Corporates GO green

Corporate demand for guarantees of origin (GOs) will remain strong next year as companies continue to boost their green credentials. However, supply from French auctions and from German facilities should continue to keep prices around 50 eurocents. 

Listen to expert views on what’s currently driving the GO market.

Host: 

• Richard Sverrisson, Editor-in-Chief Europe, Montel. 

Guests: 

• Alexandra Münzer, Managing Director, Greenfact, 
• Olav Vilnes, Chief Editor Nordics, Montel. 

Transcript

Richard Sverrisson, Editor-in-Chief Europe, Montel: 0:05

Hello listeners and welcome to the Montel Weekly podcast, bringing you the most topical energy matters in an informal setting. My name is Richard Sverrisson. I'm joined today by my colleague, Olav Vilnes Montel's Nordic Chief Editor, and our guest today is Alexandra Münzer, managing director of Greenfact. A warm welcome to you, Alexandra.

Alexandra Münzer, Managing Director, Greenfact: 0:24

Hello. Hi everyone.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 0:26

I thought we could start today, Alexandra, about. So discussing about Green Fact, who are you and what do you do?

Alexandra Münzer, Managing Director, Greenfact: 0:33

Green fact, we are a market information market intelligence company for the green OTC market in general, but with a very special focus on guarantees of origin.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 0:44

If we could talk about the guarantees of origin market more generally how large is this market? Who are the main actors involved? Who are the main sort of participants here?

Alexandra Münzer, Managing Director, Greenfact: 0:53

You have a market with a supply of yearly 600 terrible wat hours. That was in 2018. And you have, a market that is basically dominated by fundamental market players who, producers of renewable energy on one hand side, and suppliers of green electricity on the other side. And then you have very special roles of Norway and Germany. Because huge chunk of the supply, 30%, roughly 30% comes from Norwegian Hydro. Yeah. And the Germans are the biggest consumers of. Of these g

Richard Sverrisson, Editor-in-Chief Europe, Montel: 1:26

Yeah, of these guarantees of origin. Exactly. So 600 T hours, that's about equivalent to the annual power demand of Germany. Maybe a little bit more.

Alexandra Münzer, Managing Director, Greenfact: 1:34

Yes. But Germany, they cancel. So meaning used last year, a hundred terawatt hours. So that means, yeah, of course. This is

Richard Sverrisson, Editor-in-Chief Europe, Montel: 1:43

for guarantees of origin. Yeah, guarantees of origin. If I'm talking total power demand, I mean total in the whole country. I think it's over 500. Five, 600. So this is the total green market is equivalent to the, you know, to the total.

Alexandra Münzer, Managing Director, Greenfact: 1:54

Okay. Yes.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 1:55

In that sense. Yeah. True. Yeah. Yeah. Perfect. If we could then move on to a little bit about prices, Alexandra, the prices of geos from sort of Nordic hydropower which is in. If I understand it correctly, an in industry benchmark that they spiked at more than two euros last autumn, but have fallen heavenly this year. Why is that?

Alexandra Münzer, Managing Director, Greenfact: 2:14

Yeah. Why is that, why were there so high in the first place? Maybe it's, let's start from there. So we had last year just exceptional dry and hot weather in the Nordics. So Nordics, as I mentioned, or Norwegian Hydro makes. Almost 30% of the certificates apply. And then you had this very dry summer and hydro reservoir levels and such. They were pretty low. Mm. So, yeah, sort of a shortage in supply. Of course, weather turned back to normal basically this year, but. Actually, to be honest, we, in Greenfield, we did not anticipate that it would go down that low. So we have now prices of below 30 cents for the spot here. Mm-hmm. For the future. I mean, depends up to 80 cents, but for the spot, 27.5 or something. Why was the market, or is the market so bearish this year? A couple of factors. What we could. Yeah, called the one-time factors that came into play this year. First we had France announcing their auctions for supported renewable energy. The year before we had the situation very similar to Germany. So they supported assets were not allowed to receive guarantees of origin. Maybe triggered from the nice high prices that they saw last year. So they changed the legal framework a bit in France. So they started auctioning supported guarantees of origin. Bringing every year into the market about 45 terawatt hours.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 3:38

Huge, huge amount, which

Alexandra Münzer, Managing Director, Greenfact: 3:39

is, yeah, yeah.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 3:40

When you say supported, you mean the ones that are already receiving subsidies? Exactly, yeah, exactly.

