Soldera's Q3 GO Outlook | State of the GO Market | Soldera Markets #10

Transcript of the episode's discussion between Oliver Bonallack and Al William Tammsaar [00:00:04] Hey everybody, and welcome back to another episode of the Sardera Markets podcast. [00:00:09] This is actually one of our market outlook episodes. [00:00:11] So for those unfamiliar with the podcast, [00:00:13] every quarter we run an outlook on the guaranteed origin market and some of the [00:00:18] things that we think are most impactful. [00:00:20] The way we structure it is we take a look back at our predictions from the previous quarter. [00:00:23] So in this case, [00:00:24] we're going to be looking back at Q2 and then we move into discussing short-term [00:00:28] trends and long-term trends. [00:00:30] And the whole episode is based off the report that's available to Solitaire members. [00:00:34] So, yeah, it's great to be here with you, Al. [00:00:37] Let's just dive straight in. [00:00:39] Let's look back at Q2. [00:00:40] How did we do? [00:00:41] Our general impression was that the continuing under-supply or under-production in [00:00:47] the market would cause something to shift. [00:00:50] I think we eventually saw that, but we saw quite a long... [00:00:54] dip in prices. [00:00:55] I mean, [00:00:56] most of the last quarter was not necessarily the best to look at from a chart [00:01:02] perspective. [00:01:02] I mean, [00:01:03] we saw a long, [00:01:04] long trend downwards and kind of last couple of weeks of the quarter came in clutch [00:01:10] and recovered quite a lot of price that was lost. [00:01:13] So we bottomed out that I think it was around 40 cents and we're back at around 80 now. [00:01:19] Yeah, there's been a bit of, I wouldn't say dramatic price action, but [00:01:23] Easily like 30, 40 cent gains, right? [00:01:25] Which isn't bad. [00:01:26] I don't think necessarily the bearishness in the market was that justified to begin [00:01:31] with, [00:01:31] as we discussed, [00:01:32] I think, [00:01:33] in the last episode as well. [00:01:34] But I think we are seeing the outlook improve significantly now that people are [00:01:40] realizing what this year is shaping up to be. [00:01:42] Though I would like to also issue a correction at the start of this episode. [00:01:47] Last time we talked about Norway actually canceling a lot more geos in the last [00:01:52] calendar year than the previous one. [00:01:54] While this was correct, it wasn't the complete full picture. [00:01:58] And now that we have the residual mixed data and we have the full picture of [00:02:02] everything, [00:02:02] we do know that Norway actually ended up consuming less guarantees of origin than [00:02:07] last year. [00:02:08] which is frustrating and annoying. [00:02:10] And then you look at what their government has been doing and it's even more [00:02:14] frustrating and annoying. [00:02:15] I think that's a new record for us being sidetracked by talking about Norway. [00:02:18] It's been two minutes and 41 seconds. [00:02:20] But you have to keep in mind, [00:02:23] like the guarantees of origin market is driven by primarily two factors, [00:02:27] the biggest exporter and the biggest importer. [00:02:30] So the biggest exporter is Norway. [00:02:32] They make up like one fourth of the total exports in the market. [00:02:36] And the biggest importer is Germany, [00:02:38] which makes up significantly more than one-fourth of the imports. [00:02:42] So all of these factors together, [00:02:45] those are really the countries you need to keep your eye on in order to understand [00:02:49] how the supply and demand dynamics are shaping up. [00:02:52] And what we have seen from Norway recently is a ramping up of the rhetoric of, [00:02:58] hey, [00:02:59] our grid is so green, [00:03:00] guys, [00:03:00] our electricity is so green. [00:03:04] We don't really want to leave the guarantees of origin system, [00:03:08] but we just want to degrade it while we make money off of it. [00:03:11] So the current approach that we've kind of been running is, [00:03:14] hey, [00:03:14] all of our local companies, [00:03:16] please just look at grid averages. [00:03:18] Just look at grid averages. [00:03:19] It's fine. [00:03:19] Like we're producing so much renewable energy. [00:03:22] Yeah, [00:03:22] producers, [00:03:23] if you want to sell guarantees of origin elsewhere, [00:03:26] we don't really use them internally. [00:03:29] If you have to, for some other compliance reason, you can do it. [00:03:33] But we won't make you. [00:03:34] It's fine. [00:03:35] On emissions accounting, you can use the... [00:03:38] grid averages while everybody else uses the market-based one. [00:03:41] So functionally, [00:03:43] they are really lobbying hard for making the most money out of the system, [00:03:49] destroying the system, [00:03:51] actively working against the system that's making the renewable energy producers [00:03:55] money. [00:03:55] It's like institutionalized double accounting, right? [00:03:58] But my question is, why does everybody else allow it to happen, right? [00:04:01] It's a very good question. [00:04:03] And honestly, that's the frustrating thing about how the market works. [00:04:07] Ultimately, it is a sort of political construct. [00:04:10] So while we do have the AIB, [00:04:13] the Association of Issuing Bodies, [00:04:15] who should be the watchdog and the police for these kind of things, [00:04:18] I mean, [00:04:19] they do have rules about these kind of things. [00:04:21] It doesn't feel like they're particularly well equipped to deal with this kind of [00:04:26] an approach or to police really this kind of behavior. [00:04:30] Because ultimately what this is packaged as is sort of