GO market outlook 2024: Bearish supply fundamentals reign the market but could demand recover?

GO market value reaches new highs in 2023, but 2024 forecasts indicate a contraction 

The GO yearly average prices increased more than tenfold from 2021 to 2023, reaching a high of 6.066 EUR/MWh in 2023, indicating a strong demand for GOs during disclosure in 2023. The GOs issuance volume is estimated to increase by almost 10 % year on year in 2023, reaching a projected total of 798.4 TWh, reflecting the growth of renewable energy production in Europe and better weather conditions in 2023 compared to 2022.

The market value of all GOs skyrocketed from 2021 to 2023, reaching close to EUR 4.9 billion in 2023 - more than 12 times the value in 2021 and about two times the value in 2022, as 2023 market value benefitted from higher prices at the beginning of the year.

With the lower GO prices at the start of 2024, the GO market value may decline this year, unless prices bounce back from the 50 % drop in the average price during the first month of 2024 compared to the 2023 average.

According to the low electrification scenario under our long-term model, which forecasts GO prices until 2040 for the AIB region (currently excluding Iceland, Croatia and Luxemburg), we could see issuance of EECS GOs between 767.3TWh and 850.6 TWh in 2024, based on 2022 and 2020 weather conditions, respectively. It would bring down the market value by 8.1% - 15.7%, reflecting 2024 VWAPs of 4.8 EUR/MWh and 5.8 EUR/MWh, respectively. However, these VWAPs only reflect spillover effects from an oversupply from a previous year to the extent reflected in actual trades.

Record RES capacity build-out in 2023, pace to slow down in 2024

European GO supply, subject to weather conditions, is expected to continue to grow in 2024 amid a record project build-out last year.

The EU put online 56 GW of new solar capacity in 2023 (up 40 % year on year), reaching a total of 263 GW, according to Solar Powar Europe. The wind sector has also shown signs of a recovery with 17 GW new wind capacity (14 GW onshore and 3 GW offshore) in the EU, according to WindEurope. 

In 2024, another 14 GW of new wind and just over 50 GW solar capacity could be added in the EU, contributing to a total output of 529 TWh wind and 315.1 TWh solar generation, according to the IEA’s main case scenario.

Together with hydro, this translates into a 15.5 % increase in total generation from the three technologies compared to 2023 in the EU alone, creating a bearish outlook for 2024. 

2023 saw improved hydrological balance with spillover into 2024

According to ENTSO-E data, average weekly stored energy levels in 2023 stood roughly 8.9 TWh higher than in the dry 2022, contributing to the bearish 2023 compared to 2022. 

Moving into 2024 reservoirs stood at roughly the same levels as when transitioning into 2023, i.e. 1.3 % higher than average for the last nine years. In addition, thanks to the high precipitation in the Nordics, NVE reports an increase of 37.7 % in energy content in the snow in Norway, with the potential to fill reservoirs as the snow melts and to put pressure on GO prices for the 2024 vintage.  

As 2024 progresses, the impact of hydropower production on the GO market will depend on the yearly precipitation, but we can also expect a bearish spillover from the 2023 production and hydrological balance. 

Electricity demand and macro-economic circumstances

According to Ember monthly data, 2023 electricity demand in the AIB region, excluding Iceland, Cyprus and Ireland (due to lack of data), was lower than during the pandemic year of 2020, falling by 3.3 % or 83.4 TWh compared to 2022 and 6.1% or 157.5 TWh compared to 2021.  

According to the IEA’s latest electricity market outlook, it was a slowdown in manufacturing and industrial activity, caused by the macro-economic climate, which reduced electricity demand. For instance, in Germany, which saw a decrease in electricity demand by 4.8 %, the energy-intensive industry saw a fall in production of 13 % during the first six months of 2023.

We see that these conditions may have affected GO demand and prices for 2023 in two ways: lower GO demand as a result of its correlation with electricity demand and a lower willingness-to-pay amid harsher economic conditions. 

As we are entering 2024, the IEA’s latest electricity market outlook expects EU electricity demand to grow by 1.8 % during the year, as the economic outlook improves. Despite the rough start to GO prices for the year, these data provide in isolation a bullish outlook for 2024, at least towards the end of the year when the economic outlook is predicted to improve, according to the ECB’s Survey of Professional Forecasters. 

Unsold 2023 GO auction volumes haunt the market in 2024

In the latest GSE auction from 22 January 2024, 23.8 TWh of GOs that were due to expire by February were sold below the floor price. GSE is expected to hold another auction in March, potentially offering 13 TWh accumulated from previous auctions.  

Out of these, 4.3 TWh will expire by May 2024, which are likely to be offered below the floor price again since they would expire by the time the third auction takes place in June, resulting in a bearish outlook for the auction’s 2023 vintage prices.  

