Soldera's Q4 GO Outlook | State of the GoO Market | Soldera Markets #12

Transcript of the episode's discussion between Oliver Bonallack and Al William Tammsaar

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Hey, everybody, and welcome back to another quarterly outlook for Soldera.

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The Soldera Markets podcast runs quarterly outlooks on the GO and EAC ecosystem.

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And I mean, there's been some big news in Q3.

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I mean, I don't want to jump straight into it.

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We should start with what we usually do, which is looking back at our previous predictions.

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And we'll get to the exciting part later.

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And I'm sure many of our listeners will, you know, they can take a guess.

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Let's take a look back.

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How did our last predictions hold up?

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Hey, everybody.

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So let's kick things off and talk about Q3,

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how we actually did,

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what we said,

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what we said would happen,

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what actually happened,

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how everything played out.

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I'd like to start this thing by saying we anticipated there being lower liquidity on the market.

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Very interestingly enough,

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I think we saw the biggest spike of activity on the market that we've seen this

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year so far.

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That was quite exciting.

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Mostly that seemed to come down to...

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unusually high hedging activity of wanting to close out prices and yeah that

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translated into a large amount of geos being traded at prices which were

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significantly better than a month before and significantly better than a month

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after so somewhere in in the middle start end of july we we saw some really serious

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activity on even 2025 geo prices doing excellence

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Sadly, we've seen that come down ever since then.

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Pretty heavy pressure.

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We're currently now down to below 50 cents, which doesn't feel great.

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Also,

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we'll talk about it later,

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but there's somewhat of an expectation of that's what a Geo trading season looks

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like,

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especially for Spock.

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uh one thing that i did want to mention was last time we talked about uh the under

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production compared to 2024 the estimates back then were significantly wider than

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they are right now we did see summer go pretty well for everybody in terms of

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renewable production we saw some data corrections get issued and by the end of it

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We went down from maybe around 7% less to maybe 3% less than the previous year,

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which is still a gap,

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but it's definitely not as big as it looked at the start of summer.

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Approaching the kind of area where we have more or less certainty on what's going

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to happen for the rest of the year.

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So it's interesting you brought up the price spike that happened in July.

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So that's kind of a little bit customary for the sort of yearly trends that we've been seeing.

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Do you want to quickly touch on that?

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yeah so the price spike in july is not necessarily the customary part the customary

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part is what happens after july so when we enter into september and very definitely

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now that we are in october prices have a tendency especially on the spot prices of

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uh trending down at the end of the year as people look to start trading the 2026

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event so in the last quarter you usually end up seeing less interest in 25

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for this year, more interest in 26, so next year.

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That's generally how you see the trend work over a given year of spot trading.

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On forwards, the trend doesn't really exist in the same shape.

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So volatility can really come in anywhere.

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While on the spot prices, they do end up being

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a higher-ish at the start of the year,

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slowly trending down over the year,

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and then like this trend generally getting locked in for the last three months.

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And when it comes to short-term drivers,

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so looking at things that could potentially interrupt that final three months of

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the year,

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are we seeing anything that could make this trend not as expected or what's your

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opinion?

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One of these things before we get to the main thing, which is Norway,

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A couple of things on,

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for example,

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the German energy production front,

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there is an anticipation that there will be more of these the sun's not shining,

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the wind's not blowing kind of days at the end here.

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They even have their own special term for it, which is

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Dunkelflaute.

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I hope I pronounced that correct.

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But yeah, we expect more Dunkelflaute in Central Europe and that could have an impact on supply.

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It definitely will be noticeable,

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I think,

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more on electricity prices than it will be on geo prices.

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But all of these things do have an impact on each other.

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So they are quite connected at times.

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But coming to our friend Norway.

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So Norway is this recurring character on our quarterly discussions.

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Well,

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I think it's a recurring character across most geo discussions because of just how

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big of an exporter they are.

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The second biggest exporter is like half of their size.

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So Norway just exports a major, measurable, feelable amount into the market.

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So whenever Norway does something, the market does react to it.

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What we're currently seeing in Norway in the short term is that they have an

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interesting situation.

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You could look at the reservoir levels,

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which are a pretty good proxy for how are we expecting the Norwegian hydro

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production to go for the foreseeable future.

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While the north...

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While the northern reservoirs are in an incredibly healthy situation,

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in fact,

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above historical records,

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they're doing pretty well.

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When you look into the south, you see something completely different.