like a political position. [00:04:34] Guarantees of origin in the Norway government opinion is just for consumer disclosure. [00:04:39] So if you have a consumer and they want basically renewable energy into their [00:04:43] house, [00:04:43] like, [00:04:44] you know, [00:04:44] then you can do it. [00:04:45] But if it's a corporation, no, no, no, whatever. [00:04:48] It's fine. [00:04:49] Like, don't think about it too hard. [00:04:52] But is this messaging actually quite explicit by the Norwegian government? [00:04:55] Like if we looked it up, we'd have to find it. [00:04:57] Oh, yeah. [00:04:58] So they recently issued a press release. [00:05:02] But what the press release essentially said was that they plan on even lobbying [00:05:06] other governments now to make location-based emissions reporting more common and [00:05:13] that they will push for it more. [00:05:15] So we are seeing this kind of a movement, which is frustrating, to say the least. [00:05:22] So what the press release is titled is New Measures to Preserve Norwegian Renewable [00:05:27] Energy as a Competitive Advantage for Businesses. [00:05:30] What that essentially internally says is that we think location-based emissions [00:05:34] reporting is really dope, [00:05:36] but because we don't really want our producers to stop making money off of selling [00:05:41] the renewable attributes, [00:05:44] we'll just have both at the same time and just degrade the system. [00:05:49] Yeah, that's the thing. [00:05:50] It's like if they were totally full location based and the criticism of market base [00:05:54] came with the acknowledgement that they were going to leave and they don't want to [00:05:57] deal with it anymore, [00:05:58] then that would be fine. [00:06:00] No, that's a very reasonable. [00:06:02] Exactly. [00:06:02] That would be a very reasonable thing to do. [00:06:04] Just like leave the system. [00:06:06] You can like very credibly make claims about your renewable energy now. [00:06:09] Like there's no double counting issues. [00:06:11] Everything solved. [00:06:12] It's very green. [00:06:12] But up until they do that... [00:06:14] They're currently playing both games at the same time and it's to the detriment of [00:06:19] everybody else playing this. [00:06:21] Yeah, guys, we need to talk about Norway. [00:06:23] Let's make that a trend. [00:06:24] I'm going to make an article with the title. [00:06:27] Yeah, guys, we need to talk about Norway. [00:06:30] We need to talk about Norway. [00:06:31] Obviously, you mentioned looking at Germany. [00:06:33] Did that have a role to play in the sort of price action that we've seen so far? [00:06:37] Yeah, [00:06:37] so one of the important things you need to understand about Germany is that while [00:06:42] everybody else for their 2024 energy disclosures, [00:06:46] so essentially like what percentage of guarantees of origin did they use, [00:06:50] like where did the energy come from, [00:06:53] all of this. [00:06:53] So most places do this by end of March. [00:06:56] So... [00:06:58] March is the deadline. [00:06:59] End of March, they have a pretty clear picture. [00:07:02] Somewhere in April, things start getting a bit clearer. [00:07:05] In May, things are rather clear. [00:07:08] And essentially, we have an idea of what's happening. [00:07:11] But the thing is, Germany... [00:07:14] Germany's disclosure deadline for 2024 is actually in the end of June. [00:07:19] So that's very unusual. [00:07:21] They have this separate time schedule for how everything plays out. [00:07:25] It used to be, I think, even later into the year, they've moved it up. [00:07:28] It's in the middle of the year. [00:07:30] And it's kind of awkward from that perspective. [00:07:33] Because, well, they just have a different schedule of things. [00:07:37] And this ultimately means that you see more market activity from the German energy [00:07:42] market somewhere in June. [00:07:44] instead of seeing it with the rest of the market somewhere in March. [00:07:48] Is the fact that this deadline is different, [00:07:49] does that have anything to do with the fact that Germany is the biggest consumer? [00:07:52] Or is it just purely coincidental? [00:07:54] I think that's coincidental. [00:07:56] Germany has pretty reasonable systems in the sense of you can't use 2024 GOs for [00:08:03] 2025 consumption. [00:08:06] So they have that yearly matching system happening that many countries don't. [00:08:11] Generally, like a lot of the market activity, you'd expect to be around the 2024 GOs as well. [00:08:18] But what we did see is that utilities and consumer-facing electricity providers [00:08:25] also hedged their bets and just made sure that they're protected against the market [00:08:28] movements. [00:08:29] Because ultimately, [00:08:30] what we're seeing this year is that we, [00:08:32] in Europe, [00:08:33] have produced somewhere between 8% to 9% less renewable energy so far than we [00:08:39] produced last year up to this time frame. [00:08:41] So we are around 50 terawatt hours behind right now. [00:08:45] That's interesting. [00:08:46] And I think... [00:08:47] It's a sticky place to be when you're in an environmental commodities industry like [00:08:52] EACs, [00:08:52] because if your revenue relies on EACs being higher in price, [00:08:59] then it's a bittersweet feeling when renewable production is less. [00:09:03] But at the same time, you remember that this tool is designed to be elastic, right? [00:09:07] The reason the price is high is because you want to incentivize renewable production. [00:09:10] So we all have a stake in making sure these markets work efficiently and correctly. [00:09:15] Yeah, exactly. [00:09:16] From the perspective of a new