Soldera Markets #2 | How to Make the Most Profit From GO Sales

Transcript of the episode's discussion between Stenver Jerkku and Oliver Bonallack

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Hey everyone, and welcome to another episode of Soldera Market Discussions.

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I'm here with Stenvo.

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Say hi, Stenvo.

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Hey, how are you doing, Gulliver?

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And yeah,

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today we thought we would just go over how producers make the most profit from

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guaranteed origin sales,

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but more specifically how they do so in the current market conditions.

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So yeah, let's kick things right off.

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Stenvo, how do you see the current market for producers in 2024?

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And do you think it's going to get better in future?

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I mean, it's been tough, right?

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Like to take a step back last year,

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the geo prices were somewhere around 8 euros per megawatt hour,

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even up to 10 at some point.

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And then as we got through the summer, suddenly the prices started dropping sharply.

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By winter, they were 5 euros, 4 euros per megawatt hour.

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And by spring, they were 1 or 2 euros per megawatt hour.

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And a lot of things happened there and a lot of people were very confused.

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How did this happen?

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We saw a lot of people living in denial when we were telling them what the market was like.

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They didn't believe us and they were holding on to their guarantees of origin,

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not wanting to sell them.

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And we were telling them that, hey,

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You can see the market like there's a fundamental reason why that happened, right?

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The Norway reservoirs are very full.

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There was a lot of rain.

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There's a lot of humidity and precipitation out there.

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So the market is flooded with renewable energy and that naturally pulls down the crisis.

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And the whole thing actually, funnily enough, started with the Italian auction.

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So the Italian government has been doing these auctions and they set the price

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floor for their auction.

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They hope that that gets them better results.

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Well, what happened in reality was that the price floor just made the entire auction fade.

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multiple times month after month because the price was dropping further.

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And each time it failed,

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it had massive negative impact on the prices,

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which caused further downward pressures.

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And I don't remember the exact numbers,

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but I've heard traders run the calculation how much money

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Italian taxpayers had to pay because of these practices, actually.

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It was a lot of money because eventually they sold all these geos off,

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but at the massive discount versus if they had just trusted the market to do its

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thing.

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In the summer, 2024 was around one euro per megawatt hour, give or take.

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And by now it's around 40 to 50 cents, right?

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So you've seen this massive downward trend.

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2024 also had an overabundance of like precipitation and reservoirs in Norway are full.

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Plus there's been a lot of renewable energy construction out there.

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Plus Italy again failed its September auction this year.

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So like it's definitely been in like a very negative direction.

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However,

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interestingly enough,

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for the first time,

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if you look at all the way back to the prices of guarantees of origin,

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historically,

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the forwards and spot have been trading in pretty much the same area.

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And if you even do a backtracking calculation,

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like what would have happened if I would have always used forwards instead of using

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spot,

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you can see that historically,

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you would have lost money on forwards.

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And just...

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Every month selling in spot,

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kind of like dollar cost average sales,

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if you will,

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like just letting somebody else carry the price risk and trust the market,

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you will have made more money.

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It's like the index fund investing all over again, right?

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Just go with the market.

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When last summer,

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when the prices started dropping,

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something happened and suddenly the forwards became a lot more valuable than spot.

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In fact, like two or three times more valuable.

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So ever since then, it's actually been very beneficial to lock in your forward prices as well.

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That's a bit about history.

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Now, when we look forward, does it get better?

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It absolutely will.

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There's a lot of signs pointing to that.

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We've done a lot of analysis ourselves.

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We bought information from other third parties who have run the future predictions.

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SDX,

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which is one of the biggest trading firms out there,

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the biggest guarantee of origin trading firm out there,

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they in Iceland,

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Reykjavik,

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gave a very bold estimation that in a few years,

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we may have even 10 euros per megawatt hour again,

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or even above in the best case scenarios.

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And a lot of it essentially comes down to all this transparency reporting that the

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European Union is putting on companies,

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the fact that renewable energy is just becoming more and more popular,

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more people want to use it.

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Just quickly for those out there who might not know all of the intricacies of

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selling goes,

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what's the difference between selling spot and selling futures just in simple

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terms?

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In simple terms,

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selling spot means that every month,

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let's say you have a solar installation,

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let's say 10 megawatts,

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and every month you generate some amount of guarantees of origin.

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Let's say you generate 100 megawatt hours or something on some month,

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then you could either just sell them all away every month as you generate,

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as you go,

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that selling spot,

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or you could lock in the future price

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So you lock in the forward price in next year.

