Tracking of Energy Origin
20/04/2021
Antti Kuronen
In the past weeks I have discussed the value of Guarantees of Origin for energy transition and the consumer behaviour regarding them. This week we take a step above. We will focus on the tracking of energy origin, what it is and where it is going. Reliable tracking system is very important, but is GO system up for the task of carrying us all the way through the energy transition?
Let’s start with some basics. What is the origin of electricity coming from your power socket? How is the energy origin tracked? The most common answer today to these are in the Energy Attribute Certificates (EAC), like Guarantees of Origin (GO) in Europe, which we have talked in the previous weeks. In addition to GOs there are similar instruments elsewhere as well such as Renewable Energy Certificates (REC) in US and I-RECs in various countries. In Europe, Renewable Energy and Internal Market for Electricity Directives oblige Member states to issue GOs for renewable electricity production if producer requests is and that GOs has to be used for all electricity supplier claims on what electricity they have delivered.
The Guarantee of Origin system has been in place for 20 years. Back then a decision was made that the physical electricity is separated from the origin attribute at the point of production. When wind turbine turns and feeds electricity to grid, the producer can receive 1 GO for each produced MWh. GOs are handled in a separate GO markets and finally cancelled to match the realized consumption. Physical electricity is just considered physical electricity. This simplifies the electricity market: there is, in general, one standard product there, Wh of electricity. With the standard product, there is maximum liquidity on the market for balancing the production and the consumption on real-time basis.
On the other hand, the Guarantees of Origin are completely separated from the physical electricity and as such tradable across EU. This again brought the maximum liquidity in the very immature market that was designed to enable consumers to buy renewable electricity and to generate additional revenue to renewable producers. Whereas the physical power market has to be balanced ultimately in real-time, the Guarantee of Origin market was designed to be settled annually. Annual settlement made the system much easier to implement and to operate.
Going 20 years forward to present day, the EECS-GO market boasts a volume of over 800 TWh of renewable production and consumption. Many companies have gone to 100% renewable electricity on yearly accounting and the advances in IT has made many things possible that were not in the beginning. The Energy origin tracking is expanding to biogas, hydrogen, heating and cooling. The environment has changed.
Lately, various initiatives bringing GOs and physical electricity closer together have gained momentum. Regional/Local sourcing of GOs is a thing. More and more PPAs (Power Purchasing Agreements) include both electricity and GOs. There is even quite prominent initiative working on defining hourly tracking certificates (EnergyTag). With all these initiatives bringing GOs and Electricity back to together, is the GO system failing?
Fundamentally, GO was and is an instrument for energy transition from Fossils to Renewables. Such energy transition is a huge global challenge and different phases of the transition require different means. In the beginning, GO was designed to be simple enough to be widely adopted. GO itself is not equipped to deal with complete energy transition, it is too simple for that.
Still, the energy transition is a long running challenge requiring robust solutions, and GO is one of the blocks in the whole stack of solutions. There are companies and individuals who are already 100% renewable, but only on annual level. They are now looking for even more sustainable electricity sourcing. Also, as the renewable shares in the power systems are increasing, the variable nature of renewables, like solar and wind, get more and more challenging to manage. This requires efficient energy storage solutions. There is room for set incentives on matching e.g., on hourly basis and thus creating additional market value based on the production and consumption times. This is a need that current GO cannot satisfy.
While it is evident that more granular tracking is needed, the GO has continued legal mandate through RED II, and significant established market, it might be better to build granular tracking on top of GOs instead of trying to replace it. Most of the world, companies and consumers alike, still rely on fossil fuels. GOs and other EACs continue to provide an excellent way for anyone to start their journey on sustainable energy. Once they are sourcing 100% renewables on level then it is excellent time to consider switching their sustainability energy goal to the next level, to more granular tracking.
The first movers are now investing into hourly certificates for the temporal and locational matching of consumption and production. No doubt, when that is solved, there will be ambition for even more realistic matching, and considering all the distribution capacities. As indicated in the beginning energy tracking is a tool for energy transition.
Once energy transition is completed and all electricity production is emission free, the tracking of energy origin could become irrelevant. That is not however happening in the next ten years. There is a lot of ground to cover and a lot of work to do. To complete the energy transition, both GOs and additional layers on top of them are needed.
Let’s get back to work and save the world.
Author
Antti Kuronen
Antti Kuronen helps Grexel customers navigate energy attribute certificates.He is passionate about sustainability and believes energy certification is important step in transition to renewable energy based economy.
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