producer coming in, [00:09:20] the funny thing about renewable energy production is that when the sun is shining, [00:09:24] the sun is shining to all of your neighbors as well, [00:09:27] right? [00:09:27] Like ultimately, [00:09:28] if you have solar panels, [00:09:30] solar panels have this tendency of what's called cannibalizing the demand. [00:09:35] So essentially, everybody's all trying to service the same demand. [00:09:38] So ultimately, there do come these like hard limits of [00:09:43] okay this is about as much renewable energy production of that kind that can exist [00:09:48] in this area before we have good options of storing this uh storing this [00:09:54] electricity and batteries right yeah in in some sort of storage solution i mean you [00:10:00] mentioned it was very sunny in estonia i think a week ago and you said uh you know [00:10:03] electricity is basically free right like yeah crazy [00:10:09] Yeah, essentially, in Estonia, I have this joke of like, oh, look, the sun's shining. [00:10:14] That means electricity is like 100% free. [00:10:17] Turn on your AC, like everything's fine. [00:10:19] The situation we're in, [00:10:21] in like many areas of the world, [00:10:23] and I think this somewhat plays a role in also why we're seeing a bit of less [00:10:29] production than we were seeing last year. [00:10:32] Obviously, there's a lot of factors to this, actually. [00:10:34] Part of this is that even on hydro, [00:10:36] we've been underproducing last year's levels, [00:10:39] which I think to many was perhaps unexpected because of how full we've seen the [00:10:47] Scandinavian hydro reserves be for the last year. [00:10:52] They've been significantly above average fields. [00:10:55] But now they're coming more down to this average. [00:10:59] We're 5% above historical averages at this point, which isn't. [00:11:02] And at the same time, [00:11:04] the prediction is we're heading into a very dry, [00:11:07] very warm, [00:11:09] very hot summer. [00:11:11] So all of these things together, [00:11:13] we're expecting hydro production to be down compared to last year. [00:11:17] We're expecting that reserves to get eaten away at a bit more. [00:11:23] And the whole picture altogether is that we're expecting renewable energy [00:11:28] production to lag behind last year's levels this year, [00:11:32] which does have positive impacts on the guarantees of origin market in the [00:11:37] bittersweet way you described before. [00:11:39] But my understanding about hydro in Norway is it's not the entire country that gets analyzed. [00:11:43] And you have to look at also the distribution, right? [00:11:46] Am I correct in thinking that? [00:11:47] Yes. [00:11:47] So a lot of these reserves are currently in the northern parts of Norway. [00:11:53] So the southern parts aren't nearly as full, to my understanding. [00:11:57] So Norway has multiple bidding zones, so electricity prices in general. [00:12:02] And because of that, the dynamics are a bit different since... [00:12:06] there is a long distance the electricity needs to travel to get to where it needs [00:12:11] to go that affects the unit economics of it that affects how reasonable it is to [00:12:16] actually start emptying your reserves deep in northern Norway if demand is coming [00:12:22] somewhere in a very southern part of the country or perhaps even [00:12:29] moving through the transmission lines down to mainland Europe, [00:12:34] you know, [00:12:35] these central European countries. [00:12:38] Now let's talk about demand, right? [00:12:40] I mean, we've just gone over all of the things that are impacting supply in the short term. [00:12:44] Where do you see demand going? [00:12:46] So one of the things that we need to keep in mind is that we're now entering this [00:12:51] period of time where trading volumes are generally a bit lower. [00:12:54] There's just less parties trying to sell their supply. [00:12:57] There's less parties buying that supply. [00:13:00] There's just less activity in the market. [00:13:02] And that's not necessarily bad. [00:13:05] That's not necessarily good. [00:13:07] It just means that we can expect to see a bit more volatility as the liquidity is lower. [00:13:13] So there's less parties trying to buy and sell. [00:13:16] That means at any point in time, [00:13:17] finding the right buyer, [00:13:19] finding the right seller that's willing to do something at a certain price, [00:13:22] it's lower. [00:13:23] So because of that, [00:13:24] we might see a bit higher swings in the market in either direction during this [00:13:29] time. [00:13:30] But what we are seeing... [00:13:32] Yes. [00:13:33] But what we are seeing is that because there's so much uncertainty about how the [00:13:38] rest of the year is going to play out, [00:13:40] and this is going to be one of these years, [00:13:43] by all indicators we're looking at, [00:13:45] this is going to be one of these years where we have a record-lowering [00:13:50] of the general oversupply that we have in the guarantees of origin market. [00:13:55] The guarantees of origin market historically quite oversupplied. [00:13:58] There's like hundreds of terawatt hours of guarantees of origin that just [00:14:02] essentially get rolled over in a very [00:14:06] complicated way. [00:14:07] But this is going to be one of these years where we actually chip into that quite significantly. [00:14:13] And I think that's going to be a very positive development. [00:14:16] What we do see is that there's a lot of uncertainty on demand side of where the [00:14:20] prices are going to go because of this. [00:14:22] And because of that, [00:14:23] we might see a bit higher interest in hedging their bets and making sure that [00:14:29] they're not caught out in [00:14:31] If there is more liquidity contraction and people get a bit more spooked and [00:14:35] worried that there isn't the right guarantee of origin for them available at the [00:14:41] time where they finally need it. [00:14:42] So just to summarize, July and August are pretty much always typically super low volume. [00:14:47] And now that's kind of compounded by the fact that all of the compliance related [00:14:50] deadlines are behind us. [00:14:52] Yes. [00:14:53] So we're essentially working towards the 2025 compliance deadline now instead of [00:14:59] the 2024 one, [00:15:01] which we've been doing so far. [00:15:02] In the guarantees of origin market, [00:15:04] you can use guarantees of origin for last year's consumption a bit later than the [00:15:10] end of the year. [00:15:11] So there's this couple of months at the end where you usually do all of the market [00:15:15] activities that you still need to do. [00:15:17] That time is now over. [00:15:18] The market has done this already, and now we're looking towards the future. [00:15:23] So we're thinking about 2025 compliance. [00:15:26] What's going to happen when we have the next compliance deadline? [00:15:29] Do we have all of the guarantees of origin we'll need? [00:15:32] Are we properly spread out in terms of our risk? [00:15:36] Are we hoping too much that the prices will be a certain way once it reaches that point? [00:15:41] Or do we want to deal with part of that question right now? [00:15:45] And when it comes to 2025 vintage positioning, does that usually happen around Q4? [00:15:50] That happens generally around Q4, [00:15:53] but we do see that activity happen all across the year, [00:15:56] actually. [00:15:58] So you usually see the current vintage really come into its own and really take [00:16:03] over the spot trading activity exactly after all of these compliance deadlines have [00:16:07] passed. [00:16:07] Going to generally expect the 2024 vintages to now start [00:16:11] They're going through their end of life procedure where people just try to get rid [00:16:16] of them at whatever price possible because they are going to expire soon. [00:16:19] At some point, you're just not going to be able to trade them anymore. [00:16:22] You're going to want to get them out of your inventory. [00:16:24] You're going to want to rotate it. [00:16:26] Okay, nice. [00:16:26] So I think a topic that we first saw in our last market outlook was the kind of [00:16:30] discussion around new use cases for Geos, [00:16:33] especially with like state qualification for aid and subsidy. [00:16:36] I think Italy was a good example of that. [00:16:38] Has anything changed in that sort of area? [00:16:40] Well, [00:16:40] we still continue to see this development of certain subsidy schemes that you can [00:16:46] only benefit from if you are using some percent of renewable energy. [00:16:50] So there are quite a couple of countries that have some sort of this subsidy scheme [00:16:57] for their industries. [00:17:00] So that's definitely continuing. [00:17:02] But on the other hand, [00:17:03] we do need to keep in mind that on the European Union level, [00:17:07] the discussions on CSRD aren't necessarily very bullish for the guarantees of [00:17:12] origin market, [00:17:12] which is also why I think we don't see such a highly pronounced forward curve as we [00:17:18] did perhaps at some point. [00:17:20] Like, [00:17:21] if you try to sell 2026 or 2027, [00:17:25] the difference between those is going to be a bit less, [00:17:28] I think, [00:17:29] than we saw previously in terms of how this premium was getting priced in. [00:17:34] Interesting. [00:17:34] Because there is uncertainty. [00:17:36] There's a bit of uncertainty of how fast the demand is going to grow. [00:17:40] Because... [00:17:41] The discussions that we're seeing right now are going to limit the scope of how [00:17:46] many companies actually have to do all of the CSRD reporting. [00:17:50] And that's getting delayed. [00:17:52] That's getting renegotiated. [00:17:56] What's getting put into those reports is getting renegotiated. [00:18:00] It's getting streamlined. [00:18:01] So a lot of these discussions are happening right now. [00:18:04] There's nothing final. [00:18:06] But we do see... [00:18:07] what feels like an inevitable conclusion that CSRD is going to get weakened to some extent. [00:18:14] And what it looks like right now is that we're going to see significantly less [00:18:18] companies overall having themselves to comply with this. [00:18:23] But it's not all doom and gloom. [00:18:26] And I'd like to explain why it's not all doom and gloom. [00:18:29] So when you are one of these large corporations that has to do emissions reporting, [00:18:33] you generally have to force that down your supply chain to some bigger or smaller [00:18:39] degree. [00:18:40] As a consequence of that, [00:18:41] if you're a very large corporation, [00:18:44] even if you don't fall under the CSRD requirement, [00:18:47] you still might have... [00:18:49] kind of upstream from you organizations that do have those requirements and then [00:18:54] demand that you follow them to some extent as well. [00:18:57] I think we're going to take a big loss when it comes to transparency on these kind of things. [00:19:03] I don't know if we're necessarily going to see that big of a loss in terms of demand. [00:19:07] We'll see. [00:19:08] Do we have the numbers? [00:19:09] I think last time we spoke about CSRD, we understood... [00:19:12] what was at stake, right? [00:19:13] We had the kind of speculation on the timeline purely because things moved through [00:19:17] the EU at the speed of government, [00:19:19] as we