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As you generate the next year production, you already have sold it away.

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It's the same as in farming.

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You can do futures for like grain and all the other commodities.

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You just lock in the price and when you finally deliver them,

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then you get the money that you promised and you deliver the volumes that you

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promised for that as well.

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So it's pretty simple.

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And if geos that are produced expire within 12 months,

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if you're selling future,

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you're not selling the current geos that you have in your possession.

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You're selling the ones that are going to produce at a future period.

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Exactly, exactly.

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You sell the future ones, not the current ones that you already generated.

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The ones that have been generated, those should all go to spot sale, basically.

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Sure.

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So you could be selling spot and futures at the same time as a producer.

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In fact, that's what we recommend most of our producers to do.

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So in Soldera, for example, we're all about trusting the market.

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And instead of trying to trade and hit the extremes with trading, you may get very lucky.

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Maybe you hold on and the prices explode and you get the best deal.

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But the opposite can happen as well.

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We've seen producers this year lose like more than 60% of their revenue from

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guarantees of origin simply because they try to be smart and do trading while not

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actually having a specialized trading team that tries to figure all of this stuff

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out.

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So our recommendation for producers is stability.

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At the end of today's renewable energy production,

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you want to have as much stability and predictable cash flows as possible.

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So we recommend doing partial forward edging,

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let's say like 30% or 60%,

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really depending on how much stability or how much you want to live for potential

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upside.

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And then the rest selling to spot as you produce them.

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And it's really about like in Soldera, we do it all for you.

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So every month,

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all of our producers,

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we currently have like 1,300 renewable energy production points across EU.

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They all generate guarantees of origin.

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We aggregate them together.

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By aggregating together, we get volumes and volumes get you the best deals on the market.

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That's really how it works.

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The market is very simple on that front since it's all OTC.

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It's like all done.

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All the deals require a lot of manual work and so on.

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Then the best way to get the best deals is to just have more volumes.

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So by aggregating all the people together, all the producers,

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getting those volumes,

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and then just following a schedule,

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selling every single month,

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you can really get the best deals on the market.

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And we do the same for forwards.

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Instead of just locking in all your forwards at a single point,

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let's say you want to hedge like 40% of your portfolio.

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That's the amount you want to put to forward sale.

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Every quarter, let's say January comes now,

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Then you hedge 10% of your 2026 quarterly, each quarter delivery.

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So over the year.

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Now comes April, the next quarter, you hedge another 10%.

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Again, quarterly hedging over 2026.

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So over the 26, you also deliver it throughout time.

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And our system automatically,

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you know,

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does the prediction,

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how much you produce,

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depending on smart algorithms.

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And then we help you allocate this portfolio and everything is done automatically

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using our advanced intelligent tooling.

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Hmm.

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And when it comes to futures,

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I'm interested,

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are the buyers confident that they're sort of making the right decision?

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I know it's kind of a difficult question.

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I mean, how strong an indicator are the sort of future steals that you lock in?

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Like historically backdating those, have they been accurate at predicting the price movement?

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They're very volatile.

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The geo market is very volatile and it's very hard to accurately predict where the

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market goes because it's affected a lot by rainfall and weather and these things

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which are somewhat still unpredictable for us at this point,

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especially over the long term of the entire year.

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And this is also why we don't recommend hedging way 100%.

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So let's say you hedge away 100% and then it turns out we're going to have a very dry season.

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And over that dry season, the prices will skyrocket by the end of the summer or something.

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And then you're just completely missing out on that one.

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We've seen offers made to producers in some cases where the buyer says,

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we'll lock in the next 10 years forward.

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I mean, yeah, you can do it.

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You have very predictable cash flows,

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but you could also lose massive amounts of money over those 10 years because nobody

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knows where the market is 10 years in 10 years.

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But we strongly believe that the market is going to be a lot more bigger and in a

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better place than it is right now.

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All the signs are pointing towards it.

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All the regulations that are coming out do require using renewable energy,

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government subsidies,

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all the ESG,

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the corporate transparency.

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In Estonia,

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for example,

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if you buy an electric car,

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you get government subsidy,

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but only if you use renewable energy going forward.

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So these things really will drive the demand in the future and locking in for 10

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years is while it causes maximum stability,

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maximum stability also means no potential obstacle.

