2020-03-03

Complying with the rules creates trust in most cases. However, one little caveat is needed here for unmatured markets where the trust in the eyes of consumers and following the rules do not always correlate. A customer might value a couple of solar panels on the factory roof higher than auditor’s statement on the use of market-based methods to consume green energy even though the disclosure regulation of the country requires the use of certificates. But what kind of rules create a certification scheme?

Men of Honour meet Nanny State

Two kind of rule systems exist for energy certificates: Contractual and Governmental. Both contractual and governmental schemes are dependent on the surrounding regulation. For governmental schemes the relevant regulations include naturally the regulation implementing the scheme itself, but also for example those dealing with energy market in general. The abovementioned RECS was a contractual scheme: the participants of the scheme voluntarily adopted the rules of the scheme by signing a Standard Terms and Condition (STC). Governmental schemes, in turn, are based on laws and regulation. Governmental schemes can further be divided into voluntary and mandatory. For example, the European guarantee of origin scheme is based on directives and national laws, but in most countries, participation is voluntary to take part. Originally it just gave the right to owners of generation asset to receive a government issued transferrable guarantee of production attributes. On the other hand, so called support certificate schemes are usually not voluntary. They set obligations for example for energy consumers to annually buy and cancel an amount of support certificates proportional to their consumption.

Another dimension to consider when trying to understand certificate scheme rules is distinguishing rules dealing with the life and rules dealing with the afterlife of the certificates. Rules dealing with the life, including birth and death, set up the certificate system itself: issuance, transfer and cancellation. It is, however, even more important to have rules for the afterlife, the claims that can be made after cancellation. Both parts are necessary, but not sufficient conditions to create a working certification scheme. Rules regarding the life and the afterlife should be in harmony and balanced because they represent the key fundaments of a working market: supply and demand.

Most common energy certification schemes deal with tracking of production attributes from production to consumption. For these schemes we call the two sides of the rules as certification and disclosure. In European guarantee of origin regulation certification part gives the right to have a GO issued. Disclosure part, in turn, creates obligation to disclose the origin of sold energy. In contractual schemes, such as RECS and I-REC, both certification and disclosure can live in the same rulebook, but in governmental schemes they are for some reason usually separate and sometimes not coherent.

For example, guarantee of origin according to the first directive it appeared, the so-called RES-E directive (2001/77/EC, Art 5.) was implemented in Finland among the first members states. Already that early version of the directive made it mandatory for member states to recognize guarantees of origin issued by other members states. Electricity disclosure, the consumer’s right to information regarding the energy source origin of the electricity they are consuming, was set forth by the Internal Market for Energy directive (IME 2003/54/EC, Art 3 (6)). Finland was also busy implementing the disclosure, but unfortunately the implementations did not talk to each other. When the supply companies started using GOs to green their fuel mix, the energy authority noted that it would be illegal. The law implementing the disclosure did not foresee use of GOs, so it required the use of contractual flow, own production, or, even worse, production statistics. Production statistics meant Nordic production statistics and use of them would have led to massive double counting. Fortunately, many honourable electricity suppliers dared to do the right thing regardless of the regulative dissonance.

Two More Things: Is It Allowed, Are There Other Options?

Now that we have covered various aspect of certificate and disclosure related regulation, let’s take one step back and consider the original question from a corporate certificate buyer’s perspective. What to check from the regulation to find out if my certificates are good for disclosure in a certain market?

Permissibility should be a knock-out criterion as it answers the question: is it allowed to claim green consumption by cancelling the certificates? For example, even though you cancel a certificate, the local regulation might only recognize e.g. contract based tracking or own production for disclosure. Exclusivity means that in the eyes of local regulation, cancelling a certain type of certificates is the only way to green energy sales or consumption. If you are permitted to use the certificates, you are good to go, but somebody might still challenge your choice. If yours certificates are the exclusive way to disclose the origin of energy, you are totally safe. What is relevant here is the regulation in the country and region where the energy consumption takes place. For example, guarantees of origin issued by an EEA country are an exclusive way to disclose sales/consumption of green electricity in the Netherlands, but similar certificates cannot be used for disclosure in most countries outside EEA.

What’s next?

So far, we have made sure that our certificates are unique, we own the production attributes they are carrying. Yellow belt earned. Then we analysed and secured being backed by the local regulation at the point of energy consumption. Green belt. The next thing on is the black belt challenge: additionality. Did cancellation of the certificate increase renewable production, and did it cause less CO2 emitted? We’ll try to cover that in the next post.