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disparity currently between the reservoir levels in the north so significantly

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harder to arbitrage with the rest of the market where you see it in the south which

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is very interconnected it has the connection with germany whatever you produce you

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can find a buyer for it like there's more just activity in the south and it does

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have just this one trading zone which is norway 2 does have the

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I believe it's north of 35% of the entire capacity.

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And that specific zone is not doing all that well right now.

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Yeah, I'm interested.

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So obviously,

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besides the Norway news,

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you're saying that the hydrology itself is actually,

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you know,

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potentially relatively bullish in the short term.

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I think relatively bullish in the short term for geoprices, definitely.

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Because if we got a repeat of last year,

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I think we'd be in like a worse position overall in this sense.

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because the reservoir levels are likely going to cause conservative hydro

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production in the winter and spring and that's going to translate into just less

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geos issued so overall if you kind of zoom out into the big picture the expectation

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is that there's just going to get less geos issued there's going to be less geos in

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the market and it's going to be big enough that it can be noticeable

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essentially what we're waiting for is the end of october usually at the end of the

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year why we are waiting for october is you do not see reservoir levels increase

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significantly after that point mainly because just the water stops really moving

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around it's frozen right

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And because of that reservoir levels,

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the inflows kind of stop while you keep using it over the rest of the period where

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all of this water is frozen.

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And because of that,

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if you don't have enough,

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you start being more conservative,

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similarly to how you would if you look at a budget.

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Your budget isn't looking that good.

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Cash flow is not coming in.

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You see money in the bank.

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You're like, OK, I need to make sure that this money in the bank lasts me, right?

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So similar kind of approach over here.

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The bank account is like the burn rate of a reservoir.

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Yeah, yeah, yeah.

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So they really need to closely manage that this year is below average.

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And because of that, we're going to see less production than we did, for example, last year.

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Nice.

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Something happened that I really couldn't even believe happened when somebody told me.

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Norway's parliament actually voted to transpose Red 2.

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And why that's super relevant for context is Norway is not strictly part of the European Union.

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They have a lot more flexibility in terms of what laws they adopt,

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what do they transpose,

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how compatible are they with everything.

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And one of the annoying parts about that,

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especially from the perspective of the guarantees of origin market,

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has been that Norway adopted REDD1,

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created the concept of guarantees of origin,

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but they have not adopted REDD2,

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which really codifies that,

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hey,

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guarantees of origin should be used for consumer disclosure.

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Before that point, it was

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much looser in terms of what the requirements are.

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While now we seemingly are entering a period of time where also in Norway,

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according to Norwegian laws,

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you couldn't go around and say,

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hey,

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I'm doing absolutely nothing about it,

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but because I'm getting electricity from the socket,

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that means the electricity is green.

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while the government and the major hydro producers are exporting a large amount of

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hydro out of the country not actually using it and then leading to a situation

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where there's kind of two narratives narrative one is that these organizations in

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the neighboring countries for example Germany are like our electricity is pretty

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good it's pretty green while in Norway they're like yep same here for completely

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different reasons but it's like you know

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What Norway has managed to do in this market is the literal having your cake and eating it too.

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They created a superposition of cake where it's, you know,

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The cake is getting eaten, but it's also in another country.

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But your stomach is full.

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Everything's great.

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And you're getting paid to eat the cake pretty much.

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Yeah, exactly.

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So it's a strange area in the middle that really shouldn't exist.

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I don't think anybody should have really put up with this.

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uh but that's kind of what what's happened in this market of course if you want to

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opt out of the system you're more than welcome to do it if you want to say that all

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of your electricity is green stop selling the rights to say that it's green to

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another country then that's fine that's completely normal but being in this middle

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area that's where all the problems come from so uh red 2 got uh got the vote got

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passed to ratify it uh

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So now it's going to get transposed into Norwegian law.

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That hasn't happened yet.

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So I guess there is some reason to be skeptical.

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There's some reason to be in this wait and see phase of

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How is that all going to play out,

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especially knowing the history of how Norway's governments have behaved around this

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topic?

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As a country,

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we're doing location-based reporting,

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which means that we're not looking at what the market activity around that is at

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all.

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We're just doing location-based reporting.

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We recommend doing location-based reporting.

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You should only do market-based reporting if you really have to.

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And that's...

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And that's a very toxic position to have if at the same time you're the biggest

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exporter of guarantees of origin on the market.

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I mean, it's not even close.

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Don't hear this and think, you know, they're slightly beating somebody out, right?

