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How changing EU regulatory frameworks will impact the market for GOs

sun is rising and the blog title about EU regulation and its impact on GOs

The Paris Climate Accord of 2015 (COP21) set the renewable energy transition on its present course, with 196 countries signing on to an ambitious list of measures that culminate in 2030. The EU has frequently captained the coordinated international response, launching major new regulatory initiatives to encourage and/or compel both producers and off-takers to get onboard.


Nine years later, Brussels’ carrot and stick approach has inaugurated three comprehensive regulatory regimes, extended adoption of a global standard for reporting greenhouse gas emissions, and triggered a parallel global push for voluntary sustainability disclosures from the private sector.


To measure progress against all these targets, production and consumption of renewable energy must be accurately tracked. EU regulators have gradually warmed to Guarantees of Origin (GOs) as a primary mechanism for achieving this. 

Any compliance regime evolves over time and the EU’s major rule books have already moved through different iterations – with more on the way. GOs are set to play an increasingly central role. 


In this extended blog we explain the major frameworks and coming changes that will influence the market for European renewable energy certificates in 2024.


TL;DR


  • Since COP21, EU regulators have been guiding the renewables transition with new rules, standards, definitions and reporting requirements

  • 2024 represents a point of regulatory convergence, with key EU sustainability regimes adopted by Brussels moving from enactment to implementation. Renewable energy certificates — called Guarantees of Origin (GOs) in the EU — are in the spotlight.

  • We look at the major frameworks, changes coming down the legislative pipeline, and consider how the procurement use cases for GOs could be impacted


The Renewable Energy Directive (RED III)


What it's about: 


The EU’s Renewable Energy Directive (RED) establishes renewable energy consumption targets that must be achieved by the bloc as a whole. RED III, the latest iteration, is the regulatory regime with the widest impact on the GO market. 


RED III and its associated European standard CEN-EN 16325 prescribe the format, content, time scale and validity of GOs, legitimising them further as a key instrument behind Europe’s renewable energy transition. They also put the EU on course for direct intervention in the GO market if future ‘imbalances’ are detected.


The first version of RED was enacted in 2009, setting a 20% target for the EU's gross final energy consumption to come from renewable energy sources by 2020. A revised directive (RED II) was enacted in 2018, upping the target to 32% of final energy consumption by 2030. RED III sets an overall renewable energy target for the EU of 42.5% by 2030.


key numbers in the revised renewable energy directive
Source: European Commission

Why it matters:


RED III includes measures designed to encourage the shift from annual to hourly-matched certificates. It clarifies the unit size GOs can be split into, setting a standard proportion of 1 MWh which can be issued in smaller fractions. 


Any fraction of the 1 MWh standard be a multiple of 1 Wh, a provision that could speed up the shift to GOs that have hourly, or even half-hourly timestamps. Adoption of these granular GOs will make it easier to correlate the purchase of clean energy to the actual time the energy was used by the business.


RED III also places time restrictions on GOs, limiting sale or purchase to within 12 months of ‘the production of an energy unit.’ Buyers will have 18 months to cancel (i.e. redeem) their GOs, after which they expire.


To facilitate these changes, Europe's Association of Issuing Bodies (AIB) is updating its European Energy Certificate System (EECS) framework to make it easier for national GO issuing bodies to create, transfer and redeem hourly certificates.


RED III also states the EU will monitor the GO market with the aim of ensuring its stability. The European Commission will make an assessment by June 2025, looking specifically at factors affecting the balance between supply and demand. How the Commission will conduct its analysis — or the actions it might take afterwards — have not been specified.


For hydrogen producers, RED III adds a ‘temporal correlation’ requirement. By January 2030, renewable hydrogen producers will need to match the electricity that they have purchased on an hourly basis in order for the hydrogen they produce to be considered green.


Under the current legislative schedule, EU member states are expected to enact RED III’s laws, regulations, and administrative provisions by May of 2025.  


Key takeaways:


  • RED III adds to the momentum for regulator-mandated hourly matching

  • The most recent update clarifies the quantities of power GOs can be split into

  • The AIB is updating its issuing framework to facilitate hourly GOs

  • Hydrogen producers must move to hourly matched GOs by 2030


'European and global policy frameworks are starting to reflect that increased accuracy is the only way forward. To be truly net zero in electricity, it's obvious we must match our demand with clean production every hour everywhere to ensure we are not fossil reliant.' – Killian Daly, EnergyTag

Green Claims Directive 


What it's about: 


Brussels’ proposed Directive on Green Claims is designed to stop companies from misleading consumers with false or exaggerated statements about their environmental record. Sometimes called the ‘greenwashing’ directive, EU policymakers want to establish a clear set of rules to ensure that companies verify and communicate any claims they make around sustainability.


Standards will be enacted and enforced to make sustainability claims legitimate, verifiable, and comparable across the EU. While the directive is still moving the EU's process of consultations and proposed amendments, its core provisions were approved in March 2024 and the directive is expected to be enacted into law by 2028 at the latest.