like to say. [00:19:21] But yeah, did you know the numbers? [00:19:23] Yes, [00:19:24] we have seen some numbers which essentially have estimated that while right now, [00:19:30] the expectation is that around 50,000 companies need to do CSRD reporting. [00:19:37] That number is going to get cut down to around 10,000. [00:19:40] So that's an 80% reduction in scope. [00:19:43] But it is going to keep affecting the largest, biggest organizations. [00:19:47] So these would be over 1,000 employees and over 450 million euros in turnover. [00:19:55] So the threshold is quite high because previously the lowest bar was 250 employees [00:20:02] or 40 million euros of turnover. [00:20:06] So the general scope is going to go down. [00:20:09] But I don't think that's necessarily the end of the world. [00:20:13] It is just a bit disappointing. [00:20:17] Yeah. [00:20:17] I mean, I'd like to reiterate the point. [00:20:19] I think I made it in the last episode as well. [00:20:21] It's like one of the benefits of reducing the scope is you then, [00:20:25] I mean, [00:20:25] if the political willpower is there, [00:20:27] you have a much more tightly defined category of the people who you already know [00:20:30] are the biggest emitters, [00:20:31] right? [00:20:31] Especially if they're the largest companies. [00:20:33] So if there is the willpower to, [00:20:35] you know, [00:20:35] make more use cases for Geos, [00:20:37] then it's easy to apply it without also affecting the small guys as well. [00:20:41] Yes, that is true. [00:20:45] I think also we really need to keep in mind that the CSRD does also deserve some [00:20:50] level of simplification. [00:20:52] I mean, [00:20:53] it's thousands of data points that from a compliance perspective, [00:20:56] I don't think it's necessarily in the most reasonable state right now. [00:21:01] I think it's a lot of work and I'm not necessarily sure everything that's being [00:21:05] collected is even useful for anyone particularly. [00:21:08] Do you want to give context on the amount of CSRD data you've been looking at yourself? [00:21:16] The funny thing is that we have somebody internally working on analyzing CSRD data, [00:21:20] and it's so non-standardized that we can't manage to throw everything into a single [00:21:26] structure, [00:21:26] even though it's almost prescribed on a EU level. [00:21:31] Not everything is as standardized and as specific as you might expect, [00:21:35] but there are hundreds, [00:21:40] if not thousands of data points, [00:21:42] and not all of these are even quantitative. [00:21:46] Some of these are qualitative, so they're just like subjective, not measured things. [00:21:51] They're just like, here's what we're doing about it. [00:21:56] All right, let's move on to talking about hydrogen. [00:21:59] So hydrogen, [00:22:00] I think we've had, [00:22:00] we've discussed it in the past from the standpoint of the criteria and how it [00:22:05] relates to guarantees of origin. [00:22:06] We haven't been too happy about, but it's been looking up, right? [00:22:08] So what do you think? [00:22:10] Yeah, I'm happy where this is going. [00:22:13] I guess we'll see how this plays out. [00:22:15] But there has been lobbying to relax these RFNBO requirements. [00:22:22] So previously, [00:22:23] we've discussed the fact that if you want to have green hydrogen, [00:22:27] it needs to be in the same neighborhood. [00:22:29] It has to be... [00:22:32] basically proven additional demand it has to be timed in like one hour increments [00:22:40] it has to have like a whole lot of things that the market is just not capable of [00:22:45] supporting in any meaningful way right now [00:22:48] on like a measurable level. [00:22:49] We just don't have the technological infrastructure to support this and there's no [00:22:53] ambition to create it. [00:22:55] So we're kind of in this strange state and there is some lobbying on the EU [00:23:00] parliament level of loosening these constraints and just having it be more [00:23:05] reasonable so you could actually buy guarantees of origin, [00:23:09] use them for the purposes of creating green hydrogen. [00:23:13] with less complex accounting around it because I don't think the current state is [00:23:19] something that the market is just able to support even as best effort. [00:23:24] It feels like something put together by a consultant who I'm sure had the best [00:23:29] intentions, [00:23:30] but the reality of things is if you are expecting things to move at the speed of [00:23:34] government, [00:23:34] you have to be pragmatic around where do you set the goalposts [00:23:41] And how do you make sure that goalposts can even be reached in a reasonable time? [00:23:45] Because if it is like, [00:23:46] hey, [00:23:46] we have this nice goalpost, [00:23:48] hey, [00:23:48] look at how nice the goalpost is, [00:23:49] but the goalpost is so far away, [00:23:51] you can't even see it, [00:23:52] then, [00:23:52] you know... [00:23:54] Who cares? [00:23:56] What is it going to do for you? [00:23:57] And I think you don't even have to be tapped into energy or even really [00:24:02] sustainability to understand the hydrogen. [00:24:04] It's been underwhelming. [00:24:05] And I think anyone can tell you that, even if they're not in the industry. [00:24:10] But the hope is, [00:24:11] if it does end up getting relaxed, [00:24:13] that can be quite a significant driver of guarantees of origin demand over time. [00:24:21] Especially as we figure out how to use these extremely low renewable energy prices [00:24:27] during certain parts of the day and actually take advantage of that more and [00:24:31] stabilize the grid. [00:24:33] I think that's a very positive outcome that we can have