In addition, Greece is expected to auction off an estimated 6 TWh of GOs for the first time in March, adding to the prevailing oversupply as the end of the 2023 disclosure period approaches.

The success of the auction still depends on Greece completing the last steps towards allowing exports of GOs to other AIB countries and approving auction rules in time.

We expect unsold volumes from 2023 to affect price developments also for the 2024 vintage, to the extent that market participants can engage in vintage swapping, which will go down towards the end of the year when the 2023 vintage stock is decreasing.  

Policy-driven supply and demand 

2023 was an eventful year for the GO market from a law and policy perspective. The AIB imposed an export ban on Icelandic GOs from 27 April to 2 June 2023 due to suspicion of double claiming.

Despite the AIB decision of 10 November 2023 not to reinstate the export ban of Icelandic GOs, we have assessed that the approach taken has elevated uncertainty in the market for similar measures against other domains, such as Norway following its decision to double down on location-based reporting under its State aid scheme for indirect emission costs. 

As of 1 July 2023 (disclosure deadline for the previous period April 2022 - March 2023), GOs are no longer accepted for use in the UK, which effectively removed demand of about 40 TWh of EU GOs from the market in July 2023 causing a bearish impact on the EECS area. 

On 19 November 2023, a French decree extended GOs to non-renewable sources, making the issuance of nuclear GOs possible, with a bearish outlook for renewable GOs to the extent that the market is more focused on GHG attributes than renewable attributes.  

The European Commission approved the State aid schemes for indirect ETS costs in Slovenia and Greece in 2023, adding to the list of State aid schemes approved, with the potential to boost GO demand, as power-intensive beneficiaries can meet eligibility by sourcing GOs corresponding to no less than 30 % of their electricity consumption.

New targets were adopted under the Renewable Energy Directive in 2023, with potential for both bearish and bullish impacts on the GO market, depending on which sector(s) the targets are for.  

General RES-E capacity build-out and production targets will, as countries transpose and implement EU ambitions, have a bearish impact on the GO market while the RFNBO targets can lift demand for RES-E [and GOs] by 500 TWh by 2030, according to numbers of the European Commission. However, we have yet to see if Member States will be able to meet these targets. 

Contributing to the demand side are the European Sustainability Reporting Standards, which reinforce market-based reporting, and will apply to 50,000 companies in the EU.

The wave of ESRS-spurred demand for GOs is expected to hit the market first in 2024 (large listed companies) with additional demand coming in 2026 (large companies) and with comparably lower demand entering the market in 2029 (listed SMEs). 

Veyt offers a long-term GO forecast model with a higher corporate demand scenario, among others. Reach out to your sales manager to find out more. 

Updated RE100 renewables procurement criteria take effect starting January 2024. The 15-year age limit for power plants would most likely decrease the demand for Norwegian benchmark GOs from RE100 members starting in 2024.  

We anticipate a shift in the demand profile of RE100 members towards younger renewable plants like wind and solar, away from older hydro technologies. While demand for Norwegian benchmark GOs may decrease, the impact is expected to be limited. In 2021, RE100 sourced 2.9 TWh of GOs from Norway, whereas the total issuance of Norwegian Hydro during the same period was 142 TWh.  

Summary and outlook

Despite a bearish second half of the year, 2023 sets a record in terms of market value, as it has benefited from high prices during the first half of the year. Increased RES build-out in 2023 in the EU (56 GW new solar, 17 GW new wind), coupled with beneficial weather conditions for wind and hydro, in particular towards the second half of the year, contributed to a bearish market.

Demand could not keep pace with the GO supply, as the harsher economic conditions affected industrial output and electricity demand, which exacerbated the bearish sentiments. With a beneficial end-of-year hydrological balance and an oversupply in 2023, we expect GO prices to feel a downward pressure at the beginning of 2024.

An expected RES capacity build-out in 2024 contributes to the bearish outlook for 2024, but the output of the total installed capacity will as always be dependent on weather conditions. 

Our long-term forecast model projects that the capacity build-out can generate between 767.3 TWh and 850.6 TWh in 2024, based on 2022 and 2020 weather conditions, respectively, translating into an annual VWAPs of 4.8 EUR/MWh and 5.8 EUR/MWh with business-as-usual demand, but these prices only consider oversupply spillover effects from 2023 to the extent reflected in actual trades.

The 2024 Nordic Hydro benchmark price has been hovering just above 3.00 EUR/MWh in recent sessions after a fall from 4.7 EUR/MWh at the beginning of the year.

Apart from weather conditions and capacity build-out, we see that prices in 2024 will be affected by the oversupply from 2023, to the extent 2023-2024 vintage swapping is allowed, and dependent on economic recovery, increasing electricity demand and impact of law and policy measures.

Overview of the GO supply and demand in 2023

GO market drivers for 2024

Law and policy post-2023: GO bulls and bears