Wednesday, 20 July 2022
In November last year, 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. Two days ago (18 July 2022), EPEX SPOT announced its first auction would take place on 28 September 2022 and published its trading calendar for the year.
The market design of the GoO spot auctions will be held on a monthly basis and operated by EPEX SPOT, under the exchange’s membership and market rules. Clearing and settlement will be conducted by the clearing house ECC and EEX will ensure delivery through its French GO registry.
The auctioned GoOs are expected to originate 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). The list of accepted countries might be subject to change, but currently includes:
The figure below shows 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.
On 18 July 2022, EPEX SPOT released its GoO spot auction trading calendar for 2022-2023. According to this, the first auction is planned to open on 26 September 2022 and close on 28 September 2022 with prices expected to be publicly published on the EPEX SPOT website.
A full overview of the 2022-2023 calendar is available here.
The OTC markets are not the only mechanism in which GOs can be procured as they can also be procured through GO auctions that currently occur in 7 European countries. This is the case for Italy, Portugal, France, Slovakia, Croatia, Hungary, and Luxembourg (see Figure 3).
Auctions in the abovementioned countries occur periodically either on a quarterly or monthly basis with prices publicly published on the various auctioning platforms. In these countries, subsidised issued GoOs are auctioned in order to either offset the cost of the subsidy scheme in the relative country, reduce the cost (e.g tax levies) incurred by consumers or redirect the funds towards an energy transition fund.
France has the most prominent national GoO auction market offering on average 45 TWh of subsidized renewable GoOs per year with auctions taking place monthly since the beginning of January 2022. In France, these auctioned revenues are dedicated to a special fund acting for the energy transition.
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.
One of the main benefits of a Guarantees of Origin auction market is that they bring more market transparency and liquidity through aggregating available GO volumes in a market that is characterized by illiquidity and fragmentation. As such one can expect that once the EPEX SPOT GO auction is launched in September that we can expect more liquidity in the GO market where corporate demand continues to grow annually at around 12% per year.