February 2024 — What France's Certificate of Origin Auctions Say About Market Prices

The recent French national auction saw Guarantees of Origin priced between €0.83 and €1.36, with 4922 GWh of Guarantees of Origin sold. The production period of the supply sold was November 2023. These results have sparked discussions among our members about the historical price movements for Guarantees of Origin (GOs). People often inquire about whether prices are on the rise or on the decline. While we can't predict the future, analysing past prices helps us comprehend how prices have evolved and what 

factors influence them. International GO auctions provide crucial price signals. Both buyers and energy producers now wait for monthly auction outcomes to gauge market prices before making deals.

French National Auctions are one of the best sources for tracking historical prices. It's important to note that prices for specific certificates of origin in other countries may not precisely match those in France. Nonetheless, they offer a good overview of market trends. Importantly, GOs from other countries can often be used under the same conditions as domestic GOs.

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2019—2021: Launch of the French Auctions and Initial Price Discovery

During this period, the French Auctions saw the start of modest prices, ranging from €0.22 to €0.96 per megawatt-hour (MWh) in March 2019. Prices gradually increased, reaching €0.34 to €0.6 by April 2021 and peaked at €1.03 to €1.34 per MWh by November 2021. This price surge was due to increased demand, optimism in the renewable energy sector and some speculation.

2022: Highlights and Lessons

At the beginning of the year, we saw a historic price spike - prices ranged from €1.71-€2.28/MWh in January to a dizzying €7.76 - €8.12/MWh in August. A big role was played by dry winters and one of the driest and hottest summers in European history. In this case, it is important to know that Norway is the largest exporter of Guarantees of Origin in Europe. When the weather is dry in Scandinavia, hydroelectric plants produce less electricity, leading to a supply deficit in the certificate of origin market.

2022—2024: Price drop and impacts

As with any good story, the good times could not last forever. While in December 2022 prices were still high, €5.3-€7.69/MWh, a downward trend began in mid-2023, leading us to the results of February 2024, where all Guarantees of Origin were sold at auction for €0.83-1.36/MWh.

What happened here?

On the “Montel Weekly” podcast, Daniel Arnesson pointed out, that the first sign of market weakness was the Italian state auction. The starting price was set too high and not all GOs could be sold off, which caused the domino effect and a subsequent price drop.

Was the reason for the saturation of the market or just a more rational approach to prices? In fact, there were several reasons behind this drastic price drop.

One of the most important factors was the colossal oversupply. The oversupply became especially noticeable in mid-2023 when increased rainfall pushed hydropower production significantly above 2022 levels. Norway experienced extreme rainfall in August, causing flooding in several places. On August 8, 2023 alone, Oslo received the same amount of rain as the entire month of June 2022 in total (58 mm). In addition, August and September brought favourable conditions for wind power generation, giving further impetus to oversupply. All in all, in 2023, weather conditions were unusually favourable for renewable energy production and triggered severe oversupply in the Guarantees of Origin market.

Another important reason was the macroeconomic condition at the time, which led to lower electricity demand and thus lower electricity consumption. At the same time, the renewable energy sector in Europe is growing rapidly.

Finally, it is important to note that many countries have banned the use of Guarantees of Origin from the previous year to prove the current year's electricity consumption. For example, Germany and Spain disallow the use of 2023 Guarantees of Origin in 2024. Because Germany is the largest importer of Guarantees of Origin in Europe, German rules on the use of Guarantees of Origin have a significant impact on the entire European market.

All of these factors together suggest a complex and dynamic market, where prices are strongly influenced by both internal and external factors.

Is there a price increase expected now?

Predicting a price increase is challenging. The "disclosure deadline" in March will reveal” how many large European companies – that will have to disclose the origin and ecological footprint of their green energy – have prepared for this event, with fresh production of 2024 currently selling at a premium (2.5 times higher) compared to the previous year. In the future, we plan to conduct a more in-depth analysis on this topic. If you are interested in this, subscribe to our newsletter here. In the long run, weather conditions, the green movement, subsidies and regulations will continue to impact GO prices.

The example of France demonstrates the uncertainty in the renewable energy market. Price volatility reflects the growing importance of the renewable energy sector and its impact on the broader energy market. It's clear that speculating with GOs carries significant risks and frequent sales during fresh production periods may help mitigate these risks.

What is the moral of the story?

The example of France shows that nothing is certain in the renewable energy market apart from change. Price volatility indicates that we are still learning and the weather plays a huge role. At the same time, the rapid price growth reflects the growing importance of the renewable energy sector and its impact on the broader energy market.

One clear lesson is that speculating with GOs is risky. We have met with several international market participants who have waited too long to sell and are now in a situation where their Guarantees of Origin are expiring. They are now forced to sell their Guarantees of Origin at a discount in an already depressed market. Due to regulations, fresh production periods have the highest consumer demand and carry the highest speculative premium among traders. In conclusion, we believe that frequent sales make sense to make the most of the premium of fresh production and at the same time reduce the risk of selling everything at the lowest prices on the market.