Alexandra Münzer, Managing Director, Greenfact: 3:44

Because the idea in Germany, for instance, they have the so-called do meaning if the taxpayer basically already pays, uh, for assets to, you know, to support them, then they should not. Need to pay for the green as well.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 3:59

But then, sorry, I interrupted you, Alexander. Oh, you were talking about the development this year and the French. French geo. I mean the French auctions, we'll come back to that, but that's been a main sort of downward pressure on market along the price of you saying Yes, that

Alexandra Münzer, Managing Director, Greenfact: 4:10

was the al I think that was the most important contributor to the bearish sentiment in the market this year. And a bit later, towards the end of the year, Serbian Slovakia became full members of the A IB. So association of issuing Bodies. That means. They can now trade and sell their geos much. Yeah. Much easier. They bring another 16 terawatt hours into the market. Wow. Okay. Yes. Without, you know, in France, of course you can say there will be more and more demand in France because green suppliers, green energy supplier go more and more green default. There are more and more green offerings in the country because they are very, you know, uh, climate conscious as well. And this is green. Shift is also growing in France. If you go more to the east there, it's a question. Basically when they join the a B, you can actually assume, at least in the next years, that they would more contribute on the supply side and not on the demand side.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 5:07

Okay. So the demand is sort of inching up, but maybe in eastern Europe is not so

Olav Vilnes, Chief Editor Nordics, Montel: 5:10

what I've heard in the past is that you've had many, had a lot of demand over many years. Two digit demand growth every year. Yes. 10% ish. Yeah. And a lot is probably driven by the companies that want to portray themselves as renewable. So what you say in a way is that supply is reacting by new countries coming into the system.

Alexandra Münzer, Managing Director, Greenfact: 5:27

Yeah.

Olav Vilnes, Chief Editor Nordics, Montel: 5:28

So that makes it probably a bit difficult then to estimate the balance. Very

Alexandra Münzer, Managing Director, Greenfact: 5:31

difficult to estimate the balance because not so much from the supply side, because from the supply side it's rather clear. So you have the natural growth of renewables and renewable capacity. What else could happen? You have a new country joining the A IB and we already have all countries with a big renewable supply in the A IB. So maybe another eastern European country with five TVH joints. Okay. That's not the big thing, right? Or you can have a legal something happening in the legal framework as we saw in France there. So that's the supply side. You can, you know, make scenarios and quantify it. The demand side, of course, that's much more difficult. So you have the biggest demand driver is basically. Electricity suppliers switching to green default, meaning they, of course they sort of have the pressure from people like you and me. We want to be green. We want to have a low carbon footprint. So the green offerings become, more and more throughout, you know, in the several countries you have Austria being vast extent, they are green. Even in Spain, more and more green default suppliers. Then you can even see it in Iceland or in Norway actually, that households like you and me, we get more and more green electricity. Electricity suppliers, they contribute the most to the demand side. And then you have the businesses and they, a couple of year, years back, it was not significant at all. But this is changing right now because you do see, particularly this re 100 organization calls for the Fortune 5,000 companies to be 100% green. And then they are also very transparent with what tools to achieve. And we are talking. Hear about scope two, you know, emissions and yeah, emissions from green electricity or from the procurement of electricity, let's put it that way. Next year we will see according to our estimate, they will contribute from a demand side six. T Terawatt hours. Next year, the re 100

