The Guarantee of Origin is gaining momentum

The Guarantee of Origin (GO) is gaining momentum. As Europe is striving to speed up energy transition, the use of the GO is also expanding. At Grexel, we can clearly see the effects of the growing demand and the European Renewable Energy Directive II (RED II).

There are also several other hot topics that affect the operating environment of Guarantee of Origin actors today. In this blog I highlight some of the points we as a registry provider often discuss when we analyze our operating environment.

Disclosure is the key

Full disclosure and the Residual Mix calculation are some of the hot topics heavily discussed today. In full disclosure, all production (also non-renewable) is issued a GO which has to be cancelled for all consumption. It is widely recognized that the key significance of the GO system lies in enabling customer choice. So, logically, the system exists to create and maintain transparency in the energy sector on a European level.

Today this transparency is maintained by Residual Mix Calculation. Grexel has proudly partnered with AIB in creating these calculations from day one. While the Residual Mix makes the system more transparent, it does so on a rather high level. It could also be argued it does not increase the transparency to the average consumer as well as for instance full disclosure would.

As mentioned in the REC Market Meeting, it is a whole other story if a consumer has to make a deliberate decision to buy coal power (if it is the cheapest) compared to a situation where they get coal intensive power through the residual mix. Full disclosure therefore is an activating and powerful tool to drive consumer demand away from emission intensive energy. So even though we take pride in calculating the residual mix, we would gladly see the need for it disappear eventually due to full disclosure.

Another topical way to improve transparency and increase the matching of energy consumption and production are temporal GOs. The concept is still fairly new and there are plenty of questions to answer related to disclosure, market design, transparency and willingness-to-pay. For instance, the above-mentioned Residual Mix -methodology would need to be adapted to suit the temporal GO.

Does all regulation block innovation and agility?

The GO field is heavily regulated. The entire backbone of the European system comes from joint European regulation and standards. This makes the system reliable, but it also makes it rigid and creates barriers for market entry.

Grexel has had the pleasure to work with Energy Community to create an electronic GO registry for Albania, Bosnia and Herzegovina, Georgia, Kosovo, North Macedonia, Moldova, Montenegro and Ukraine. During the process we will help the countries to create systems that are compatible with the European one. This enables them to join the AIB and the European certificates market, once that is possible from a regulative point of view. As the RED II requires an agreement before recognizing GOs from third countries, no-one can tell when that will be the case.

RED II has created a barrier of entry to the European certificates market. In addition to the European Community countries, this causes issues to producers for instance in the post-Brexit UK. The current understanding is that the European Commission will allow recognition of the GOs originating from countries with similar level of regulation as the European one.
The specific requirements are nevertheless still unclear, which today blocks the market entry from several actors. This in itself is a market-shaping act that slows down development of a joint, integrated system.

I would argue that increased market size would further increase the momentum of market development, attractiveness of the GO as a trading product and the product development of supplementing products and improved market mechanisms. This would result in increased agility in the field.

In any case, the amount of GO registries will grow significantly within next two years. RED II requires new registries to be set up for new energy carriers and joining the market will be attractive also outside the EU. This development adds to the pressure us IT actors in this field face, forcing us to improve our user experiences and product offerings at an increased pace. As we wrote in our previous blog, G-REX is a platform to host all energy carrier GO system in a single IT system, which effectively prevents reinventing the wheel for four times per country.

Registry services need to evolve

As new energy carriers, and hopefully new domains, are included in the Guarantees of Origin-system, the demand for easy-to-use registry systems increases. At the same time the expectations towards the it-systems increase.

Creating customer value in the registry market is no longer only about creating superior user experience. The market actors need the systems to be easily integrated to the systems used by for instance those trading in Guarantees of Origin. While Issuing Bodies remain our core customers, in the future we also need to investigate cooperating with those building supplementing services to registries even more than we do today. G-REX’s API-first design and Open API documentation enables us to provide the market with modern tools to build the needed integrations.

Registries are publicly purchased and lean heavily into the regulation but are used by the market actors. Understanding this, while keeping up to date with the fast changes in our operating landscape, makes Grexel the market leader in the GO registry market and helps us maintain that position in the years to come.