from hydrogen. [00:24:38] But, you know, we'll see. [00:24:39] Any ballpark figure for the demand increase, do you think? [00:24:44] Mm-hmm. [00:24:47] We've seen estimates going to hundreds of terawatt hours a year. [00:24:53] That's the best I can do. [00:24:56] Honestly, at this point, it more feels like tea leaf reading. [00:25:00] Honestly, hundreds of terawatts works for me. [00:25:03] You can stop talking now. [00:25:04] We'll leave it there. [00:25:05] Yeah, let's go for hundreds of terawatts. [00:25:07] If by 2030, [00:25:08] we'll have hundreds of terawatts of geo demand just coming from hydrogen, [00:25:12] I'd also be incredibly happy. [00:25:15] Yeah. [00:25:16] I think something to understand about the EU is that you have these high-level [00:25:19] directives and then things get transposed into national law and national policy, [00:25:24] right? [00:25:24] But as I understand, [00:25:27] you've identified that there's a divergence in certain national policies that's [00:25:31] impacting long-term [00:25:33] your, your kind of your opinions on the market. [00:25:37] It's complicated, right? [00:25:38] Because, [00:25:38] uh, [00:25:39] I, [00:25:39] I mean, [00:25:39] one of the interesting things that we did see at some point, [00:25:42] uh, [00:25:42] in this last quarter was, [00:25:44] uh, [00:25:44] French guarantees of origin got like an incredible premium on the market at some [00:25:48] point. [00:25:48] And then I, [00:25:49] uh, [00:25:50] I, [00:25:50] I've never looked too deep into the French, [00:25:52] uh, [00:25:53] geo market, [00:25:53] but then I found out that they actually have monthly, [00:25:56] uh, [00:25:56] matching when it comes to demand and supply. [00:25:59] Uh, so, uh, [00:26:01] I mean, [00:26:02] there are so much more reasonable ways of using guarantees of origin that I think [00:26:07] governments should adopt. [00:26:08] And on one hand, [00:26:10] we're seeing Norway go like, [00:26:12] no, [00:26:12] no, [00:26:12] we just use location-based and everybody else can count their renewable energy [00:26:16] against our geos and everybody's happy, [00:26:18] right? [00:26:19] While in Germany, we have this logic of, no, we need to go harder. [00:26:25] We need to do more. [00:26:26] We need to electrify faster. [00:26:28] We need to move our industry into using renewable energy. [00:26:32] We need to actually take advantage of the electricity prices, [00:26:35] and we need to make sure that we have the infrastructure to actually use what we're [00:26:40] putting out there, [00:26:40] right? [00:26:42] So I think there are multiple different ways governments are approaching this. [00:26:45] And personally, [00:26:46] I really just hope that on an EU level, [00:26:48] somebody gets the guts to just propose like, [00:26:51] no, [00:26:51] like 2024 geos for 2024 demand, [00:26:55] 2025 geos for 2025 demand. [00:26:57] That would be so reasonable. [00:26:59] I think we're going to reach a tipping point where it has to happen. [00:27:02] Speed of government. [00:27:03] Yeah, speed of government. [00:27:06] Like I'm not holding my breath. [00:27:08] I would suffocate. [00:27:10] I'm hopeful. [00:27:13] I am legitimately hopeful, [00:27:15] but these things take so long that it's like a generational timescale kind of [00:27:22] activity more than anything. [00:27:25] It's interesting you mentioned auctions because we haven't actually touched on [00:27:28] auctions this episode so far. [00:27:30] I think some context for listeners is that whilst you also have private entities in [00:27:35] the geo markets, [00:27:36] they coordinate auctions, [00:27:37] Sardar being one of them. [00:27:38] You also have governments, right? [00:27:39] And they get involved and they do things very differently. [00:27:42] Some of them said, [00:27:43] price floors that they're unwilling to go below and they try and control it. [00:27:47] And you also have governments who divvied up by region. [00:27:50] So you touched on France, [00:27:52] but it'd be nice if you can expand on how you see governments impacting trends more [00:27:55] broadly and how people who are interested in analyzing the geo market can kind of [00:27:58] look at government auctions. [00:28:00] Yeah. [00:28:00] So the French auction is, [00:28:02] I think, [00:28:02] one of the most reliable in the market in terms of they move nice, [00:28:07] good amounts of volume. [00:28:09] The last auction... [00:28:11] was a very good indicator. [00:28:14] For example, they put a lot of terawatt hours onto the market. [00:28:18] The market responded positively. [00:28:20] Prices actually ended up going up. [00:28:21] There was more buying interest. [00:28:23] There was more trading interest. [00:28:25] At the same time, we have another relatively big auction, which is the Italian one. [00:28:30] But the Italian one just feels like a problematic series of events that never seem [00:28:37] to play out just how they are expecting it to. [00:28:41] They set price floors that make the auction fail at least partially. [00:28:45] They go like, no, no, I'm not selling you any of my expiring geos. [00:28:48] Like, these are premium expiring geos I'll have, you know. [00:28:51] They're going to... [00:28:53] I would rather have him expire than you give me a couple of sets. [00:28:56] Yeah. [00:28:56] So we have seen like an unreasonable amount of guaranteed version end up actually [00:29:03] just dying from that. [00:29:05] So what does their residual mix look like in Italy? [00:29:07] Is there significant amounts of expired geos that go into there making it renewable? [00:29:12] That's a good question. [00:29:13] I don't have the residual energy mix in front of me right now. [00:29:18] You do also