Blog: Brexit casts uncertainty on Italy’s guarantees of origin – ICIS

LONDON (ICIS)–Buying interest in Italian
Guarantees of Origin (GOs) has remained
generally high at auctions in the last two
years, with an allocation rate of over 98%,
according to data from energy services operator
GSE, a state agency.

But growing uncertainty over faltering demand
may pose a threat to bilateral trading, one
market participant said.

A Guarantee of Origin is an electronic
certification that verifies the renewable
origin of electricity delivered or consumed.
With the European Energy Certificate System
(EECS) accounting as the overarching EU-wide
system, all membership parties are allowed to
freely exchange GOs.

As of today, the trading of Guarantee of Origin
certificates constitutes a mainly voluntary
market, meaning consumers are not forced by law
to demonstrate the origin of their electricity.
Yet, many choose to do so to showcase their
commitment towards clean energy and boost
investor confidence.

LATEST AUCTION RESULTS

The most recent auction, held on 21 September,
covered production from January until July.

Some 6.574TWh out of the 6.588TWh on sale was
allocated, which was in line with previous
tenders.

The weighted average price across wind, hydro,
solar and biomass was €0.54/MWh, up from
€0.34/MWh in the June auction.

Solar remained the most expensive technology,
replicating a trend emerged also during the
three preceding auctions, while hydropower
stood out as the cheapest source.

Solar is set to maintain the highest value, at
least in the immediate future, while biogmass
is seen as the next promising source, Jury
Mancinelli, sales director at Inxieme Energia,
told ICIS. The company, which is part of Gnera
Group, is specialised renewable trading and
offers services of GO management.

OTC UNCERTAINTY

While largely subscribed auctions pointed to a
stable appetite for Italian GOs, on the
over-the-counter (OTC) market the picture is
different.

Italian GOs can also change hands bilaterally
on the over-the-counter market, currently
holding the largest share of the traded volume,
or on national exchange GME, which manages
monthly trading sessions on its platform.

This is because in Italy the auction system
sees a major involvement from large
institutional players, whose demand forecast
tend to be easier to predict.

“First Brexit, then the coronavirus crisis
opened the door to increased uncertainty on the
OTC market, which was reflected in a
significant weakening of prices,” Mancinelli
said.

According to Mancinelli, the prospect of a no
deal Brexit may prove particularly grim for the
Italian GO market, which has long benefitted of
the favourable conditions made possible by
British regulation.

UK REGULATION

Alongside their Renewable Energy Guarantees of
Origin (REGOs), UK businesses tend to buy a
large number of EU GOs to comply with the fuel
mix disclosure obligations. Sergio Cavallaro,
portfolio manager at 3Degrees Group, an energy
consulting firm, told ICIS that the EU GO
market reached 600TWh, with 50TWh being
traditionally exported to the UK and only 10TWh
taking the opposite direction.

This means that a hard Brexit may result in an
additional supply of 40TWh.

“The UK set up specific fiscal incentives which
allowed European GOs – and Italian ones in
particular – to be sold at three times the
value they would have otherwise had on the
European market,” Mancinelli explained.

“But nowadays, with Brexit looming large, no UK
end user has shown interest for 2021 capacity,
which is at odds with what we were used to
see,” he said.

OUTLOOK

The next auction round is scheduled in
December.

ICIS analysts anticipate that a general push
towards a greener power mix could result into a
strengthened internal demand for GOs, which is
likely to translate into a price rebound.

Cavallaro said he expects demand to outweight
supply within five years.

However, the immediate future may still be
characterised by a slow growth rate.

“I do not expect the market to come back to
normal before late 2022,” Mancinelli said.

By Federica Di Sario

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