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It's like, oh, you know, Norway has an edge on this market.

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No, they are the dominant exporter.

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So I think it's also important to be,

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you know,

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obviously,

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credit where it's due,

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you know,

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you sorted your stuff out.

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But Red 2 was, what, 2018?

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Like, you're late.

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Yeah.

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I don't know.

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The bar was on the floor.

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Let's put it that way.

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They've picked it up.

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It's not something monumentous.

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It's obviously great news for the market, but it's not like an incredible policy feat.

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It's like the bare minimum, basically.

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Yes.

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I think that's a good way to put it.

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And that's also why I was so surprised that it happened because my bar was

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like underground at that point so uh big picture how this could affect the market

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going forward conservatively bullish to very bullish depending on how everything

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plays out but i think this is a thing that we're gonna have to observe over

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multiple years i don't think necessarily we're all going to wake up tomorrow and uh

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all

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electricity providers in Norway are forced to substantiate all of their green

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energy sales with guarantees of origin right like that's not going to happen

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overnight there's going to be a period even after it gets passed that's going to

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take some time I think also there's just on the just a point on the transposition

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I'm already reading that there's going to be slight adaptations with regards to the

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internal electricity market directive so

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My understanding of that is like that's when and how a supplier has to disclose.

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I mean, they still have to do it, but it's like there's a little bit of, you know, flexibility.

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So we're going to see.

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I think it basically comes down to how much granular insight the customers actually

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get when they,

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you know,

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you purchase a utilities contract or something.

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But yeah, we'll have to see how the adaptation plays out.

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Hopefully there's no, you know, sneaky last minute news to come.

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I think the market,

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broadly speaking,

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I can't say it moved majorly on this news,

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which does point to me that everybody's going to have to see it to believe it.

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And I think that's a healthy position to have here.

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Yeah,

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so now that we've got the mandatory Norway section of the episode out of the way,

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let's look at short-term demand factors.

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If you wanted to be the most predictable person in the market,

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you would say currently that the prices are going to trend down.

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I think that's broadly what you would expect at the end of the year,

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especially when it comes to spots.

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Broadly speaking, you do see the rest of the market weaken slightly as a consequence of that.

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But it is generally isolated more towards, hey, 2025, it's going to go down.

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It's going to keep trending down because usually that's what you see at this stage of market.

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Sometimes it isn't.

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There have been years where it doesn't.

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There are reasons to think that this year might be different.

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But I think on average,

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the expectation is that we're not going to see massive trends upwards at the end of

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the year for spot prices.

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while we may see more positive movements realized maybe next year on...

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Positive trends are just so dwarfed by the general sentiment,

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basically.

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Yeah, so a couple of things here.

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One is that generally, this is the trend.

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Generally speaking, you do see end-of-year weakening.

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This year is a bit more special in that sense because of just how big the 2024

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oversupply is,

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just how much of it there is in the market.

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i i think we will see at least some of the 2024 volumes expire i'm pretty

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interesting interested to see how that's going to look like at the end of the year

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what you generally have seen is the 2024 guarantees of origin so for the listeners

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there's about one year after a guarantee of origin getting issued that you can use

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it you can make claims with it against your electricity consumption

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that creates this strange arbitrage situation where even though currently it's the

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year 2025 you can use electricity certificates produced in 2024 to make claims

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about your consumption this year do i think that's a good thing absolutely not i

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don't think it's necessarily healthy for the market but it is what it is that's

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kind of the reality we're dealing with now the situation for 24 is that the market

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is in such a state

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that you're almost giving away 24 certificates for free at this point so the

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arbitrage is pretty major if you are one of these consumers willing to cancel 24

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geos in in favor uh in favor of canceling 25 geos that functionally means you're

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just getting a huge spread on that uh you're pretty happy

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And yeah,

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it's very cheap to be green this year is all I can say for many countries where

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this is allowed.

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While a lot of these volumes have already expired or been used or been moved

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around,

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there is this like last three month chunk that the market has yet to absorb,

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that has yet to do something with.

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And I think that's going to have a broadly negative impact on the spot market.

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I don't think there's too much we can do about that.

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There's just this last run out of the door as they become not almost worthless,

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but actually worthless because you can't even trade them anymore.

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You can't give them to somebody.

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They're gone.

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So while this run out the door for the 24 supply has kind of been happening for the

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entirety of the year,

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as it is usual and normal in this market,

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you generally don't want to hold on to this kind of expiring supply for too long.

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You want to sell it earlier because eventually it will go to zero.