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So you spent a lot of time sort of analyzing the regulatory environment,

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building the tech in accordance to that,

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really,

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really getting stuck into markets and thinking about where they're going to be

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going in future.

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But what's the sentiment amongst producers?

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Do they think it's going to go up?

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Do they really have an understanding of price movement?

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Do you feel like when you're approaching them and you're talking to them,

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they just think,

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oh,

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you know,

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geos aren't worth it right now.

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They're too cheap.

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Yeah.

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What do they think?

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Well,

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first is that the thinking of how much they're valued is completely from one

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spectrum edge all the way to other.

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So like we've seen some producers believe that by 2030,

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we won't have the guarantee of origin market because we'll be 100% renewable.

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I'm kind of skeptical of that claim, but that's what some producers truly believe.

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And then there's the other spectrum who sees that this is only the beginning.

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But what we see in the middle and what a large part of producers actually,

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where they're at is that,

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and they're very honest about it,

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and it's completely understandable why,

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is that they frankly just say that they don't know.

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They don't understand it.

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The market is not actually very transparent if you don't specialize on it.

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You can generate transparency for yourself in this market pretty easily.

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There's data service providers.

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There's now public auction platforms, which are great, like Montel Marketplace and Apex Spot.

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And these auction platforms have created a lot of transparency.

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And there's more and more talk about geos.

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But the reality is that...

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Most people in this market currently feel like struggling to find information.

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And it's also for most producer guarantees operation are like number 10 priority

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because it's like 5% of their extra revenue maximum.

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And they have like million other priorities to maximize their new constructions and

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electricity power and so on.

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So geos are like not at the top of the priority list.

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And at the same time, they need to make decisions.

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Do we sell now or do we not sell now?

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And that's very hard if you don't have this information.

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And it's not for most producers worth it to really try to get that information.

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It's just too expensive for them compared to how much they're going to get back from it.

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And that's why we believe the automatic tools are also the best for them.

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Just rely on good market strategies that aggregates everybody together,

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that uses smart algorithms to do it for them.

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And that's why a lot of people have really trusted us as well.

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And it's been one of the main reasons why we've been growing like 50% month to

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month in such a short time.

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Yeah, it's exciting how well you guys are doing.

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I'm really interested about aggregation and how specifically aggregation gets better deals.

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I mean,

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I understand that buyers want to get more GOs in one go,

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but what's that difference look like?

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Is it difference between somebody who's producing GOs not being able to sell

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whatsoever or just getting a better price?

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It's the,

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you know,

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from the buyer's perspective,

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a lot of the buyers over here on this market,

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they're calling and searching for sellers like a big chunk of their day.

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And if they find the seller,

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then they need to make sure the seller has done KYCs,

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which is a big process because in many countries,

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guarantees of origins are securities like in Germany.

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then they need to make sure that there's a contract signed.

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If it's a forward deal,

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they need to make sure that they're like a credit responsible party,

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that they can actually deliver what they promised.

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So there's like a lot of admin work involved in every single deal.

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Now,

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if you're a small producer relatively,

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let's say you generate like one gigawatt a year,

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it's very hard to make money on those trades.

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So because like all of the effort you put into it,

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the labor is going to basically eat away all your margins because usually they

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don't even,

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you know,

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the buyers,

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they need to talk with their back office,

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with their compliance team and so on.

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So what naturally starts happening is that one, they don't even bother with the small producer.

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They're just going to say that's too small volume.

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I don't care.

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Or they're going to just offer them lower price to make up for all that.

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Yeah.

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But if you aggregate all the production together,

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go behind a single counterparty,

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then everything changes,

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right?

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Suddenly behind us,

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there's thousands of production points,

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but for the buyer,

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we're a single entity.

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So it's kind of like this virtual renewable energy power plant where they can just source.

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And that helps them a lot.

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And that just gets you the better deals.

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And they can get the big chunk at once and make sure it gets to the right places.

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It's pretty simple.

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And do you let them know exactly what that aggregation actually comprises?

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As in, I guess...

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They want to be purchasing a specific type sometimes,

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or do you have to aggregate only wind or only solar or just put it all together?

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We really break it down,

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like the technology,

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wind,

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solar,

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hydro,

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the COD,

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like when did the plant become operational,

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the generation month by month,

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when did it become generated.

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Sometimes some producers set minimum price thresholds, which we need to hit.

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In practice,

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what's happened is if it's too out of weight,

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then they just won't sell and it just goes to the next month.

