implemented unevenly in the EU".
For example, as announced in the EEX communication of 7 December 2020 as of 1st Janurary 2021, due to a change in the French Energy Code, it will be mandatory in France to cancel guarantees of origin of the same production month as the consumption month to certify the renewable origin of the consumed electricity. The new rule for the cancellation of guarantees of origin will apply for all the electricity consumed in France as of 1st January 2021. The period of consumption will no longer be requested as it will automatically be deducted from the production period of the GO It will however still be possible obtain a cancellation statement covering several months of consumption.
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EFET EECS Certificate & National Scheme Certificate Master Agreement https://efet.org/standardisation/specific-contracts/renewable-certificates/ EECS Rules https://www.aib-net.org/eecs/eecsr-rules
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Guarantees of origin for renewable gases
Some of the EU Member States have established guarantees of origin for renewable gases. Member States may arrange for guarantees of origin to be issued for energy from non-renewable sources (Article 19(2) of the RED II).
Recital 59 of the RED II explains:
"(59) Guarantees of origin which are currently in place for renewable electricity should be extended to cover renewable gas. Extending the guarantees of origin system to energy from non-renewable sources should be an option for Member States. This would provide a consistent means of proving to final customers the origin of renewable gas such as biomethane and would facilitate greater cross-border trade in such gas. It would also enable the creation of guarantees of origin for other renewable gas such as hydrogen."
European energy regulators underline that according to the RED II definition of a “renewable energy source”, decarbonised gases, e.g. hydrogen derived from natural gas through steam methane reforming or thermal methane pyrolysis, “would not be considered as renewable gas but could be included in the national GO systems as decarbonised gas, thereby making transparent to gas customers the low-carbon nature of this gas” (Regulatory Challenges for a Sustainable Gas Sector, CEER Public Consultation Paper, 22 March 2019, Ref: C18-RGS-03-0, p. 19).
Regulators also explicitly underline that “black electricity cannot be converted into green gas”.
Further regulatory developments are brought in this regard by Annex I, point 5 of the European Commission Proposal of 15 December 2021 for a Directive of the European Parliament Parliament and of the Council on common rules for the internal markets in renewable and natural gases and in hydrogen (COM/2021/803), which explicitly envisions that the disclosure of the share of renewable gas purchased by the final customers shall be done by using guarantees of origin.
Reportability under REMIT
In the REMIT Q+A 27th edition updated on 31 March 2022 the ACER explained that contracts related to the guarantees of origin are assimilable to contracts related to green certificates.
ACER also referred to the 6th edition of the ACER Guidance on the application of REMIT and clarified that ACER’s understanding is that such contracts are not considered to be related to wholesale energy products, as they do not fulfil the requirements set out in Article 2(4) of REMIT and are thus not reportable under REMIT.
MiFID II application
In terms of spot transactions (delivery time up to two days), the MiFID II Directive does not affect the trade in guarantees of origin, while in the case of forward contracts for guarantees of origin, it is necessary to verify whether these contracts are not quoted or equivalent to contracts quoted on OTF, MTF platforms and regulated markets (e.g. in terms of price, lot, delivery date and other contractual conditions), as well as there is a need for constant monitoring in this respect. If the contracts were quoted or equivalent, they would constitute a financial instrument, which triggers additional regulatory requirements.
This follows from Annex I Section C 10 MiFID II, which covers:
“options, futures, swaps, forward rate agreements and any other derivative contracts relating to climatic variables, freight rates or inflation rates or other official economic statistics that must be settled in cash or may be settled in cash at the option of one of the parties other than by reason of default or other termination event, as well as any other derivative contracts relating to assets, rights, obligations, indices and measures not otherwise mentioned in this Section, which have the characteristics of other derivative financial instruments, having regard to whether, inter alia, they are traded on a regulated market, OTF, or an MTF”
Criticism of the scheme
Although the GOs are a pan-European system, it already earned some critical remarks. The aforementioned document of the Norwegian Energy Regulatory Authority (NVE-RME) of 6 January 2020 observes that GOs are generally part of many power purchase agreements (PPAs), however, some of the big buyers of PPAs in Norway do not want GOs included in their PPAs. This is on account of the fact that some big buyers “do not want to legitimise GOs by including them in PPAs” - in particular, they argue that “the GOs do not constitute a proof of additionality and that they allow consumers across EU member states to call themselves green for a very low price despite using non-renewable energy in their production”. GOs has been also criticised as a tool for greenwashing due to the potential double compensation when combined with other renewable subsidies. NVE-RME also perceives with respect to the GOs the risk of double counting due to different tracking systems.
Another threat is the overcompensation, to avoid this risk some EU member states have not allowed GOs to be issued to renewable energy facilities that have received subsidies. This risk of overcompensation is reduced gradually as subsidies are becoming auction-based since renewable energy developers can factor the revenue from selling GOs into the business case and thus reduce the required subsidy.
Fit for 55 amendments
The European Commission Proposal for a Directive of the European Parliament and of the Council amending Directive (EU) 2018/2001 of the European Parliament and of the Council, Regulation (EU) 2018/1999 of the European Parliament and of the Council and Directive 98/70/EC of the European Parliament and of the Council as regards the promotion of energy from renewable sources, and repealing Council Directive (EU) 2015/652 (COM(2021) 557 final) in Article 1(8) amends Article 19(2) and (8) of the RED II to remove Member States’ ability not to issue guarantees of origin to a producer that receives financial support, linking to the changes related to power purchase agreements in Article 15.
Moreover, according to Recital 13 of the said Proposal, guarantees of origin "are a key tool for consumer information as well as for the further uptake of renewable power purchase agreements. In order to establish a coherent Union base for the use of guarantees of origin and to provide access to appropriate supporting evidence for persons concluding renewable power purchase agreements, all renewable energy producers should be able to receive a guarantee of origin without prejudice to Member States’ obligation to take into account the market value of the guarantees of origin if the energy producers receive financial support".
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