European Guarantees of Origin Market Benefits from Increased Local Requirements
Increased local requirements in the European Guarantees of Origin (GO) market are poised to have a positive impact on investments in renewable energy. A recent analysis carried out by Aurora Energy Research for Google suggests that solar and wind assets could see a significant boost in the European GO market. The analysis focuses on the potential benefits of implementing a “100% local” scenario, which would restrict cross-border trades of GOs.
Under this scenario, the report forecasts that solar and wind assets could capture 17% more of the European GO market between 2025-2030. This translates to around 18 billion €, covering 6% of the total renewable energy investment needs for the same period. The idea is that by promoting local matching, countries with historically low renewables penetration like Ireland, Netherlands, and Germany could see increased investment in renewable energy projects.
The report indicates that requiring offtakers to source GOs locally would lead to shortages in some undersupplied markets. For example, Germany, where state-supported renewables cannot issue GOs, might experience a drop in GO liquidity until more supplies become available. Currently, GOs can be traded freely across borders, allowing countries like Norway to export more GOs than physical power. With stricter local requirements, cross-border trades of GOs would be restricted, which could result in a significant drop in GO prices in net-exporting countries by 2030.
By enforcing local matching criteria, solar and wind developers are expected to benefit the most from this scenario. However, offtakers might encounter temporary challenges in the GO market due to reduced liquidity. While this change could bring about some market shocks, limited cross-border trade aligned with physical flows of electricity could help mitigate local shortfalls of GOs.
The study also highlights the potential benefits of hourly matching of GO issuance and cancellation, particularly for hydropower. This approach could support corporate Power Purchase Agreements by providing a reliable source of GOs. Ultimately, the goal is to create an environment that incentivizes renewables and encourages market-based renewables buildout.
In conclusion, the implementation of increased local matching criteria for Guarantees of Origin could be a game-changer for the renewable energy sector. By aligning clean energy purchases with local demand, we can create value, support new clean energy projects, and contribute to a more sustainable energy future.