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and so on so like we we really break it down to whatever the buyer needs and they

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can either try to buy in part of it or all of it but our goal is simple we just

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sell to the highest bidder and we use like algorithmic approach to how we do those

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sales instead of letting human emotions into it because that's when things can get

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bad as top markets have really well shown in the past

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Let's look at the role of automation now.

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I'm interested how much,

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well,

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obviously there's a time saving,

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but based on the average sort of,

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I always want to say like salaries,

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because you've got somebody sitting down and entering that,

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how much are they going to be actually saving,

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right?

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Yeah, well, there's two parts of it.

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One is how much they're going to be saving and another is how much they're going to

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be earning more.

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Right.

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So that's the two parts, essentially.

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And it's significant,

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like especially because one thing that's very hard to measure is like,

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what was your strategy without us versus what it has been with us?

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And compare, we've done some analysis on that in the past.

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And because like we've had producers,

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like I mentioned in the beginning,

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who have said like,

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I don't want to join it because I want to hold on and wait until it gets back to

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like,

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you know,

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last year prices.

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And then a few months ago,

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most of them,

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like almost all of them that we talk have eventually joined us.

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And when we run the numbers,

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like what hold have they earned then,

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they had joined us immediately versus what they actually earned.

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It's like up to three times difference.

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We could have made them three times more revenue than they would have themselves.

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That's a very huge increase in their bottom line that they were missing out.

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So for us, maximizing the...

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revenue flow from guarantees of origin is our number one priority.

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We put a lot of effort into analyzing that, into building out our network.

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In our last tender,

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we had more participants than the French government's guarantee of origin tender.

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So you can really see that we have quite a nice network out there of buyers.

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So yeah, that's the thing.

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Now,

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when it comes to savings,

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if we discount just maximizing the revenue,

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when we only focus on the savings,

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it depends a lot from country to country.

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And it also depends on the size of your business.

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So when you're a tiny producer,

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in some countries,

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you need to put a lot of effort into monthly issues,

[00:19:50]
for example.

[00:19:51]
So you really need to like every month read your information from metering point,

[00:19:59]
enter those data in your TSO,

[00:20:02]
confirm it through mobile phone and two-factor authentication or something.

[00:20:07]
And that can take quite a lot of time.

[00:20:12]
In the worst case, when you delete the company, we know they have like specialized...

[00:20:16]
People who only just do issuance reporting every month.

[00:20:20]
That's literally their whole job.

[00:20:22]
They just do it.

[00:20:23]
It's very time consuming, very annoying for them.

[00:20:27]
And it's also very demotivating for the workers because it's not very exciting just

[00:20:33]
copying numbers from one place to another.

[00:20:35]
And we automate all of that away.

[00:20:38]
That just replaces, like that lets these people do something more productive, right?

[00:20:44]
But in some countries, the issuance is basically automatic.

[00:20:47]
So you don't see like every month,

[00:20:48]
they just see more guarantees or for agents come to their account.

[00:20:52]
But then there's the sales side.

[00:20:54]
Like when they start doing sales,

[00:20:56]
they always need to go through KYCs for the buyers,

[00:20:59]
like almost always,

[00:21:01]
unless the buyer is like a friend or something.

[00:21:03]
When they go through the KYCs, that's additional compliance or overhead.

[00:21:07]
If they want to get good deal, then they really need to go out there and start sourcing.

[00:21:11]
buyers so on the saving side depending on the size of your business it could be

[00:21:18]
quite you know maybe few days a year or it could be like literally full time

[00:21:25]
people's positions essentially interesting

[00:21:30]
Talk to me more about how Soldera, do you approach buyers or do buyers approach you?

[00:21:36]
I mean, it's kind of like your business model is that you had all of that yourself.

[00:21:40]
Would you ever consider going to some sort of more public facing model?

[00:21:43]
Is that even possible?

[00:21:44]
For example,

[00:21:44]
operating some sort of marketplace or I mean,

[00:21:47]
you said you had more participants than a sovereign auction.

[00:21:50]
Would it be possible to run your own auctions?

[00:21:52]
Do you already do that?

[00:21:53]
Yeah.

[00:21:53]
How does that work?

[00:21:54]
Yeah,

[00:21:55]
so most of our producers that we have come to us,

[00:21:58]
including internationally,

[00:21:59]
like we've had producers come to us from like across different European countries.

[00:22:04]
We even had now come from India and US,

[00:22:06]
like globally producers come to us and they're like,

[00:22:08]
hey,

[00:22:09]
please bring this solution for us as well.

