Guaranteed a GO: All Certs in one System

Post by admin on August 21, 2017

Across Europe, consumers choose renewable electricity and do so on a large scale. In both liberalized and monopolized markets consumers are having an increased influence on the production of electricity by specifying the product they wish to use. Guarantee of Origin (GO) certificates are issued to renewable energy producers and the electronic document is used to guarantee to consumers that the energy delivered is produced from renewable resources. The issuance upon production, and cancellation upon consumption, is managed through registries. In the European common energy market, energy can be produced in one EU country and delivered to consumers in another. So, in order to manage GO certificates across multiple registries, and supporting differentiating customer product offerings, is your system guaranteed a ‘GO’?

Guarantees of Origin are issued mostly by transmission system operators, electricity regulators and energy market operators. They issue a GO for every 1 MWh of energy produced. Once the energy is sold, the GO is cancelled to avoid double counting. The number of cancellations has increased for the first time in 2015, showing an increase in demand of renewable energy. Due a decrease of issuing volumes, a shortage of supply was created. This also created a turning point in the development of GOs and indicates a healthier market. This introduces additional challenges in an already competitive environment.

In compliance market, GOs are used to meet a national renewable electricity obligation, e.g. the UK (Renewable Obligation Certificates or ROCs), Sweden (Elcert) and Belgium. The voluntary market is based on the trading of Guarantee of Origin certificates. GOs are cancelled in the electronic certificate registry. To support cross-border trading, each country registry is complying with the European Energy Certificate System (EECS) Standard. With the Association of Issuing Bodies (AIB) 20+ members, this gives EU energy suppliers access to GOs coming from as many registries.

That brings us to the first challenge: getting an overview of the GOs you own across the various registries. Having an overview of the total inventory of valid GOs is helpful to manage the position and being able to see an accurate inventory balance for the current and forward period. This will include an overview of what will expire, i.e. a forward position of production, trades, retail sales consumption, and what has been redeemed/cancelled (realized inventory of production and retail sales).  In essence, the system is able to produce a Physical Inventory and a Financial Inventory. A Physical Inventory is based on demand / load forecast. The Financial Inventory trails this and therefore there might be a mismatch due to the timing of cancellation/redeeming that may leave existing liabilities. That subsequently will affect the risk and financial reporting. A robust system will allow to setup optimization rules on how GOs will be allocated to fulfil retail sales (B2C and B2B) volumes.

Apart from the management challenge of tracking GOs and monitoring exposure, a second challenge is coming from both B2C and B2B customers, who like to make energy purchases based on the electricity production source they wish to support. Consider a consumer who lives in a town with a wind project and would like to buy electricity from it. Or an Aluminium Mill close to a Hydro Electric plant. These Peer-to-Peer relationships require the ability to link the certificate from the Wind Mill or the Hydro Plant to the energy purchase by the consumer of the Aluminium Mill

A third challenge is that GOs have no inherent value until they are traded in the open market. Prices in this market are not indexed, i.e. there is not standard price or agreed values. So only a total overview of your GO trades, compared with some market information, will allow you to come up with an average price for valuation purposes in Mark-to Market and Profit & Loss reporting across the trade horizon.

Managing all these attributes and linkages requires a systematic approach for capturing, inventory management, position and risk management, settlement and (compliance) reporting. Essentially, it needs a ‘renewables’ energy trading and risk management (ETRM) solution.

Pioneer Solutions is uniquely positioned with its RECTracker software application, which automates the end-to-end GO/REC tracking and management of processes from generation to assignment and retirement or expiration. RECTracker provides robust functionality for inventory planning and management, capture of all GO transaction, position management and valuation, as well as settlement and invoicing. Each GO will be tied to a renewable asset thus technology, fuel, expiration date can be derived. A hierarchical book structure is supported to capture comprehensive assets, purchase and sale trades. RECTracker offers a flexible book structure that allows segregation of domestic GOs from foreign GOs.

As the renewable energy market grows, so will the volume of GO cancellations and customer demands. As a result, it will outgrow current usage of spreadsheet-based systems, relying on the portal with access to the registry of the certification entity or the limitations of functionality included in ETRM systems. Innovating Energy Suppliers put in place the systems that are designed for progress, increase efficiency and provide a competitive advantage – whether on premise on remotely hosted in the cloud.

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