Richard Sverrisson, Editor-in-Chief Europe, Montel: 7:23

companies, these companies, just the

Alexandra Münzer, Managing Director, Greenfact: 7:25

re 100, they are 207 companies. They're growing like five, like crazy, like five companies or such every month.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 7:31

And these are big sort of data companies. Yeah. Energy suppliers, I mean, you name it. These are household names mostly, aren't they? These companies? Yeah. They're the big,

Alexandra Münzer, Managing Director, Greenfact: 7:39

the Googles of the, of the world. Absolutely. Yeah, exactly. They have a significant electricity demand in Europe that makes 60 tet hours. 50, 60 next year, that's a 10th of the supply in the market. So this is becoming significant. When

Olav Vilnes, Chief Editor Nordics, Montel: 7:53

you had the price spike last year, for example do you see that these kind of companies pull back from the market? Or are they very still there and willing to buy just to, to portray a

Alexandra Münzer, Managing Director, Greenfact: 8:02

green image? That's a good question from the companies. I don't know, because you see it basically, you see the numbers of these RE 100 companies still growing, growing every month. You don't see, you cannot quantify Okay. There is a stagnation or anything. But what we saw also talking with a lot of our clients in Germany, that there was a pullback, basically. Because if you're a green electricity supplier, some of them, you know, supplied, they switch because it was cheap. So they switch to green electricity in, let's say end of 17 or in 2017 and supplied green electricity to their industry clients as well as to the household clients. Okay. Household clients are sensitive. They want to be green. The industry, if it's getting pricey, they'll think double. So some of them, because of the pressure from the industry clients, they switch back. So they gave the cheaper TCE to the industry clients then. But as soon as the prices are down again, you know,

Richard Sverrisson, Editor-in-Chief Europe, Montel: 8:54

then they come back in. Yeah. You mentioned the re one hundreds and one of the ways that they kind of procure or source their green energy is through power purchase agreement, BPAs. Do you, do you see that also as a big demand driver for guarantees of origins to become green?

Alexandra Münzer, Managing Director, Greenfact: 9:08

It's a demand driver. It's a way to become green. PPAs are, yeah, increasingly popular. They don't make the biggest junk, I would say, when it comes to the demand in the market. But what the PPAs definitely do is take away basically the volumes from the ot. C market. Right.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 9:25

Okay. Of

Alexandra Münzer, Managing Director, Greenfact: 9:26

course we do a, some consultancy and report services for PPA parties and such as, well, we sort of need the price transparency also in the OTC markets, but definitely if you want to do a PPA, if it shall be a green PPA, then you need. To have the guarantees of origin. In what form ever, you know, if in the Netherlands, of course you put a price on it, because there are guarantees of origin are pricey above six euros, six, seven euros per megawatt hour in the Nordics maybe comes on top.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 9:55

What, what are your expectations for next year, Alexandra? In terms of prices

Alexandra Münzer, Managing Director, Greenfact: 9:59

from next year? I mean, since we are a market analysis company, we really have to look at the things that you can quantify. And as I said, the demand side is really tricky to quantify that. We really have to see how things will develop in the future if the energy intensive industry is coming in as a new demand driver, hopefully. But that's that. But if you just look at the fundamentals and the factors that you can quantify, then. We don't see a big difference to this year. So it could be that the prices still remain for the benchmark for Nordic or rather low, but you have sub

Richard Sverrisson, Editor-in-Chief Europe, Montel: 10:34

30 or above 30 cents, you know?

Alexandra Münzer, Managing Director, Greenfact: 10:37

Well, we do have now, I think, future prices of 50, 60 cents. But we don't see. See, we think that this is probably, you know, d spread becomes more narrow. Between the spot and the forward years. So next year probably it would come down a bit.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 10:51

The forward will come down, but the spot come up forwards. Exactly. Yeah.