[00:22:11]
So we've been very active in expansion and getting to more and more countries.

[00:22:16]
And it's one of our biggest focuses, rapidly integrating with every local registry.

[00:22:22]
Even if they don't have an API, we still integrate.

[00:22:25]
We really, really specialize on that and do it very fast.

[00:22:29]
But we do have business developers as well who do talk with the big guys,

[00:22:34]
utilities and so on,

[00:22:36]
because they usually require more attention,

[00:22:39]
more control.

[00:22:39]
They have some special requirements and we're very flexible in making sure that

[00:22:44]
All their needs are fulfilled as well.

[00:22:46]
And this comes to your question about the marketplace.

[00:22:51]
We currently don't see ourselves being a marketplace player.

[00:22:55]
We really want to focus fully on helping the producers.

[00:22:58]
That said, when we do talk about big utility scale producers, they obviously want more control.

[00:23:05]
like trading tests from like a biggest utility in like Norway or Finland and so on.

[00:23:12]
They're not just going to hand their portfolio to us and say, you know, do whatever you want.

[00:23:16]
So we sort of offer them this hybrid approach where they can opt in either

[00:23:21]
partially or completely into one of our trading vehicles.

[00:23:25]
We have multiple different ones on our platform and they can even,

[00:23:28]
you know,

[00:23:29]
allocate parts of their portfolios into

[00:23:31]
multiple ones, then they can see the results, they can assess it, they can compare it.

[00:23:35]
And if they like it,

[00:23:37]
then they can just increase the amount of portfolio they flow into this trading

[00:23:42]
vehicle.

[00:23:43]
And it's always very transparent,

[00:23:45]
very much focused on making sure the producers get exactly what they need,

[00:23:49]
that their compliance needs are fulfilled.

[00:23:51]
Like one producer told me that...

[00:23:54]
My biggest problem is that I need to,

[00:23:57]
according to my shareholder agreements,

[00:23:59]
get the best offers on the markets.

[00:24:01]
But I also have really high compliance requirements, DSG and so on.

[00:24:06]
So every time I go to sales, I need to put a lot of effort into this KYC and stuff.

[00:24:11]
And it's a lot of work for us.

[00:24:12]
And we were like, well, now you can just use one of our trading vehicles.

[00:24:17]
We handle all the KYCs in the background.

[00:24:19]
We're only a single counterparty for you.

[00:24:21]
And we give you full transparency that this was really the best deal on the market.

[00:24:27]
And yeah, so talk about that transparency.

[00:24:30]
You have to compare with other data sources because he says he has to go and tell

[00:24:34]
his shareholders that he got the best deal.

[00:24:36]
You give him a way to prove that, right?

[00:24:37]
Or dev a way to prove that.

[00:24:38]
We really want to bring more transparency in this market.

[00:24:42]
We want to make sure a guarantee for each market succeeds.

[00:24:45]
And it will succeed if there's a lot of trust around it,

[00:24:48]
if people see exactly what's going on,

[00:24:49]
and they know that the renewable energy producers are getting the best deals on the

[00:24:53]
market.

[00:24:53]
So for us, it's all about transparency.

[00:24:56]
The producers see exactly how many people we had in tenders.

[00:24:59]
They see the price ranges.

[00:25:01]
They don't see who exactly were the offers and buyers because sometimes the buyers

[00:25:06]
actually don't allow that for their own clients' reasons.

[00:25:09]
But that's fine.

[00:25:11]
That's not what people usually need.

[00:25:13]
They see exactly all the information they need for their compliance purposes and

[00:25:18]
bring the transparency.

[00:25:19]
They see the market trends.

[00:25:21]
They see what's going on.

[00:25:22]
And the way we work is very well regulated by the contracts we sign with them.

[00:25:28]
Do you ever get people who just really do not understand your offering?

[00:25:32]
You explain that you bundle,

[00:25:33]
you explain that you aggregate,

[00:25:34]
you explain that that helps them get better pricing.

[00:25:37]
Do the whole bitch, everything, they just don't understand it.

[00:25:40]
And at that point, what do you do?

[00:25:42]
Do you just walk away or do you keep trying?

[00:25:43]
Yeah, I'm curious.

[00:25:45]
I mean, look, we're not for everybody.

[00:25:47]
There's people who want to do their own auctions or tenders and want to do it themselves.

[00:25:52]
Some people actually get excited about trying to sell their guarantees of origin.

