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French GO auction is a “market distortion” – Becour


11 Apr 2019 14:30


11 Apr 2019 14:30

(Montel) European firms active in the guarantees of origin (GO) market have expressed concern over the new French auction system, in particular plans to introduce a price floor.

“The auction is a distortion to the market. As it is a pay-as bid auction, it will attract traders with speculative purposes exploiting the inefficiencies of the auction by arbitrating between the settled price,” said Hans Petter Kildal, CEO of Becour, a Norwegian consultancy.

“The French state is turning the GO into a commodity, which it isn’t,” he said.

In addition to disrupting the way GOs are currently traded, other market participants said that the plans by France to introduce a price floor is an unnecessary intrusion in the market. 

However, Paris has not yet published the final auction details.

Low price floor
“The impact of setting up a floor price, even more so decorrelated from the market price, has been challenged by market actors,” said Ivan Debay, CEO of Origo, a company which manages one of the largest portfolios of GOs in France.  

Should the floor be set too low, it could drive GO prices lower elsewhere in Europe, but if set too high it may drive away demand, experts said.

If France sold 45 TWh of GOs at auction and accounted for a depreciation period of five years to finance the auctions, it should not set the price floor higher than EUR 0.05/MWh, according to Origo. 

“If the ministry thinks even a GO price of EUR 1/MWh for 2019 [the current price of benchmark European GO prices] is too low, it may not accept the bids and the volumes could be recycled into the next auction,” said Thomas Eccard, head of environmental markets of Entelios – a part of Norway’s Agder Energi. 

The ministry said it would set the floor based on the cost of delivering GOs as well as managing the auctions – in addition to the estimated price of the GOs bought and sold in the OTC market, a spokesman said. 

“A [price floor] close to zero cost could destabilise the existing GO market,” he said.  

Few benefits
Yet, industrial companies may shun the auctions. 

“[Energy] suppliers may want to source GOs through the auctions, but the corporates will probably look elsewhere,” said Alexis Manuel, renewables manager at Belgian chemicals group Solvay, highlighting higher costs, a lack of predictability and traceability.

Under the new French system, renewable producers – wind, solar, thermal and hydro power – can choose between receiving GOs and no subsidies, or get financial support and then let the French state auction the GOs, with the revenues going to the economics ministry. 

Buyers would be able to select the technology and region in France from which they would receive the GOs, but they will not be able to select specific renewable projects. 

Paris-based exchange Powernext is scheduled to auction GOs on a monthly basis starting in September this year, based on the renewable generation three months ahead, with the first test auction scheduled for July.

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