need to keep in mind that it does get spread out over the market a bit more. [00:29:23] Okay. [00:29:24] Due to just how everything moves around in the market. [00:29:27] So the residual energy mix does take into account how the geos are moving in and [00:29:32] out of the market. [00:29:33] But... [00:29:36] The thing about Italy specifically is that they ended up being a net importer, [00:29:40] I think, [00:29:41] as perhaps a market surprise to everybody, [00:29:44] mostly because of just how their options were unable to fill out the demand that [00:29:49] was in the market. [00:29:51] Gotcha. [00:29:53] All right, [00:29:54] so now onto the kind of second part of our long-term market drivers, [00:29:58] which we kind of call like the structural demand growth. [00:30:02] So that kind of looks at things like corporate momentum. [00:30:05] So yeah, why don't we start there? [00:30:07] We touched on CSID a little bit, [00:30:09] but you think there's kind of broad implications for Scope 2 that are happening? [00:30:13] Yes. [00:30:14] So what we have seen in CSRD reports, [00:30:18] now that we're out, [00:30:18] now that we can read them, [00:30:20] we have been processing them on our own as well. [00:30:24] I think the podcast might get an episode soon about the results, actually. [00:30:29] But we've been analyzing the CSRD reports. [00:30:33] We've seen other organizations analyzing them. [00:30:36] And the reality is that a lot of them are using Guarantees Origin. [00:30:39] It's pretty clear and explicit from the data. [00:30:44] So we're quite happy to see that. [00:30:47] We're quite happy to see their disclosed targets on climate. [00:30:52] And we don't necessarily see those commitments significantly reversing over the [00:30:58] next couple of years. [00:30:59] So demand in 2024 was up. [00:31:04] CSRD reports clearly show guarantees of origin usage and PPA usage and actual [00:31:12] interest by corporations of using renewable energy. [00:31:17] That's generally, [00:31:18] I would say, [00:31:19] positive, [00:31:20] even though you do have to keep in mind that these CSRD requirements are being [00:31:24] weakened a bit and that will have some sort of an impact. [00:31:26] I just don't think it will have as big of an impact as people assume it will. [00:31:31] Yeah, it's so interesting. [00:31:33] This could go either way, right? [00:31:34] So, [00:31:34] I mean, [00:31:35] I'm leaning towards agreeing with you that CSOD isn't as necessarily as [00:31:40] catastrophic as people think it is with the changes. [00:31:42] Yeah, exactly. [00:31:44] Because it gets passed down the supply chain. [00:31:46] Ultimately, that's what it comes down to. [00:31:49] There's quite an aggressive push in the whole supply chain of doing something about it. [00:31:54] And you ultimately see that materialize in various ways. [00:32:00] Many of them just being, hey, let's electrify more of our industrial process. [00:32:04] Let's get some more furnaces. [00:32:06] Let's get some electrolyzers. [00:32:08] So it's kind of like a cascading effect, right? [00:32:10] Down the supply chain. [00:32:12] Okay, so finally, and I'm sure lots of people are waiting for this, forward markets. [00:32:17] We spoke a little bit about how you think that 2026 and 2027 might not perform as [00:32:23] well as we have seen them do in the past. [00:32:25] Is that the forward curve declining? [00:32:26] What do you think is happening? [00:32:29] So the forward curve is still pretty strong in the sense of 2026 geos are valued at [00:32:36] 50% premium above 2025 geos right now. [00:32:40] So there is a willingness to lock in that certainty for next year for a lot of organizations. [00:32:47] And I think we're just looking at the general price right now and going like, [00:32:50] well, [00:32:50] this isn't that bad, [00:32:52] right? [00:32:54] you'd lock in 1.5 euros if your expectation is that it might go up to 3 or 4. [00:33:00] On the other end, [00:33:01] from a producer perspective, [00:33:03] you'd lock in 1.4 euros if your expectation is that it might go to zero. [00:33:07] But there is a pretty healthy supply and demand dynamic that's giving a relatively [00:33:14] good premium over the spot prices for 2026 right now. [00:33:17] And we're seeing a small premium on top of that for 2027, [00:33:21] a smaller premium even than that for 2028. [00:33:25] But the near future kind of forward purchases of 2026 seems to be the sweet spot of [00:33:31] you get a pretty significant premium for that compared to spot prices. [00:33:36] And the market does seem to be pricing in an expectation that this oversupply will get better. [00:33:44] that there will not be this much circulating infinite supply in the market for [00:33:50] older vintages as time goes on. [00:33:53] Is it worth talking about the demographics of who's actually interested in forward markets? [00:33:58] My understanding is it's mainly utilities who are trying to hedge their future [00:34:04] potential positions. [00:34:06] Part of this is utilities. [00:34:09] Utilities is definitely a big part of it, [00:34:11] because you have to keep in mind that all of these utilities selling consumer [00:34:15] products, [00:34:16] such as we bring renewable energy to your home, [00:34:19] they don't necessarily follow the market price when it comes to what they charge [00:34:24] for that service, [00:34:25] right? [00:34:25] They don't say like, [00:34:26] oh, [00:34:26] guarantees of origin were like one euro today, [00:34:30] so we're going to charge you one euro and 10 cents. [00:34:33] They're more likely going to be like, [00:34:35] yeah, [00:34:36] this is a service that costs five euros per megawatt hour. [00:34:40] It's what we're