Alexandra Münzer, Managing Director, Greenfact: 10:54

So we don't see much support for the prices, but if you look at the historical data growth of renewables and growth of demand that we saw in the past years, actually the demand that is. Growing a little bit faster than the supply side. So that could mean we really think that in the middle of this decade we could see just looking at the fundamentals, that there might be support for the prices again, and we would see it coming up. But that's of course, excluding all onetime factors, so-called one-time factors and excluding, you know, the demand from. Energy intensive industries demand from more and more corporates that want to be green.

Olav Vilnes, Chief Editor Nordics, Montel: 11:30

Yeah. And of course also the, this market is very fragmented. I mean, you do, you do have the first develop the Nordic hydropower. Yeah. As a benchmark in a way, but you also have. A lot of products, A lot of different prices. Exactly. Dutch wind for example. Exactly. So can you give us some explanation of the spread there in prices?

Alexandra Münzer, Managing Director, Greenfact: 11:46

Huge spread and what Thanks for mentioning this. Actually, what we see, one of the trends we see is that even within a country, there might be big spreads depending on the locations of the asset. So if the location is close to an urban area. Let's say like next to Hamburg and new post subsidy wind farm in Germany, next to Hamburg or next to Amsterdam, offshore. Nice offshore wind farm and the suppliers are able to market this asset specific electricity, you know, as a really nice acid specific tar people. They want to identify with renewable energy, they want to contribute. And already in the Netherlands we do see different prices for these kind of assets. There. So that might be that will come in the future that really, depending on your marketing, depending where the asset is, you will see different prices. And as you said in the Netherlands, we do have prices now six euro 34 spot wind. And yes, in Germany next year, the year after next year, 2021, you will have post subsidy assets coming into the system so they don't receive. Support from government anymore, but we'll be, you know, we'll be able to receive guarantees of origin. And what we expect is basically similar picture to what we see in the Netherlands now in Germany because the German like to have their own guarantees of origin, their domestic ones. And there's a

Richard Sverrisson, Editor-in-Chief Europe, Montel: 13:07

willingness to pay for this local, yeah. Uh, green energy. And that's, you know, 'cause it's quite substantially higher than, say, Nordic hydropower. It's

Alexandra Münzer, Managing Director, Greenfact: 13:14

now I heard of, client of ours having solar assets and he gets two to three euros per megawatt hour for the solar, general solar assets.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 13:23

Is there also another factor coming in next year when some of the first renewal assets that came online in Germany, so 20 years ago, the feed in tariff system is ending. Will that also boost supply or geos in Germany or is that too simplistic of you?

Alexandra Münzer, Managing Director, Greenfact: 13:38

No, I mean that's of course the first thing that comes up your mind. Of course, there is a lot of. I mean, the country's producing 200 terawatt hours renewables, if that all falls out. The subsidy, of course, that there would be a lot, but realistically it's much less because you have old assets, not operational anymore and so forth. On average, on a yearly average until 2030, you will see about four hours every year. Which is negligible. When you compare it to the huge demand. That is basically there in Germany, the hundred terawatt hours right now. So it's nothing. So actually having, owning one of these assets that is eligible for guarantees of origin in a nice area in Germany that's really. We need something nice to have.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 14:24

Yeah, absolutely. Absolutely. Absolutely. But you mentioned the energy intensive industry earlier in Germany. Yeah. I mean, they get a lot of their carbon costs compensated for. Do you see any change in that and could that develop, maybe, could that, you know, boost demand for, for ities of origin if they, these these big companies want to be, to be green. I mean, Germany's an indu, the industrial heartland of Europe. Still, so there's poten potential is huge.

Alexandra Münzer, Managing Director, Greenfact: 14:47

The potential is huge. Not only in Germany, also of course in the Nordics, where you have a lot of energy intensive industry. The problem is, of course, the B2C industry, the customer facing ones. They care. They have the pressure from you and me, from the households, from the end customers to, to become green to become or to carbon neutral and sustainable and all that. Then you have the B2C industry in Germany and. Wherever, basically at the B yeah, the B2B, that actually, but they deliver raw material, for instance, to the B2C industry. And in the end the end consumer is, I mean, they get smarter. We get, just get smarter. We understand, okay, that's direct emissions. That's indirect emissions. And at some point the customer of the B2C industry will. Request their supply chain to be green as well. And that will put the pressure on the B2B industry and the energy intensive industry.