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You're better off just getting rid of it, in my opinion.

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I don't think opinions vary on this based on historical information too much.

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but uh yeah if you're currently still holding 24 supply you definitely do want to

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get rid of it and in many markets you can instead of using 25 supply use 24 supply

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and that's where all of the problems come in that's the situation on supply

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There is that aspect that when we're talking about 25,

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the reservoir levels,

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as we talked about,

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not doing all that well in Norway,

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that will have an effect.

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I anticipate this effect will more be towards the 26 kind of category than it will

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the 25 kind of category,

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but it will be there.

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and the second part of that is these dunkelflaute as we've spoken about there's

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also an increased risk of those this year we might see just like kind of lower

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production on renewable energy over winter and all that taken together while most

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geos that will be issued this year have been issued we still are in this end where

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if there are any major these kind of

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events of large amounts of buying happening with actually low amounts of production

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you could see the prices move in a positive direction as well it can happen uh

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there might be some volatility i wouldn't bet the farm on it right so how is demand

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actually trending because we talked about the distinction between 2024 sets and 25

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sets but

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When it comes to actual current demand, what are we seeing?

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I guess we're talking about one major player, right, which is Germany.

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So the picture is quite interesting this year.

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One of the things that we have seen is we weren't quite sure until the data came

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out of how many geos did Germany actually end up canceling last year for last

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year's consumption.

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We have a broadly defined understanding of what that looks like now.

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And that's about 2% more than they did the year before.

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2% in context of them doing 8% one year or 4%, 2% is quite slow.

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I guess we'll see how that translates into next year.

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Currently, cancellation trends are looking pretty good overall.

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So we have seen an across the board increase in cancellations for the last

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compliance period,

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but also for the upcoming...

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for the upcoming disclosure period like the ongoing one we have seen increased

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cancellation volumes across the board a lot of this might be just the fact that

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because it's so early

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you do have to cancel right now the 24 geos to essentially get rid of them that's

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what we might be also observing in the data but cancellations broadly are up the

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trend is looking good summary expectation of this year will be that we won't have

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more supply circulating in the market by the end of this year than we did last year

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which will be the first time this has happened since 2022.

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So we had like 2023,

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2024,

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pretty high increases in the market overhang of like just how much geos are

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circulating compared to how many are getting purchased.

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So that's going to go down.

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Just how much that's going to go down is still an open question.

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It really will depend on this demand aspect.

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But we are putting conservative estimates at around 30 terawatt hours or around that area.

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It's interesting you mentioned that demand is kind of increasing across the board.

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So it's stepping into longer term territory.

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But are you interested in how that demand is diversifying?

[00:21:20]

So the market then becomes a little bit more interesting when you have...

[00:21:24]

you know more than two players to analyze right you're like okay well what are the

[00:21:27]

trends across the board how does the european level demand for geos look as opposed

[00:21:33]

to individual countries within europe uh very interested i think the trend is

[00:21:37]

broadly very positive i i think we'll have a harder job uh in the upcoming year

[00:21:43]

actually putting together these analyses since uh

[00:21:46]

If we do see other countries really pick up the slack,

[00:21:51]

start consuming more geos,

[00:21:52]

as you said,

[00:21:53]

it'll be a bit more

[00:21:55]

complicated to just go in and figure out like,

[00:21:58]

hey,

[00:21:58]

what's happening here and why has this changed?

[00:22:00]

How much rain has there been?

[00:22:04]

But I mean, it's good for market integrity, though, right?

[00:22:07]

I mean,

[00:22:07]

it makes the trader's job harder,

[00:22:09]

I mean,

[00:22:10]

or makes it easier depending on where you can find your edge.

[00:22:12]

I mean, who knows?

[00:22:13]

But I guess it's the longer moral equation is that the market gets healthier and

[00:22:18]

it's better at doing its job,

[00:22:19]

right?

[00:22:20]

If more people are treating it with the legitimacy that it requires.

[00:22:23]

Yep.

[00:22:24]

The second aspect I think about it is that because the geo prices are just so low,

[00:22:30]

if you're thinking about it from the perspective of a trader or like a utility

[00:22:36]

selling consumers this product of,

[00:22:39]

hey,

[00:22:39]

I'm going to make the electricity in your house renewable.

[00:22:43]

How much is that worth to you when you have that conversation?

[00:22:48]

From the utilities perspective, the answer is like borderline free at this point.

[00:22:53]

So any willingness to pay on the consumer end of, yeah, that's valuable for me.

