Are consumers driving the energy transition?

In this graph the issuance and cancellation volumes are virtually even over the years. Summing up all the shown years, the cancellations are a bit higher than summed up issuance. What this means is that while GOs have 12-month lifetime, some of them are cancelled quite a bit earlier. The truth of supply and demand balance lies somewhere between the two graphs above. What is certain is that cancellations match issuance, with a bit of delay. In other words, there is clear, constantly growing and rather strong demand for GOs.

However, as discussed in this earlier post, the GO prices have almost constantly stayed on low level of under 1 € per GO (MWh). In comparison, the average household consumer EU electricity price in 2020 was 0.2126€ per KWh (includes e.g. taxes and distribution costs). Assuming the GO premium to be 1€ per GO that would mean 0.001€ per kWh, which is less than half a percentage of the average electricity price. Can we assume that this is the level of premium that consumers in general are willing to pay for renewable electricity?

These statistics really underline the phenomenon suggested by the Finnish study from the beginning of the post: consumers are willing to source renewables if it is virtually no extra costs to them.

Other possibility behind this development is that renewable electricity supply and demand are just growing naturally almost hand in hand with supply being constantly ahead by a small margin. There are major trends affecting this. An example of these is the growing attention to climate crisis, which can translate to a change in consumer behaviour and political priorities, increasing both supply and demand of renewables. Also, renewable electricity production prices have decreased very significantly over the last decades, already reaching grid parity in many countries. Nevertheless, the GO Issuing and Cancellation balance as well as the GO price present a clear trend that should not be ignored.

The cancellation volumes are constantly just one step behind the growing issuance volumes. In terms of economics, it seems that there is high demand on the GO market, but that the price elasticity of the demand is rather high as well. This also demonstrates that the GO industry is answering to consumer demand – or even that the industry has anticipated consumer demand well. The low GO prices suggest that consumers are not exactly leading the energy transition, however their role should nevertheless not be underestimated, as they are matching the growing supply every year.

While the general populace seems to be willing to pay only a tiny premium for renewables, the first movers are a different story. They are continuously demanding more from the electricity origin tracking systems. This has led to concepts, such as hourly tracking, gaining interest in the past year or so. Next week in this blog we will be sharing our thoughts regarding the evolution of the energy tracking, from the early 2000s to some decades in future. Follow us on Linkedin to make sure you will not miss that.