The driving principle of the directive is that any green claims made to be precise, scientifically verifiable and relevant to the company or product as a whole.  The directive will also levy penalties for misleading claims.


Why it matters: 


Under the directive, companies reporting levels of renewable energy consumption — for example, advertising that they are powered by 100% carbon free energy — will need to provide detailed and specific evidence to back up the claim. Auditors will review marketing and investor communications, financial reporting, and any sustainability reporting mandated by regulation.


While the final wording is still taking shape, regulators are seeking greater levels of proof for renewable energy and sustainability claims. Although annual and monthly matched GOs are still permitted as backup documentation under the current wording, it's safe to assume that the requirements for disclosures will expand. Regulators will continue to examine exactly where energy is sourced from, how much is used, and the mechanism used to match real consumption with renewable energy purchases. 


Companies will need to ensure that they are reporting accurately. For whatever portion of renewable energy a company procures via GOs, hourly-matched certificates could become a standard audit requirement for green claims in the future.


Key takeaways:


  • EU regulators want to eliminate bogus claims about the sustainability of products or business practices 

  • For renewable energy claims, the direction of travel is to expect greater levels of detail as backup

  • Expect regulators to mandate hourly matching when GOs are part of the clean energy procurement mix


‘The greenwashing directive promotes the environmental footprint method for making environmental claims, making GOs an integral tool of this life-cycle assessment methodology.’  – Mary Polovtseva, Renewable Policy Analyst at Veyt

Corporate Sustainability Reporting Directive


What it's about: 


The Corporate Sustainability Reporting Directive (CSRD) is a set of recently-adopted EU regulations requiring all large companies to publish regular reports about their sustainability and other ESG (environmental, social and governance) activities.


The CSRD replaces the previous Non-Financial Reporting Directive (NFRD) and defines a common reporting framework for non-financial data. The aim is to help investors, consumers, and regulators evaluate the non-financial performance of companies and encourage firms to work towards more sustainable operations. 


The CSRD nearly quadruples the number of companies required to report on sustainability, from 11,000 under  the NFRD to almost 50,000 under the CSRD. The first deadline for CSRD-compliant reporting lands on 1st January, 2025 for the 2024 financial year.


Why it matters: 


The CSRD expands the scope of the NFRD, which only required companies with 500 employees or more to submit sustainability reports. Under the new rules, any company with more than 250 employees and/or €50M in annual turnover, and/or €25M in total assets.


CSRD also raises the bar for reporting clean energy consumption by establishing additional criteria for claiming the use of renewables to reduce emissions. The directive makes it explicit that contractual instruments – including GOs – are now mandatory for backing up any such claims.


Being located in a region with a high degree of renewable generation, for example, will no longer be enough to prove an organisation has been using clean power. The directive mandates that energy purchases will only be considered ‘renewable’ if the origin of the energy is clearly defined by a contractual arrangement.


Key takeaways:


  • By changing the company size requirement to cover smaller firms, the CSRD dramatically expands the number of organisations that must report their sustainable activities annually

  • For claims about the use of renewable energy as a way to reduce emissions, companies must provide contracts that identify the source of the energy purchased

  • When GOs are part of the procurement mix, hourly matched GOs will provide detailed and specific evidence that clean energy purchases and true consumption are in balance


'Granular certificates offer a more flexible — and potentially cheaper — alternative to decarbonise the last MWh of power.' – Bruno Brunetti, S&P Global

Greenhouse Gas Protocol


What its about: 


Established in 1990, the Greenhouse Gas Protocol (GHCP) provides standard criteria for the measurement and classification of greenhouse gas emissions and a common framework for greenhouse gas reporting. It established the ‘scope’ emissions categories (Scope 1, Scope 2, and Scope 3) used in EU and other regulatory definitions and sustainability reporting requirements.


Scope 1 refers to direct emissions from self generation. Scope 2 refers to the emissions a company contributes to indirectly through energy purchases from a utility company. Scope 3 emissions refer to indirect emissions from the vendors and partners in a company's supply chain.


Today, the GHG Protocol organisation collaborates with businesses, governments, industry associations, and NGOs to maintain and strengthen emission calculation guidelines globally. 


Why it matters: 


The protocol is in the midst of a review which could lead to significant updates, with draft standards released for public consultation in 2025, and final standards agreed in the latter half of 2026. Proposed amendments would see GOs and other renewable energy certificates brought further under the protocol’s umbrella, with recommended requirements for increased granularity in the time and location of Scope 2 data.


The GHG Protocol calls on organisations to report their emissions in two ways. The first is by a location-based methodology and the second is by a market-based methodology.


Location-based means knowing the emissions intensity of an off-takers local power grid and multiplying it by the firm’s total power use – an imprecise method tool that may not capture a business's bespoke procurement mix. A market-based method recognises that off-takers can procure power from specific types of generation, and enables those that do to focus emission reporting on the actual power generation they have purchased.