[00:23:00]

there will be a price where that makes sense to many people.

[00:23:03]

I want to draw a parallel, just going back quickly to the topic of yearly matching.

[00:23:09]

If you look at something like international renewable energy certificates or IRX,

[00:23:13]

obviously they don't expire,

[00:23:15]

right?

[00:23:15]

And I think the logic there is that you take,

[00:23:18]

you give the market the choice to essentially decide,

[00:23:21]

you know,

[00:23:22]

obviously there's frameworks that support this but it's voluntary and people make

[00:23:26]

roughly intelligent decisions and this is my understanding because they're aware of

[00:23:31]

what looks good and what doesn't and I think when you have a dual layered market

[00:23:34]

where you give this sort of legitimacy almost to last year's certificates it's like

[00:23:39]

well

[00:23:40]

If we didn't do that, you know, either close it to a year or kind of open it all together.

[00:23:44]

But by putting these two layers in,

[00:23:46]

psychologically,

[00:23:47]

you're almost inviting people to choose the latter,

[00:23:49]

right?

[00:23:49]

That's kind of how I consider it.

[00:23:52]

But obviously, it doesn't make sense.

[00:23:53]

And I would say the Solidera's position is that not only would it be good for the

[00:23:57]

market,

[00:23:58]

but it'd be good for the optics and the perception and the uptake of the market as

[00:24:01]

well if we...

[00:24:02]

narrow that down to one-year consumption and less obviously most definitely i mean

[00:24:07]

there's so much uh talk about uh granularity and i know we keep harping away on

[00:24:12]

this every time the topic comes up we currently have a granularity of two years in

[00:24:17]

some places like uh getting it down to a year would already be great getting it

[00:24:21]

down to a month would be fantastic getting it down to 15 minutes i don't know dude

[00:24:25]

i do see there's so much potential to do more and uh

[00:24:29]

i really don't think we should let perfect be the enemy of good in that sense but

[00:24:34]

there needs to be some movement i mean we can't keep sitting on this option that

[00:24:38]

estonia essentially uses where uh there's a 12 month period where guarantees of

[00:24:44]

origin let's explain this then there's a six month period where you can't trade it

[00:24:50]

anymore but it's on your account so you can use it so total there's like an 18

[00:24:54]

month period where you could use it so then that ends up creating

[00:24:59]

strange situations very very strange situations where you could be using 2023

[00:25:04]

guarantees of origin for 2025 consumption and that does not sound reasonable i

[00:25:10]

don't think anybody listening here thinks that's reasonable if trading is

[00:25:14]

impossible but cancellation is possible is it possible to cancel on behalf of

[00:25:19]

somebody else and then be paid yeah so trading is possible

[00:25:25]

Trading is possible with extra steps, kind of.

[00:25:29]

But yeah, you could cancel them on behalf of somebody else.

[00:25:33]

And in that sense, yes.

[00:25:34]

But it won't be on somebody else's registry account.

[00:25:37]

I mean, it won't be exported to another country.

[00:25:42]

All of those things are off the table.

[00:25:44]

But they're still around.

[00:25:46]

They're still competing for the exact same demand.

[00:25:49]

It's very problematic.

[00:25:50]

Yeah, let's talk about Italy.

[00:25:51]

Which, for my own personal reminder, it's the energy release game, correct?

[00:25:55]

So the thing about the energy release scheme is it's something that the Italian

[00:26:00]

government proposed for heavy industry,

[00:26:02]

which is essentially,

[00:26:04]

hey,

[00:26:04]

if you give us this guarantee that you will invest into building out more renewable

[00:26:10]

energy,

[00:26:11]

we will give you subsidized renewable energy right now you can get it at a fixed

[00:26:15]

price we'll give it to you for the whole year and it'll be renewable energy so you

[00:26:20]

can take it up on your sustainability reports that's that what that is expected and

[00:26:27]

will be replacing in the year of 2026 is it will be replacing italian government

[00:26:33]

auctions for guarantees of origin which you've been listening to this podcast

[00:26:37]

you've heard this before

[00:26:39]

but it doesn't really seem like they're all that good at running those.

[00:26:44]

I mean, they tried selling 2024 Geo's

[00:26:50]

I think it was two weeks ago.

[00:26:51]

I don't even think they sold half of what they were trying to sell and the rest is

[00:26:55]

going to expire now.

[00:26:58]

So kind of a strange situation.

[00:27:00]

The auctions historically haven't been all that well run.

