Monday, 02 January 2023
Trading activity registered with our data partners decreased by more than 50% in December when compared to November, with the number of transactions and registered volumes decreasing by 51% and 61% respectively.
As for trade activity for 2022 production GO, they accounted for a 55% share, up by 22% points when compared to the previous month. In the forward markets, the recorded share of forward-year production trades was 45% (-16% points compared to November activity). 79% of the trading activity in December (+28% points compared to November) was for short-term buyer interests (2021-2023).
There was no activity at all for the 2021 production.
Monthly comparison of different CY shares in trades and volumes
In terms of CY traded, forward years' share decreased by 16% points, from 61 to 45%. This month, trading activity focused on CY to CY+2, no trades being passed for 2021 and 2025 production.
As for the volumes that were traded during December 2022, CY (2022) shares saw an important increase: they reached 56% (+30% points) of the traded volumes. As for next year's vintage, the volumes traded decreased from a 31% share of the volumes to 20% "only".
In December, average traded prices for GO products across all vintage years decreased, with the highest price decrease being witnessed for 2022 Nordic Wind production as last month but in the other direction (-263 Eurocents/MWh, -31%): it ended December at 576 Eurocents/MWh on average, versus 840 in November. Its Nordic Hydro counterpart went through the same type of month, with a 189 Eurocents/MWh decrease, equal to -23%.
There is only one product that gained some ground in December: Nordic Hydro 2024, with an 11 Eurocents/MWh increase (+2.23%).
The most expensive GO of the month is EU Wind 2022 (744 Eurocents) and the cheapest is EU Wind also, but its 2025 vintage.
Spread between production years
The largest spread is now between 2023 and 2024 production years with the largest spread witnessed with the EU Wind product (-154 Eurocents).
The spreads between Nordic Hydro vintage years are also still high, especially between the 2024 and 2025 production years (-149, though decreasing compared to last month).
There are no positive spreads this month, meaning for all technologies, 2022 is more expensive than 2023, 2023 than 2024, etc.
Technological premium/discount compared to Nordic Hydro
The spread between Nordic Hydro 2022 and EU Hydro 2022 production increased, from around -24 to 59 Eurocents, almost.
The Nordic Wind 2022 vintage, used to be traded at a big premium (about 30 Eurocents) to their Nordic Hydro product counterpart, and this premium continues to decrease this month, from 3 Eurocents to -41.
The biggest spreads are witnessed with EU Biomass and Wind, for the current year production.
As can be seen from the hydro reservoir levels in the Nordics (slide 1), Iberia ones (slide 2) are still below median levels but getting closer, and slightly above median levels in Central Western Europe (slide 3). Iberian Peninsula levels' recovered fast during the past weeks and have dismissed the dramatic situation where they were three months ago.
In December, national GO auctions occurred in France, Hungary, Italy and Portugal. The overview of historical auction prices for different countries is given below:
France
EEX held the 39th auction for Guarantees of Origin (GOs), with the book opening on 7 December 2022 and order matching on 14 December 2022 for September 2022 production GOs.
A total of 3 210 TWh of supported RES-E GOs were auctioned, 0.1% below the previous auctioned volume and thus significantly lower than the auctions in the first quarter this year. As usual, all offered volumes were sold. Wind GOs represented around 53% of the total auctioned volume, with a 15% increase in auctioned volumes compared to the previous auction. Hydro, Solar, and Thermal GOs auctioned volumes moved by +14%, -24%, and +17%, respectively. Offered Solar GOs, therefore, continue to decrease for the second month in a row whilst the exact opposite trend is witnessed for Wind GOs.
Read more here
Hungary
HUPX (Hungarian Power Exchange Ltd), the appointed operator for the Hungarian GOs market by MEKH (Hungarian Energy & Utilities Regulatory Agency), held its 4th pan-European auction for Guarantees of Origin (GOs) on 20 December 2022. This is the sixth such auction in history offering both National GOs (produced from December 2021 to January 2022) and EECS GOs (produced from January to September 2022).
Read more here
Italy
The GSE recently announced the outcome of the auction session on 20th December 2022 for the assignment of Guarantees of Origin (GOs). In total, 4.5 TWh of GOs related to production from January to October 2022 were auctioned (-17.1% compared to the previous auction), corresponding to the electricity produced by the RES power plants that benefit from the “dedicated withdrawal” by GSE and are granted feed-in tariffs. The auction revenues are used to reduce the cost sustained by electricity consumers to promote renewable energy.
Read more here
Portugal
On 7 December 2022, the 13th Portuguese auction for Guarantees of Origin (GOs) was held by OMIP. In total, 3.65 TWh GOs were auctioned (+ 11%), all corresponding to the subsidized power plants for renewable electricity production under a direct price support regime. The net income from the auction (auction revenues deducted from overheads related to the acquisition of electricity from renewable energy sources) is reverted to consumers.
Read more here
How many GOs are going to be issued in 2022? What about hydro GOs given the summer drought?
These are questions we ask ourselves very often when looking at the GO market and its supply side. For this reason, amongst others, we developed a forecast model for an End Of the Year (EOY) Balance for GOs issued for main renewable technologies (hydro, wind and solar).
What is the End Of the Year Balance?
First and foremost, the complete and detailed methodology will be displayed in a separate article, alongside country-level issuances projection statistics.
