Guarantees of Origin are distorting the EU electricity market.

Guarantees of Origin enable consumers to choose which types of generation to support. Far from distorting the market, they enable the market to efficiently reflect consumers’ actual preferences.

A Guarantee of Origin is a certificate created alongside the production of renewable energy. By buying these certificates, consumers both provide additional income to the relevant generator and can uniquely claim to have purchased the associated energy. For example, if you’re a Dutch consumer and want to support Dutch wind farms through your power bill, you can do that. Your electricity supplier will purchase Guarantees of Origin to cover your demand from Dutch wind farms. Similarly, if you want to support new plants or those that meet strict environmental standards, you can do that too. The more popular the source of power, the higher the asking price for the Guarantees of Origin and the greater the revenue received by the generator.

Guarantees of Origins ensure that consumers’ preferences are reflected in the way the market works. Attractive generators earn more. Guarantees of Origin for Dutch wind, using the example above, can cost around €3/MWh. This means both that attractive generators can afford to generate more, where this is an option, and that new investments in generation must take account of potential revenues reflecting consumers’ preferences. By incorporating consumer preferences, Guarantees of Origin are therefore correcting rather than distorting the market and ultimately support more efficient market outcomes.

References:

Oslo Economics, “Analysis of the Trade in Guarantees of Origin” (Oslo, 2017), figs. 2–8, https://www.energinorge.no/contentassets/ac0b5a4fc38b4111b9195a77737a461e/analysis-of-the-trade-in-gos.-oslo-economics.pdf.