[00:27:03]

They've historically set minimum prices that have not been met.

[00:27:07]

Thanks to that, not all the supply has been put onto the market.

[00:27:10]

And then that's created this kind of cycle of fear where people see these large

[00:27:15]

amounts building up and building up and building up.

[00:27:18]

And then you're like,

[00:27:19]

oh my God,

[00:27:19]

somebody is going to put 20 terawatt hours onto the market in a single auction.

[00:27:23]

I think historically they've more been a source of fear of like,

[00:27:27]

oh my God,

[00:27:28]

it's either going to be a flop or they're going to flood.

[00:27:31]

So instead of flop or flood,

[00:27:33]

they're just going to be giving these guarantees of origin away to heavy industry

[00:27:36]

historically when you look at all of these nice CSRD reports we've been getting now

[00:27:42]

this year heavy industry isn't necessarily the biggest user of guarantees of origin

[00:27:46]

it's very expensive compared to just how much energy they use generally because of

[00:27:51]

that their willingness to pay is a bit lower I think that did unlock a new

[00:27:58]

user base for essentially guarantees of origin while taking all of that supply off

[00:28:02]

of this flop or flood kind of model that just caused uncertainty into the market so

[00:28:07]

overall i'd say this is a very positive development the strange auctions will cease

[00:28:12]

nobody will be looking at 20 terawatt hours and thinking like oh i wonder if that's

[00:28:17]

gonna hit the market in one day i think that's a general sigh of relief

[00:28:22]

explain the logic from the standpoint of the italian government right so they've

[00:28:26]

previously they've been taking uh geos from italian producers and they've been

[00:28:30]

running their own central auctions they realized it wasn't going very well and now

[00:28:34]

they've decided to pivot it into giving them to the heavy industrial base within

[00:28:37]

italy and it's a mandatory cancellation right they don't just get an account they

[00:28:41]

can't sell it they just have to use it and then i guess it's good optics for

[00:28:45]

everybody right

[00:28:45]

Yeah.

[00:28:46]

The second part about why are they doing that is so they would get more investments

[00:28:51]

into renewable energy build-out going.

[00:28:53]

So this is essentially part of the carrot for,

[00:28:58]

hey,

[00:28:58]

we really want you to invest more in renewable energy build-out,

[00:29:03]

like go enter into a PPA,

[00:29:05]

go support renewable energy production.

[00:29:07]

I think that'll be...

[00:29:10]

varying levels of complicated depending on how big you are because if your

[00:29:15]

consumption is quite low i don't know what the ppas really look like on a certain

[00:29:21]

size of consumer and i think there's a subtle understanding here i mean they can't

[00:29:26]

be doing this because they are tragically afraid of losing their beloved geo

[00:29:30]

auction scheme that nobody criticizes them for i mean they're probably happy to be

[00:29:35]

seeing the the

[00:29:36]

you know the end of it it's less work and maybe just better pay off for them than

[00:29:40]

what they've been doing so far okay nice um and i guess the other question off the

[00:29:43]

back of that discussion was the breakdown in consumption habits and why are we

[00:29:49]

seeing you mentioned that it's more skewed towards uh utilities right so what what

[00:29:54]

is what does that look like and

[00:29:56]

Also pulling the conversation back a little bit even further,

[00:30:00]

given that we know that Germany is the biggest consumer,

[00:30:03]

do we have an idea of why that is?

[00:30:05]

Is that mostly heavy industry or mostly utilities?

[00:30:07]

And yeah, let's touch on that sort of consumption breakdown.

[00:30:10]

It's very multi-pronged of why is Germany like that?

[00:30:14]

And part of the answer is that they have a lot of subsidy schemes.

[00:30:18]

Using renewable energy is what qualifies you for it.

[00:30:22]

The other part is there are a lot of...

[00:30:25]

of these sort of eco-labels,

[00:30:27]

but not eco-labels for guarantees of origin,

[00:30:29]

eco-labels for the product that require you use renewable energy when producing

[00:30:34]

something.

[00:30:35]

These kind of things do contribute to the guarantees of origin consumption side.

[00:30:41]

And then there are some government level requirements on what utilities have to do,

[00:30:47]

pressure around that side.

[00:30:48]

They have a very multi-tiered system around that.

