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

The price for Guarantees of Origin was €0.83 to €1.36 at the last French national auction. 4922 GWh worth of Guarantees of Origin were sold at this auction. The production period of the supply sold was November 2023. This has sparked debate among our members about the historical movement in prices for Guarantees of Origin (GOs). We are often asked if prices are going up or down. Although we are not clairvoyants, by analyzing historical prices, we can better understand how prices have changed over time and what affects them.

International GO auctions have emerged as an important source of price signals. Increasingly, both buyers and energy producers are waiting for the results of monthly auctions to get an idea of the market prices before entering into their deals.

French National Auctions are one of the best sources for tracking historical prices. It is important to note that the prices of any country's specific certificates of origin may not exactly match those of France. Nevertheless, they still provide a good overview of market trends. It is important to know that in many cases, GOs from other countries can be used under the same conditions as domestic GOs.

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

Let's start with the beginning of the auctions. In 2019, prices were still modest, for example €0.22 to €0.96 per megawatt-hour (MWh) in March. Then the winds began to turn. The gradual increase brought prices to a range of €0.34 to €0.6 by April 2021. By November, prices had risen from €1.03 to €1.34 per MWh. This was caused by an increase in demand, general optimism in the renewable energy sector and, in part, 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 at a price of €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 favorable conditions for wind power generation, giving further impetus to oversupply. All in all, in 2023, weather conditions were unusually favorable for renewable energy production and triggered severe oversupply in the Guarantees of Origin market.

Another important reason was 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 disallows 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 difficult. March will bring a so-called “disclosure deadline” for many large European companies, where they will have to disclose the origin and ecological footprint of their green energy. How market participants have prepared for this eventuality remains to be seen. One thing is clear: the fresh production of 2024 is currently selling at a price up to 2.5 times higher than that of 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, the prices of GOs are most affected by weather conditions, the green movement, subsidy schemes and regulations that incentivize companies to use GOs.

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 in order to make the most of the premium of fresh production and at the same time reduces the risk of selling everything at the lowest prices on the market.

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