By taking production statistics from the AIB from January to May (included) 2022 as "fixed statistics", we project (using econometrical models) what could be the final issuances for every month of the year, based on previous years' issuances trends per country and technology, as well as generation data.
This is displayed in the table below. What can be taken from this?
Hydro issuances, we forecast, will be almost 83 TWh lower than in 2021 while wind and solar GO supply increased by 30 TWh and 22 TWh respectively in comparison to 2021. The overall GO supply at the end of 2022 we estimate around 680 TWh, 47 TWh lower than last year.
These figures display our current best approximation for the GO supply of year 2022 for hydro, wind, solar, biomass, and other technologies in the EECS area. It does not include all AIB countries yet (the list is below the graphs and table) and all technologies.
Also, we will include June and July 2022 AIB statistics once October ones are released.
Yes, all of this needs to be improved. But, in our view, it already provides an interesting snapshot that could be valuable to you, users of Greenfact.
Renewable Energy Directive
On December 19, the European Council rejected the 45% renewables target under RePowerEU amendments to the Renewable Energy Directive (IV), keeping the originally suggested 40% in place (RED III). For comparison, the current target legally in place is at 32%, while the Commission and the Parliament support the 45% target. Since RED IV amendments are likely to be combined with the final RED III trilogues, the renewable energy target and the amendments to the RED are still to be agreed on during interinstitutional negotiations (trilogues) in the first half of 2023. In turn, this legislative file will exert an influence on the supply side of the GO market in the long run only. The Energy Ministers also greenlighted renewable “go-to areas” for faster renewables deployment, however their creation can commence after the RED goes through trilogues and enters into force.
Emergency measures
Under temporary emergency measures, natural gas price cap was agreed to be at the same level as the market revenue cap on renewables (180 EUR/MWh). It would be triggered in exceptional cases under multiple safeguard clauses, making its activation unlikely. Faster permitting times for RES projects were also approved, set to come into force in January 2023 for the period of 18 months. The regulation shortens deadlines for issuing permits: six months for the repowering of renewable energy plants, three months for certain heat pumps or solar projects. Since faster permitting times and the overriding public interest principle will apply to new and ongoing projects, they could effectively unlock around 100 GW of wind and solar projects currently stuck in permitting procedures. Note, the Council regulation for faster deployment of renewables will be gradually replaced by the aforementioned RED IV and its “go-to areas”. More details here.
New rules for renewable hydrogen certification
We obtained a leaked version of the Commission’s updated version of the delegated regulation on the certification of renewable fuels of non-biological origin (RFNBOs), supplementing the Renewable Energy Directive.Changes include: 1) temporarily removing hourly matching in favour of quarterly matching, whereby there is an overlap between renewable electricity generation and RFNBO production, until March 2028, with more temporal granularity coming in April 2028; and 2) a transition period until the end of 2036 for RFNBO installations coming online before January 2027 for the additionality principle. Trilogues will likely follow next year.
The regulation encourages the creation of “hydrogen clusters”, given temporal and geographical matching and echoes RED IV, where acceleration areas (former “go-to areas”) have been introduced for RES-E installations. If RED IV is adopted, it is probable that the merging effect will ensue: acceleration areas could serve as prime locations for hydrogen production. The regulation will increase GO supply in the long run, as the additionality principle means that existing RES-E capacity will not be cannibalised and demand for GOs from the RFNBO producers will be met by new "green" installations. Read more here.
Sweden to take over the Council Presidency
Sweden will hold the rotating Presidency of the Council of the European Union from 1 January to 30 June 2023,following the half-year Czech Presidency, and will lead the work of the Council. It means that the Swedes will play a central role in setting and progressing the European bloc’s agenda. Sweden already unveiled its work programme: overseeing the electricity market reform, advancing the work on the hydrogen and decarbonised gas market package, are in the pipeline. Despite concerns that the far-right Sweden Democratic Party would use its voice in the Council to water down climate ambitions and targets, the Swedish Presidency cannot roll back on the green agenda as it was previously agreed in conjunction with the Czechs and French, however it will be able to influence how core EU policies negotiations go. Read more here.
The recovery one could have expected on the hydro reservoir's side can only be witnessed in the Iberian Peninsula so far, a region that had very low if not highly concerning levels in the previous weeks/months.
Nonetheless, these levels and their movements cannot solely hold the rationale for the latest prices developments. December was the month of the shift in GO prices, especially its first week when prices went down by almost 300 Eurocents. Overall, prices dropped on average by 175 Eurocents for 2022 production, of 160 Eurocents for 2023 production. The activity also picked up during November and went down in December, expectable given the Christmas break.
Since a lot of markets in Europe are now near their electricity disclosure deadlines in March, demand for 2022 production GOs is expected to remain strong as market participants move to balance their previous year's consumption. It is to be noted that some producers may hold off on selling all of their available 2022 supplies in order to sell to markets that have later disclosure deadlines like in Germany (October) this could partially cause a limitation on 2022 production supply, which we already saw in the previous months.
As per prices, the activity picking up most likely in the days/weeks to come, we expect the range of benchmark products to remain around 6 Euros/MWh, for 2022 production.
Should you have remarks, suggestions and/or questions, do not hesitate to contact me at leo@greenfact.com
December HUPX Pan-European auction - GO prices take a -20% hit by Christos Mavrogiannis