[00:30:52]

so they have these regional guarantees of origin they have their own internal thing

[00:30:57]

then they have a subsidy scheme and then they have guarantees of origin that are

[00:31:01]

imported into the country and then these all form this kind of complicated tapestry

[00:31:06]

of what a utility has to report to their energy consumers yeah that all is a very

[00:31:13]

long way to say there's not one reason it's been adopted better in Germany across

[00:31:19]

various sectors

[00:31:22]

And that's also why...

[00:31:24]

it's usually quite hard to pin down why are you seeing an increase in consumption

[00:31:30]

in some country.

[00:31:31]

Because while,

[00:31:32]

yes,

[00:31:33]

you could say it was all a certain subsidy scheme,

[00:31:36]

often the picture,

[00:31:37]

if you start looking at it closely,

[00:31:39]

is quite varied,

[00:31:40]

quite complicated,

[00:31:41]

right?

[00:31:41]

Like the CSRD scheme, for example.

[00:31:43]

Large corporates do have to report their use of renewable energy.

[00:31:47]

But on the other hand,

[00:31:48]

they do have to also go down their supply chain and figure out what that looks

[00:31:52]

like.

[00:31:52]

So not one answer.

[00:31:54]

quite complicated actually it's because it's this uh market by a thousand cuts kind

[00:32:00]

of situation but it all adds up uh in the big picture so it's like this pattern of

[00:32:06]

conditionality relating to geo use it's like you know what you get as a result what

[00:32:11]

you're allowed to participate in yeah exactly and sometimes the answer is just a

[00:32:14]

good feeling

[00:32:16]

But broadly speaking,

[00:32:18]

there are many reasons why you would do it,

[00:32:20]

starting from optics,

[00:32:22]

ending at financial benefits if you do so.

[00:32:25]

The final sort of segment to touch on is our expectations for the market.

[00:32:30]

A big reason why you do see prices differ year to year in the geo market is that

[00:32:39]

there is this expectation that next year is going to be better.

[00:32:43]

So we do see that play out in what the current prices look like.

[00:32:49]

2026 is a lot more valuable than 25.

[00:32:53]

27 is a lot more valuable than 26.

[00:32:55]

What that comes down to is a calculation in supply and demand.

[00:32:59]

Are there more guarantees of origin getting created than there are consumers for it?

[00:33:04]

If there is,

[00:33:05]

what's the difference, right?

[00:33:06]

So if you project this out long enough,

[00:33:09]

your expectation is,

[00:33:10]

especially considering our renewable energy build-out is kind of slowing down a

[00:33:15]

bit,

[00:33:15]

that this dynamic is changing.

[00:33:18]

So I don't know if this is necessarily positive news for the world from the

[00:33:24]

the guarantees of origin markets perspective we have to kind of look at it in

[00:33:29]

perhaps a different light european renewable energy build out has been slowing down

[00:33:33]

in terms of just the velocity uh the government uh tenders for hey come and build

[00:33:40]

an offshore wind uh wind farm over here uh those kind of things have not been doing

[00:33:45]

great all around europe and at the same time uh grid congestion is an issue in many

[00:33:51]

of these areas and the thing is just uh

[00:33:53]

Yeah,

[00:33:55]

in some areas we just have perhaps already a bit too much renewable energy as

[00:34:01]

opposed to the ability to move it into tomorrow instead of having to use it today.

[00:34:07]

I don't think storage build out has been fast enough to really address the problem,

[00:34:13]

but we're seeing wild price swings even within a day sometimes.

[00:34:19]

and that does affect the unit economics of hey if you're looking at i don't know i

[00:34:23]

want to build a solar panel over here i want to build a thousand of them you're

[00:34:30]

looking at that math the math might look significantly different than it did four

[00:34:34]

years ago three years ago somewhere in that area

[00:34:37]

with a policy tool with a stated intention of tracking renewable electricity it's

[00:34:43]

it's widely understood you know i've said it i said in previous episodes but the

[00:34:47]

elasticity of the geo as an instrument is designed to make this market more

[00:34:50]

attractive and hopefully you know there's a there's a period where people can enjoy

[00:34:54]

a geo market which has potentially better implications for them as producers and

[00:34:58]

that will itself curve into better production um dynamics

[00:35:01]

As solar prices get worse,

[00:35:05]

you do see that the guarantee of origin aspect of it does make a bigger and bigger

[00:35:10]

part of what their profit margin is.

