The views expressed are those of the author and do not necessarily reflect the position of FORESIGHT Climate & Energy
After decades of being supported by governments, a significant part of the green transition could soon be driven by market demands. The first subsidy-free solar parks in Denmark have already been built and wind turbines are likely to follow suit in the coming years.
The private demand for green electricity has already proved its worth. We would not have been able to build subsidy-free solar parks in Denmark as soon as we did without the help of private companies such as Google and their insistence on the deployment of new renewable energy capacity to meet their electricity consumption. These companies made an active choice and demanded so-called Guarantees of Origin (GOs) from new energy capacity. A GO is a certificate that documents the origin of a unit of energy unit. However, not all GOs are the same. Some GOs come from existing energy production and some come from additional and new renewable energy production.
Unfortunately, as reported by the International Renewable Energy Agency and many others, it can be difficult for both corporations and consumers to navigate the GO landscape. Companies have the best intentions when they purchase certificates, but their impact is often limited to none. Many are under the illusion that they are solving climate change. They are not. They are shuffling, not switching.
The key reason lies in the fact that GOs are still being issued for subsidised energy production and legacy investments in many countries. Certificates can change hands without prompting any new renewable energy to be added or produced—a green transaction but no transition.
It is well documented that the practice of issuing state sponsored GOs to others than the state sponsoring the energy production distorts market signals. It also forces taxpayers to pay twice for the same support to green energy production. First, taxpayers support renewable energy production through government subsidies. Then, if taxpayers want to be credited for their support, they are forced to buy green certificates.
Not all countries allow this practice, though. In Germany, government-funded GOs are issued to the government and not to third parties. This avoids the risk of double counting, as German taxpayers are credited for their contribution to renewable energy production. This practice helps ensure a better functioning market.
As corporate sourcing markets mature, the aspect of additionality will receive increased attention from corporations. National implementation of the new Renewable Energy Directive (RED II), which takes effect in July 2021, should take this fact into account and ensure that the market is used for adding new green energy and not simply reshuffling existing state sponsored green energy.
In 2017, the European Consumer Organisation, environmental NGOs, and renewable energy associations, such as WindEurope, sent out a joint statement. They warned against mixing up public support schemes and the issuance of GOs in future EU legislation. “GOs issued for renewable power plants that receive public support are counterproductive and problematic,” they stressed. That recommendation is as reasonable and relevant today as it was then.
Recently, the EU Commission emphasised the need for additional renewable investments and a rapid scale-up of corporate sourcing activities. “Corporate sourcing of [renewable energy] appears to play a pivotal role in achieving the 2030 binding target for the EU,” the Commission said. It should come as no surprise that the same report recommends GOs to subsidised renewable energy should be restricted.
GOs are central to the business case for corporate sourcing of renewables. However, due to the current issuance of GOs to subsidised energy production, new renewable energy projects find it hard to compete on the same market. Existing and subsidised power plants are usually willing to sell GOs at a lower price than what is needed for adding new renewable capacity to the energy system. This practice distorts free market competition and hinders expansion of new subsidy-free renewable production.
For more than a decade, the EU Commission has stressed that a well-functioning GO market could “facilitate trade in renewable energy and help Member States develop their renewable energy resources in the most cost-effective manner possible”.
If all Member States ensured that state-funded GOs were only issued to the state that paid for them, we would unleash enormous amounts of additional subsidy-free renewable energy in this decade. It is time we fixed the GO market and accelerated the green transition.
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