Europe is accelerating on sustainability
1.7.2022
LAURA MALINEN
The European Energy Exchange (EEX) emphasized sustainability-related themes in their E-world tradeshow program 2022. At EEX we are active in building sustainable markets for sustainable products. This blog presents some of the highlights and addresses some key themes presented in the event.
E-world in Essen is an annual event that draws those working in energy to Essen, Germany. The area is vast, and the crowd represents the whole field of market participants. Me and our Business Development Manager Martin found ourselves in this wonderland of professional encounters in June 2022. In this blog I’ll raise some of the topics that were discussed on the stage by Martin and our EEX colleagues, combining them with some of the insights from the discussions at the event.
What role will subsidies play in the next years?
Energy prices are peaking throughout Europe. Politically, this has led to extensive discussions on how to prevent energy poverty and ensure the competitiveness and operability of European production. For instance, it must be decided how the available support should be allocated. As we are only just recovering from the global pandemic, which has taken its toll on many European economies, energy poverty is likely to become a hot topic in the coming 12 months.
Working with energy certification, the production support mechanisms and their tracking are our area of expertise. In our operating field, we are used to seeing both feed-in tariffs as well as the more market-oriented mechanisms of quota obligations and auction systems. It is noteworthy that there is little harmonization on the support mechanism level within the Union.
Quota obligation regulation sets a percentage (quota) from the consumption that needs to be acquired from renewable sources. This system has been in use for instance in Sweden (the electricity certificates scheme), which has allowed us to observe it from a close distance. In the electricity certificate system, renewable production is issued certificates that are recognized in Sweden and Norway. Their sole purpose is to fulfill the quota obligations. While national support systems are often criticized for their inefficiency, the Swedish-Norwegian electricity certificate system has proven extremely efficient in achieving its goals while being market-based.
Moving forward, we will need a new approach to support mechanisms. This is where the upcoming EU taxonomy will step in. In the coming years, Europe is likely to adopt broader criteria for sustainability. This will naturally make way for new products in the environmental sector and a stronger emphasis on e.g. how carbon emissions are priced.
How will green products develop in the Renewable Energy Directive II era?
EU taxonomy and Renewable Energy Directive II (RED II) will pave the way for the creation of new environmental products on the market. The high expectations placed on hydrogen are discussed in the next chapter. As the pressure for improved disclosure and broader outlook at sustainability increase, the market will also have to answer the call.
While the development of completely new products especially for the carbon market is likely, there are also new markets for the existing ones. For instance, the Guarantees of Origin have extended to new energy carriers. We at Grexel are very proud to say we provide the registry platform for all the RED II energy carriers (biogas, hydrogen, electricity, heating, and cooling) already today.
As several EU member countries that produce large volumes of energy (like Germany and Sweden) are not yet issuing GOs for all new energy carriers, we are far from seeing the full potential of these markets. It will be interesting to see if the emerging markets for new energy carrier GOs are able to leverage the experiences from setting up the GO system for electricity to reach liquidity more quickly.
The up-and-coming hydrogen
Someone said that the future of sustainable electricity has not been discussed without discussing the up-and-coming hydrogen for at least ten years. I would hate to break the pattern here.
The EEX Hydrogen working group has gathered traders together to develop the hydrogen market ever since 2020. Today, 60 companies are active there. This collaboration is a strong indication of the motivation the field has for speeding up the development of this market. Currently, the hydrogen working group is working on kickstarting the market by developing one or several indices. These will create price transparency and act as the basis for investment decisions and the creation of market-based instruments.
On a practical level, markets cannot function without trust. So, standardization is needed. On the European level, the RED II forms an initial framework for it, and more specifications will follow once the CEN-EN 16325 standard is ready. The Guarantee of Origin is a practical way of presenting these standards with regard to the production methods. These Guarantees of Origin are issued already today within the CertifHy-framework and by the Finnish Issuing Body.
The operating environment in the field of energy today creates the perfect setup for a booming hydrogen commodities market. We at Grexel take pride in helping our customers at the forefront of this revolution.