Olav Vilnes, Chief Editor Nordics, Montel: 15:41

What do you think about the credibility for the market in that sense? I mean, if you have like, uh, this kind of price developments very bumpy, right, that you had last year into this year, it doesn't show that there is a immature market that it doesn't really

Alexandra Münzer, Managing Director, Greenfact: 15:52

No. It is an immature market that's, uh, just as it is. You have a market low liquidity. Low transparency, depending on, I mean, then you have a naturally heterogeneous market, so that means depending on the submarket, the liquidity even varies and the price transparency varies. So it's really what this market needs actually some professional marketplace coming into the market. A more transparency, increasing the liquidity. And then what I believe we could also see much more stability when it comes to the price, is not what we saw last year that, you know, just buying, I mean. If you now go to the market and signal a buying interest for 500 gigawatt hours, that already, I mean, influences the prices quite a lot, just one deal, basically.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 16:38

How do you then boost the, like liquidity or transparency? How do you go about achieving that?

Alexandra Münzer, Managing Director, Greenfact: 16:43

Green fact. We try to, or we contribute to certain transparency in the market. Then you do have price transparency coming from the auctions themselves. You see in France you can go log in, see the, uh, auction results. They are. Close to the OTC prices. You see the Italian auctions, the Croatians do have auctions. So basically there are more and more, you know, public prices available than we have price platforms. This helps the price transparency. So you're not only depending on calling your broker, for instance, as it was three years back, basically, but the liquidity, I mean, now we have really. Market participants vary, fundamentally know the supply the electricity suppliers buying once a year, buying twice a year, and the producers selling if they have to or if they can achieve a good price. But you don't have any, you know, traders or participants like. This in the market.

Olav Vilnes, Chief Editor Nordics, Montel: 17:39

Is it a way then when you talk about the this auctions, some critics, critics of the auctions have said that it is a way of, uh, commoditizing the geos that is not the right way to do it, that it is not a commodity. I mean, do you agree with that? You, that you have the treat it more like a Yeah. Guarantees of origin that should have different. Prices according to its quality.

Alexandra Münzer, Managing Director, Greenfact: 17:58

If it's a commodity or not a commodity, that's a, I mean, probably it's not a commodity, but we treat it as a commodity. But on the other hand side, if you go down to the back to the roots of the guarantees of origin, it's never meant to be a support mechanism or anything. It was just there to give the consumer in the end, a choice between electricity products. With the opening liberalization of the electricity market, simply said, nothing more than a tracking mechanism. That's still what it is, right? But prices vary because demand varies for different products. It's just what it is.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 18:31

I mean, this week we saw Microsoft and Vattenfall launch a. A platform to track the origin of power production on an hourly basis as opposed to yearly. That happens today. So how do you view this development? Is this an element of the market becoming more professional as you see it, or, yeah. That is

Alexandra Münzer, Managing Director, Greenfact: 18:48

what exactly you ask for the what can you do to make the market more liquid if you sort of are more time sensitive, basically, if you require, uh, require from the electricity suppliers instead of, you know, this. Closing their source of electricity once a year, which is the rule now. You do it like much more, let's say monthly, so you're much closer actually on the, the power market and on the, you know. Yeah. So much more sensitive when it comes to the time. Mm. That would, of course. Increase the work for the suppliers that they don't want to do it, because that would mean a lot of administration work. But in the end, it would be nice for the market because you have increased liquidity. Also, another benefit would be it might give them more credibility because then you have as a product that it's much more, you know, now you trade it absolutely independent of the physical electricity, but if you link it a bit more, it also gives a better, you know, feeling and a more credibility probably for. Clients

