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EPEX SPOT to launch first pan-European market for Guarantees of Origin in 2022

Thursday, 02 December 2021

Author: Selma P. Utonih

In a virtual press event held on 29th November 2021, the European Power Exchange (EPEX SPOT), European Energy Exchange (EEX), and European Commodity Clearing (ECC) announced their plans to launch the first pan-European market for spot trading of the Guarantees of Origin (GOs) as part of a joint effort to support the energy transition, bring transparency to the market and track spot prices between specific power production types. 

Overview of EEX press release

According to a press release by the EEX group, the planned Guarantees of Origin (GOs) spot auctions will be held on a monthly basis operated by EPEX SPOT under the exchange's membership and market rules. Furthermore, clearing and settlement will be conducted by the clearing house ECC and EEX and will ensure delivery through its French GO registry. This new trading product is expected to launch sometime within the second quarter of 2022 subject to successful testing and market readiness. 

“EEX Group has a track record in operating registries for Guarantees of Origin and organizing GO primary auctions on behalf of Member States” says Dr Tobias Paulun, Chief Strategy Officer of EEX. 

Since September 2019, the EEX has been auctioning GOs on behalf of the French Minister of Ecological and Solidary Transition, with the GOs from subsidized renewable energy production devices in France. These auctions take place on a monthly basis with the auctioned volumes defined by the French State. The reasoning behind EEX launching an exchanged-based GO market was to bring "transparency on the traded products and the technologies that are most demanded on the market."

In the press release Ralph Danielski, Chief Executive Officer of EPEX SPOT said “This is why we plan to launch the first exchange-based pan-European market for GO trading, bringing the well-known EPEX SPOT expertise to this new segment. We accompany the trading community by providing high trading standards, a robust technical solution, excellent exchange services, transparency and innovation. Building sustainable markets lies at the heart of our Group efforts, and an efficient GO market will incentivise the production and use of green energy.”

“ECC will support the new trading products with its secure and reliable clearing infrastructure and its expertise in settling Guarantees of Origin”, adds Dr Götz Dittrich, Chief Operating Officer of ECC. “Our state-of-the-art clearing services fulfil the specific requirements of the GO market, providing security for all participants who want to become active on the new market.”

Market design of new pan-European GoO spot auction

According to the press release "the market design of this new pan-European spot auction foresees a monthly multilateral auction for GOs from renewable production in selected countries that are part of the European Energy Certificate System (EECS), as set by the Association of Issuing Bodies (AIB)." In the figure below is a summary of the proposed market design. 

According to EPEX, countries of origin with different standards, like Switzerland, will be able to participate on the buy-side of the market but will not be able to sell while GOs from countries like Ireland and Iceland will be brought in at a later stage when they are physically interconnected to the European mainland power grid.

Current status of European GO auctions 

Currently the OTC markets are not the only mechanism in which GOs can be procured as they can also be procured through GO auctions that occur in select countries in Europe. Italy was the first country to introduce a system of auctioning GOs and since then more countries have followed including France, Luxembourg, Croatia, Slovakia and more recently this year Portugal.

Auctions in the abovementioned countries occur periodically either on a quarterly or monthly basis with prices publicly published on the various auctioning platforms. 

Generally, the GO auctions and OTC markets occasionally follow the same price trends  and sometimes Greenfact has witnessed the OTC market price influencing the GO auctions and vice versa thus proving somewhat of a GO price signal to the market. Some market sources have also mentioned that when market participants cannot secure volumes at favorable prices in the OTC market then they will try to secure those volumes within the auctions. 

Some of the main benefits of a Guarantees of Origin auction market is that firstly in terms of subsidized renewable production devices the revenues from auctioned GOs can be used to decrease or offset the cost of the subsidy scheme in a particular country or reduce the tariff costs to electricity consumers that is used to promote renewable energy expansion in a country as is the case in Italy. In some cases like in France, the revenues are dedicated to an energy transition fund. 

Another benefit of these auctions is that they bring more market  transparency and liquidity through aggregating available GO volumes in a market that is characterized with illiquidity and fragmentation. As such one  can expect that once the EPEX SPOT GO auction is launched next year that we can expect more liquidity in the GO market where corporate demand continues to grow annually at around 10% per year.

In the press release Dr Tobias Paulun, Chief Strategy Officer of EEX concluded that “Through this launch, EEX Group is not only responding to a market’s need for a stronger and transparent price signal, it also falls within our efforts to fight climate change through a transition to renewable energy.”