(Montel) Prices for guarantees of origin (GOs) in Europe will struggle to recover in 2021 and could decrease further, particularly if bearish weather-related fundamentals and uncertainty post-Brexit continue to weigh, market participants told Montel this week.
Prices on GOs from Nordic hydropower generated this year – an industry benchmark— were last seen at EUR 0.28/MWh, according to the Green Power Hub.
Traders said they expected prices for 2021 to remain range-bound between EUR 0.25/MWh and EUR 0.30/MWh, although a similar trajectory to last year was likely.
Last year, GO prices from Nordic hydropower collapsed by around 70% to EUR 0.10/MWh, as exceptionally wet weather boosted hydropower supplies in the Nordic region.
Prior to this, French auctions for GOs flooded the market, later compounded by the expectation that the accession of new member states to the Association of Issuing Bodies for GOs (AIB) would add to the oversupply.
Auctions for GOs and the prospect of tumbling prices continued to hamper liquidity, reflected in a wide bid and offer spread for the 2021 product.
“Of course, why buy now when I can wait a week or two if I think prices will fall?” one trader said.
While a market consensus emerged that GO prices for 2021 would fall, buyers bidding for large volumes could sporadically bump up prices and the downward spiral could be halted by weather-related fundamentals.
“The decline in prices might be slowed down by a continued cold and dry spell in the Nordics, as we would then see lower output from hydro and wind alongside increased electricity demand. However, for the time being we do not see this changing the market substantially,” Kristian Gjerlov-Juel, director of power asset management at Centrica Trading said.
The recent trade deal between the EU and UK averted a hard Brexit but the system of mutual recognition governing the flow of GOs between the two remains shrouded in uncertainty.
UK certificates are no longer accepted in the EU while the UK government reiterated its intention to review the system to ensure domestic recognition takes place on a reciprocal basis.
A UK ban on EU certificates, should the system of mutual recognition break down, would remove a significant buyer for European GOs and potentially add up to 60 TWh to the market further depressing prices.
“Many of our members are still unsure about future procedure. The way forward is still unclear and it’s challenging,” Adam White, director of industry lobby group Recs International told Montel.
For its part, Statkraft UK, which operates an onshore wind portfolio of more than 2 GW in the UK, said it “has been duly assessing different Brexit scenarios. We feel well prepared to handle whatever regulation will be in place”.
Additional reporting by Rachael Burnett and Enza Tedesco