offering, take it or leave it. [00:34:43] If you're a consumer, that's what it costs. [00:34:47] And ultimately, [00:34:48] because of that, [00:34:49] they do want to spread this out a bit more and make sure that they can hold on to a [00:34:55] healthy premium on what they're doing over there. [00:34:58] So... [00:34:59] The renewable part of the renewable energy package that they're selling, [00:35:04] it does lend itself quite well to just making sure that they're hedged and averaged [00:35:10] out enough that whatever price they're offering the service at, [00:35:13] they make money off of it. [00:35:16] So you're saying that even at like 50% premiums, [00:35:20] they're looking at it and they're thinking, [00:35:21] well, [00:35:22] this still works for us because it's worse than, [00:35:25] I mean, [00:35:25] it's better than there not being any supply available when we need it. [00:35:28] Yeah, exactly. [00:35:29] It's better than being in a situation where there's a price shock, [00:35:33] there's some sort of a liquidity squeeze, [00:35:35] and hey, [00:35:35] look, [00:35:36] suddenly you're not making money off of selling renewable energy. [00:35:40] A lot of these packages aren't priced based on some sort of a market price, [00:35:45] because in the geomarket, [00:35:47] everything's so over the counter that there's not necessarily that kind of a thing [00:35:52] available to everybody at any given moment, [00:35:54] right? [00:35:56] So from that perspective, [00:35:58] you just want to make sure that you're making money off of the renewable energy [00:36:01] that you do so. [00:36:02] And that comes down to making sure that you have your supply and demand locked in. [00:36:07] I think the final forward market signal is kind of like this infrastructure evolution. [00:36:13] You're going to have to lead on that one. [00:36:14] Because when I hear infrastructure evolution, [00:36:16] I hear another long conversation about granularity that nobody needs to hear again. [00:36:20] No, we're not talking about granularity this time. [00:36:25] But we are seeing a couple more governments come out with their own auctions. [00:36:31] I think Bulgaria is one of them. [00:36:33] There are a couple more auctions coming into the market. [00:36:36] Yeah. [00:36:37] I'm happy always to see these kind of things. [00:36:39] I don't think they all necessarily will end up working, [00:36:42] but if we do see some increased liquidity, [00:36:45] I'm happy with that. [00:36:46] And there's just more venues. [00:36:49] And I'm not sure if more venues is necessarily what we need, [00:36:52] but that seems to be where things are heading. [00:36:54] While at the same time, at Soldera, we're... [00:36:56] more focused on making sure everything's interoperable and you can move things [00:37:00] around and you can get it from one country, [00:37:03] use it in another, [00:37:04] make everything super streamlined, [00:37:06] make everything very convenient. [00:37:09] So that's generally where we see the market going. [00:37:11] While there are these kind of menus that fragment things, [00:37:15] we are trying to work exactly in the opposite direction. [00:37:18] We want to make sure everything's nice and interoperable, easy to access, easy and convenient. [00:37:25] extremely well I think it's not that the new venues are trying to fragment things [00:37:29] it's the fact that there are new venues all the time that is the fragmentation in [00:37:33] itself right yes exactly like that's a consequence of them seeing that the market [00:37:39] is what it is but the reality of it is that the [00:37:43] the market is in this shape for a reason. [00:37:46] And the reason ends up being that the liquidity is weird over here. [00:37:49] Like a guarantee of origin for one organization might be worth a different amount [00:37:54] to another sometimes. [00:37:56] The exchange kind of model gets a bit complicated to manage. [00:38:02] you need the right buyer in the right place at the right time to make those kind of [00:38:05] things work. [00:38:06] And they necessarily, [00:38:08] the right seller and the right buyer are not necessarily on the same venue at the [00:38:11] same time in this market. [00:38:14] Gotcha. [00:38:14] Gotcha. [00:38:16] Well, [00:38:16] we usually wrap up talking about forwards and how Solera can help people who are [00:38:19] interested in forwards. [00:38:21] But you also just spoke a little bit about now about virtual accounts and kind of [00:38:25] our long-term plans. [00:38:26] So I don't know, which of those two features would you like to just quickly promote at the end? [00:38:31] Yeah, so we can talk a bit about our future plans right now. [00:38:35] One of the things that we're actively working on is making sure that if you need [00:38:41] registry services in one country and you need to cancel something in one country or [00:38:47] another and you need help or services with that, [00:38:50] we're actively... [00:38:52] working on solutions to service you, to make it very easy and simple for you. [00:38:57] So if that is something you're interested in, [00:38:59] if you'd like to handle all of the geos across all of your countries in a [00:39:05] streamlined point-and-click kind of way, [00:39:08] get in touch with us. [00:39:09] Let's see if we can help you. [00:39:10] Awesome. [00:39:12] All right. [00:39:12] Well, I think that's a great place to wrap with our Q3 outlook. [00:39:15] As a reminder, [00:39:17] a full formal report with all of the data we have is available inside the Soda app [00:39:21] for our members. [00:39:22] But other than that, yeah, thank you very much, Al, and catch us in the next one. [00:39:26] All right. [00:39:26] Cheers. [00:39:26] Bye.