Europe’s RECS Energy Certificat Association has proposed greater emphasis on market-based reporting, as it affirms that off taker’s can actively choose to buy renewables and allows them to report their contribution to emissions reductions accordingly. This would strengthen the argument for granular GOs as a more precise instrument for backing up market-based reporting.


Proponents of these amendments say they want to see increased granularity in time and location of GOs to incentivise procurement strategies that support clean energy and decarbonisation.


Key takeaways:


  • Updates to the world’s measurement standard for global emissions and how they're reported will likely add to pressure for hourly matched renewable energy certificates

  • Protocol leaders want to see more granular matching of generation and consumption, with explicit recommendations for hourly timestamping of certificates

  • Adding location data to help encourage more local sourcing of renewable energy is also being proposed


The future: RED IV 


What it's about: 


As RED III moves toward final implementation, renewable energy stakeholders are already looking ahead to the next iteration of the directive, known colloquially as RED IV. With the 2024 European Parliamentary elections now complete, the EU is expected to publish its first proposal for RED IV in the first half of the current European political cycle, e.g. by mid-2027.


While the final timescale and focus of the updated directive will take shape in the coming months and years, RECS is already proposing a series of measures designed to strengthen the GO system.


Why it matters: 


RECS’ proposals for RED IV include a requirement for all corporate energy consumers to report the origin of all the energy they purchase. In practice this would mean that every organisation would need to gather information about all the types of energy they have paid for, renewable or otherwise.


Another recommendation is to reward companies that purchase renewable energy through reductions in VAT and/or other energy-related taxes. If enacted, it can be assumed that the EU and/or member states would set criteria for proving the nature and quantity of clean energy energy purchases, strengthening the case for hourly GOs.


RECS would also like to see a move to shorter disclosure periods; reducing the validity period of GOs, for example, from 1 year to 1 month. This would mean that organisations would need to buy GOs from production in July 2024 to cover consumption in July 2024. This change could align the GO market more closely with seasonal variations in clean energy generation, and push producers to generate enough clean energy on a monthly basis to address that month’s demand.


Key takeaways:


  • RED IV is only on at concept stage but already proposals are being made to build on the measures established in RED III

  • Making a stronger link between the time of energy generation and its consumption, and rewarding / incentivising companies for making renewable energy purchases are included in industry recommendations


Demand for hourly matching will re-shape the market for GOs


The cumulative impact of these changes can be expected to intensify demand for GOs and strengthen their place in the renewable energy mix.


Killian Daly, Executive Director of EnergyTag, told Renewabl that energy markets are seeing the emergence of a new and much more accurate definition of what it means to be clean powered.


"EU and indeed global policy frameworks are starting to reflect that increased accuracy is the only way forward. To be truly net zero in electricity, it's obvious we must match our demand with clean production every hour everywhere to ensure we are not fossil reliant.”


Mary Polovtseva, Renewable Policy Analyst at Veyt, believes the EU’s Green Claims Directive will have a direct impact on demand for GOs:


“The ‘greenwashing’ directive promotes the Environmental Footprint methods for making environmental claims, which steer companies towards tracked electricity use, making GOs an integral tool of this life-cycle assessment methodology, regardless of granularity. Depending on the implementation deadline, demand for GOs could rise from 2027 onwards."


Bruno Brunetti, Head of Low Carbon Electricity Analytics at S&P Global, sees evolving EU regulation and the arrival of 24/7 hourly matching dovetailing to make GOs more effective in helping firms reach net zero targets.


Corporations looking to reach 100% carbon free energy can achieve that now using annualised GOs and over-sizing clean energy purchases by tacking on storage or adding wind and solar plants. Granular certificates, however, “offer a more flexible, and potentially cheaper, alternative to decarbonise the last MWh of power”.


According to Brunetti: “In highly decarbonised power markets, it will become more important when renewables are generated. Granular certificates are another signal to reward and price flexibility of clean energy.”


Cost is going to become an even bigger consideration, he notes, as the price of hourly GOs “will move to a level that incentivizes more flexibility in demand or adds flexibility in terms of additional generation or storage.


“Hourly GO prices are likely to be highly volatile — or at least as volatile as hourly power prices. Hourly certificates will be trading at the annual GO price during periods of surplus renewable generation, while during periods of low renewables supply, the price will be high enough to limit consumption or enable additional flexibility solutions.”


Who will lead the way? Brunetti expects the certificate market in Europe to fragment, with sectors like hydrogen and big tech being early adopters of hourly matching. Annual certificates will continue to play a role, however,  “helping companies in earlier stages of their decarbonisation journey.”


Daly also points to hydrogen as an indicator of where EU regulation is likely to take us.


“The EU's green hydrogen rules will require all clean hydrogen producers to adopt hourly matching by 2030 in order to be called renewable. The US is set to go the same way.”  


– With files from Renewabl contributor Mark de Wolf







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