[00:35:12]

so having that part under control and managing it making sure that you're actually

[00:35:17]

getting value out of it it is important i mean we have met so many customers where

[00:35:24]

after they're onboarded you have a look at what they've been doing so far and then

[00:35:27]

you just realize that they haven't even applied for getting guarantees of origin in

[00:35:31]

some situations in some situations they've just kind of been sitting around

[00:35:36]

expiring on the account

[00:35:37]

And then you're just doing the math in your head and going like,

[00:35:40]

oh,

[00:35:40]

wow,

[00:35:40]

if you just on an ongoing basis sold these,

[00:35:43]

this is a large amount of money we're talking about that has just kind of gone into

[00:35:48]

the ether.

[00:35:49]

And I think that's sad.

[00:35:50]

Looking at forwards now.

[00:35:51]

So we're observing a spread between 2026 and 2027 vintages.

[00:35:56]

Yeah.

[00:35:56]

What does that tell you?

[00:35:58]

And yeah, what can we learn from that?

[00:35:59]

Broadly speaking, 2026 is becoming the spot supply essentially in a couple of months, right?

[00:36:06]

That's one aspect of it.

[00:36:08]

The other aspect of it is I think when numbers are in,

[00:36:11]

kind of know where the supply and demand is going to broad strokes end up by the

[00:36:15]

end of the year.

[00:36:17]

and we can make an educated guess on the supply balance at the end of next year and

[00:36:22]

that gets you to the conclusion that next year is going to be better next year is

[00:36:27]

definitely going to be better and the year after that's going to be better than

[00:36:30]

that big picture everything's getting better that's the message that i would like

[00:36:36]

to leave you guys on everything is getting better so while we are talking about the

[00:36:42]

short term these next three months

[00:36:45]

broadly observing spot prices trend down.

[00:36:48]

That's the most likely scenario we're going to observe.

[00:36:52]

Outside of that, next year is looking very nice.

[00:36:55]

The year after that's looking even better.

[00:36:57]

So the direction of the market is fantastic.

[00:37:01]

Don't let the short-term movements really let you take your eye off of that.

[00:37:07]

I think we are coming to the end of the episode.

[00:37:09]

Just quickly to recap our expectations for Spot Down 4.1.

[00:37:13]

So I guess it's a nice coincidence that when you're doing the Q4,

[00:37:18]

podcast you are literally talking about spot in the very literal sense it is the

[00:37:21]

remainder of the spot so yeah feel free to yeah yeah so to summarize everything on

[00:37:29]

spot we do expect the slump to continue the degree to which it will continue I

[00:37:36]

can't really promise you anything so are we gonna stay at like this 50 cent mark or

[00:37:41]

are we gonna hit 30 cents I hope we don't but the possibility is there when it

[00:37:46]

comes to

[00:37:47]

why it's doing that it's a combination of it's the end of the year you also have

[00:37:54]

the large overhang from 2024 which we are just you know in a sort of hangover phase

[00:38:01]

and as a consequence of that the market balance right now there's just a lot of

[00:38:06]

selling happening

[00:38:07]

There are reasons why it can bounce into a positive trend, at least for a little bit.

[00:38:15]

And that does come down to there being some sort of supply shocks or narrative

[00:38:21]

shocks,

[00:38:22]

essentially,

[00:38:23]

where we're looking at,

[00:38:24]

for example,

[00:38:25]

Norway's hydro production and we're realizing,

[00:38:27]

hey,

[00:38:28]

we might be producing significantly less than we thought we were.

[00:38:33]

But broadly speaking,

[00:38:35]

slumpy territory in the last quarter here so forwards generally looking quite

[00:38:40]

positive I think the market is a bit getting pressured by the spot prices since to

[00:38:46]

some extent you know these two things are interchangeable a lot of the time but the

[00:38:53]

2026 prices are still looking pretty healthy we're gonna roll into 2026 with a

[00:38:59]

better market situation than we started this year with which is gonna be very

[00:39:02]

positive

[00:39:04]

And broadly speaking,

[00:39:05]

that is also why you are seeing the premiums for the next years at the levels that

[00:39:10]

they are.

[00:39:12]

And well,

[00:39:14]

if everything goes well,

[00:39:16]

we might see the prices drastically even above that by the end of the next year.

[00:39:20]

Exciting.

[00:39:21]

I've got a good feeling.

[00:39:22]

And hopefully that materializes.

[00:39:25]

Yeah.

[00:39:25]

Thanks for watching the Q4 Outlook for Sotero Markets.

[00:39:29]

And yeah, catch you in the next one.

[00:39:31]

Yeah, it was a pleasure having you around, listener.

[00:39:35]

Hope to see you in the next one.