[00:25:56]
And it's sort of like their hobby.

[00:25:58]
So even though they understand it all, they still don't join us.

[00:26:02]
Some people I've seen literally try to treat us as traders.

[00:26:07]
Every time they come to us and are like, what price are you going to give it to us?

[00:26:10]
And I'm going to be like...

[00:26:11]
I don't know.

[00:26:12]
The market will show us eventually.

[00:26:14]
And then they're like, but you're buying and selling.

[00:26:17]
No, we're not buying.

[00:26:18]
We're brokering and aggregating.

[00:26:20]
So it's completely different.

[00:26:22]
And eventually, some of them understand what we do and join.

[00:26:27]
Some of them don't.

[00:26:28]
And that's fine.

[00:26:29]
We can't service everybody.

[00:26:31]
That's fine.

[00:26:32]
We do the best for the people that just are value aligned with us and see the

[00:26:37]
benefit we bring to us.

[00:26:38]
essentially people who want to make sure they have as little back office work as

[00:26:42]
possible and want to get the maximum results from the sales let's let's uh let's

[00:26:46]
think about wrapping here because we're getting close to time but i'm curious about

[00:26:51]
the current state of the market let's let's end on that you think you're the sort

[00:26:55]
the stall there stance is that markets are going to improve but either way it

[00:26:59]
doesn't really matter so much to producers who are getting in addition to their

[00:27:04]
existing revenue right so if it's

[00:27:05]
If you're not making any money on goals,

[00:27:07]
you might as well start because it's just in addition to what you're currently

[00:27:11]
earning.

[00:27:12]
But either way,

[00:27:12]
it's looking good in future and it's kind of a little bit in a slow period right

[00:27:16]
now.

[00:27:17]
We're very bullish in the future and the markets sort of work on cycles, right?

[00:27:22]
So right now it's a downward cycle, but it's already actually showed improvements this month.

[00:27:27]
So usually the December is a bit busier month because everybody's want to wrap up

[00:27:31]
their books and make sure they have everything covered.

[00:27:34]
So all the issue departments wake up and so on.

[00:27:36]
The producers who are not burning money on geos,

[00:27:39]
I mean,

[00:27:39]
they're losing out on up to 5% revenue.

[00:27:42]
That's massive.

[00:27:43]
And you won't get them on backtrack.

[00:27:46]
You may as well start getting them right away because 5% extra revenue on renewable

[00:27:51]
energy is huge.

[00:27:54]
Even if right now it's smaller than 5%,

[00:27:59]
in terms of profits,

[00:28:00]
it's huge because it's a low margin business,

[00:28:02]
right?

[00:28:02]
And so that really helps them.

[00:28:06]
And once they start factoring in on that,

[00:28:08]
suddenly their balance sheets and financial plans become a lot better.

[00:28:12]
And since a lot of renewable producers...

[00:28:15]
A big part of their job is fundraising to build new installations, right?

[00:28:20]
Making sure you have a good strategy in the entire geo management is essential to

[00:28:28]
put the best booth forward when doing this fundraising.

[00:28:32]
And using Soldera as a service to essentially manage this full stack,

[00:28:38]
we've heard it really helps it,

[00:28:40]
provides a really compelling narrative and story for investors,

[00:28:43]
plus the results speak for themselves as well.

[00:28:46]
I've got a product idea for you guys.

[00:28:47]
You should add a little like Soldera wrapped,

[00:28:50]
definitely not inspired from Spotify at the end of the year.

[00:28:52]
So producers can see exactly how much extra they earned because of the geo sales

[00:28:56]
through Soldera.

[00:28:57]
And that can be a standalone slide in whatever deck or business plan that they have

[00:29:01]
to show to their investors when they're fundraising.

[00:29:04]
I love it.

[00:29:05]
I love it.

[00:29:05]
Why don't you put it together?

[00:29:06]
Let's do it.

[00:29:07]
Let's do it.

[00:29:08]
All right.

[00:29:09]
Well, yeah, cheers.

[00:29:11]
That was a really good combo.

[00:29:12]
We'll try and do this weekly, but whenever we get around to it for the next one.

[00:29:15]
So yeah, thank you very much.

[00:29:17]
Thank you.

[00:29:17]
It was a pleasure and looking forward for the next one.

[00:29:20]
Cheers.

[00:29:20]
All right.

[00:29:21]
Cheers.

[00:29:21]
Bye.