Richard Sverrisson, Editor-in-Chief Europe, Montel: 19:45

because this is part of some of the criticism of the geo system, that it lacks that credibility.'cause it's not physically linked. I mean I think there are all of, correct me if I'm wrong, but there are some moves within the, the opposition party in Norway to make inroads into

Olav Vilnes, Chief Editor Nordics, Montel: 19:59

this. That's the proposal that will be put to parliament this winter. On the Norwegian labor body that had proposed to sort of. Limit Norwegian exports of geos to the amount of, uh, available transmission capacity just to, to have a clear physical link. But it is a controversial proposal. I don't know if it'll ever be approved. Well, what do you think about such a proposal? I mean, surely you will take away a lot of, a lot of, uh, supply from the market. Higher prices.

Alexandra Münzer, Managing Director, Greenfact: 20:22

Yeah. So that's all. Yes, exactly. That's why I, some people always ask me, yeah. What do you think if Norway leaves the market? Me personally, for me, for the market would be really nice. Then you have much higher prices the market would be taken much more serious. So it is not only a left hand job by, from some people, you know, that actually mainly trade power. And then on a Friday afternoon they buy some geos. Then there is some value in the market, of course, but what the, actually the guarantees of origin market needs on a European level is just to have much more uniform. Laws and regulations, they should not the countries, they should not be allowed actually to do all their special thing. It's not good for the liquidity, it's not good for transparency. That just makes a system that is already abstract and complicated, even worse, in my opinion.

Olav Vilnes, Chief Editor Nordics, Montel: 21:11

A particular thing in the Norwegian debate is of course, that the the like of North and Alcoa with the big aluminum producers, they do not buy. Geos to, to document their consumption. They just refer to the national production mix.

Alexandra Münzer, Managing Director, Greenfact: 21:22

Yeah.

Olav Vilnes, Chief Editor Nordics, Montel: 21:23

That's a mix. Like they opt out in a way. And, but I heard some people could say that is not really possible anymore during according to international standards. I mean, do you

Alexandra Münzer, Managing Director, Greenfact: 21:32

No, I mean, I see, I see. I mean, of course, when the aluminum industry came to the North Iceland or Norway, they did it because of low power prices. And all of a sudden they have to pay if they want to be green. But that's just the rule. So if they want to make the claim, so what you're buying with the guarantee of origin is that you're allowed to make the claim that you are sourcing green electricity. That's the European no law, that's the rule.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 21:56

Absolute, I sense a feeling for a call, for more professionalism, more kind of more regulatory kind of standardization as well. So that's the

Olav Vilnes, Chief Editor Nordics, Montel: 22:04

dream world here. Alex, sort of the EU clean energy package sorted some things out, didn't it? And you got some more clearances of it.

Alexandra Münzer, Managing Director, Greenfact: 22:11

Yeah, I don't know. It depends. If you are very optimistic, realistic, or pessimistic person, you can read a lot into this renewable energy directive. Also, when it comes to guarantees of origin, I personally don't, or we, and the. In GreenLake, we don't see much big difference. Four guarantees of origin market than what we had or what we have now. Still one, maybe a bit of a problem is that many other countries, they're still allowed to make some of their own decisions, do we want to auction guarantees of origin or not? Do we want to give them to subsidized assets or not? So there is a lot of, you know what, the countries can still decide by themselves. So there is a lot of wiggle room. Okay. Which makes this market overly complex, I would say. So then should be actually more ization. That's what we were hoping for. Actually. A

Richard Sverrisson, Editor-in-Chief Europe, Montel: 22:59

more rigorous framework then in which they can operate in

Alexandra Münzer, Managing Director, Greenfact: 23:01

makes it much simpler for everyone. Yeah.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 23:03

Yeah. Perfect. Alessandra, thank you very much for joining the weekly podcast this week and thank you. Thank you. And thanks to you all. Love as well for your insights. Keep up to date with all our stories on Monte News and follow us on Twitter and LinkedIn, and you can subscribe to this podcast on Apple Podcasts and Spotify. Thank you and goodbye.