1. The introduction of temporal 24/7 GO matching.

Increasing the granularity by which production and consumption of green electricity are matched with GOs from the current yearly basis to an hourly or even 15-minute basis would transform the market into a 24/7 GO system. According to ENTSO-E, this would reflect a more accurate picture of green electricity usage and supply.

Additionally, ENTSO-E believes that the current GO system sends the wrong price signals to the market as the GO price does not correlate with the volumes of RES electricity produced at a specific moment. Instead, GOs are priced the same regardless of the time-of-day energy was produced.

The introduction of temporal matching would likely bring more price variations in GO prices, dependent upon the month of the year and time of the day. For instance, the price of a renewable GO could be higher if it is generated at an hour where overall RES-E generation is low.

Furthermore, granularity in the market could potentially provide information for more accurate corporate carbon footprint accounting. This is visualized in the figure below from a Google White Paper . While Google purchases large amounts of renewable energy (shown in the green spikes), these sources are variable and as such the gaps are actually filled with fossil fuel energy sources. Granularity would thus allow corporations to better improve their decarbonization ambitions and processes which would further improve trust amongst stakeholders.

There are already numerous organisations that are leading the developments in temporal matching. EnergyTag (https://energytag.org/) is an independent, non-profit, industry-led initiative that seeks to define and create a market for Granular Certificates on an hourly or half-hour timestamp. Earlier this year the organisation unveiled its framework providing guidelines and standards in building a market for timestamped Granular Certificates (GCs) . Globally, there has been continued growth in organizations and initiatives that support 24/7 clean energy tracking. EnergyTag initiative itself is backed by over 100 organisations such as Google and Microsoft .

While ENTSO-E welcomes these initiatives, the organisation believes that the granularity target should be set to 15-minutes as it is in line with the target Imbalance Settlement Period (ISP) in Europe.

2. Inclusion of a locational dimension into the GO system

ENTSO-E suggests that while temporal matching is a good first step towards a more efficient GO system, the next step would be including a locational dimension to GOs.

In this sense ENTSO-E advocates for the introduction of market boundaries (that take into consideration the available interconnection capacities between countries) and subsequently location-based pricing in the GO system. According to the association, the lack of a locational dimension is currently causing negative effects whereby RES plants are being deployed in areas without proper consideration of transmission capacities between geographical areas.

The association believes that this will introduce incentives for the development, production and consumption of RES at efficient geographical locations. According to ENTSO-E the granularity in defining these geographical market boundaries (e.g., national level or bidding zone borders) should be at the discretion of the National Regulatory Authorities (NRAs) of each Member State and would require further investigation to properly reflect national specificities.

What would this look like?

To consider the available capacities between countries, ENTSO-E suggests the implementation of a mechanism that would limit the volumes of GoOs traded between different geographical areas.

This GO target model would be based on the ex-post implicit allocation of cross-border capacities between countries. Hence ENTSO-E advocates for the trade of green attribute certificates after the delivery of the existing electricity market.

The geographical attribute of the GO could be used to show that energy was consumed in the same geographical location or that it could have been physically exchanged with its neighbouring countries.

The time granularity of this model GO market would be equal to the country’s imbalance settlement period (i.e., 15 minutes).

To ensure a credible GO price formation with full non-discriminatory access to all market participants, ENTSO-E recommends developing the design of the GO market based on the capacity allocation process and market structure of the Day-Ahead (DA) markets. This they believe would provide a solution in defining the cross-country capacities available for the GO market and would be compatible with the voluntary nature of the GO market.

What would it take to evolve into such a market model?

Reaching the target GO model would require a mature and liquid GO market which is currently not the case. Until this is achieved, ENTSO-E suggests a stepwise approach. The first of which would be increasing the volume of 24/7 GOs while in parallel introducing the notion of geographical attributes.

The allocation of capacity between countries for GO trading can start with a simple, explicit first come-first serve process which would evolve into an implicit market coupling.

Technical impacts

Evolving into such a target model would be an elaborate process. The shift towards granular certificates would require a faster and frequent execution of issuing, transferring and cancelling the certificates compared to the current standard.

Additionally, validation of transactions between two countries would be required keeping in mind their cross-border available capacities for physical electricity. Market participants (e.g., power producers and suppliers) would require accurate measurement data to determine the volumes they can sell and buy, and the processes needed to trade GOs on a more granular level. This increase in granularity would lead to more variable GO pricing and would trigger the need for more asset optimisation. This could be via steerable and less variable assets like hydro generation, load shifting and potentially through energy storage facilities.

If the system enables ex-ante transactions, generators and suppliers will additionally require predictions for their portfolios and an ex-post calculation of actual demand and supply and balancing of deviations. All these extra requirements would most likely further increase the level of complexity within the GoO market.

Legislative impacts

Overall, it appears ENTSO-E is recommending changes to the GO system that would somewhat closely reflect and follow what happens on the ‘physical’ electricity grid. Additionally, their recommended changes will likely increase the complexity of the market and likely introduce more price sensitivity.

ENTSO-E believes that through this much-needed evolution of the GO market there will continue to be an underlying need for legislative support. The current ongoing process on the EU’s Renewable Energy Directive (RED II) has created a prime opportunity to further shape and improve the current GO system. While ENTSO-E acknowledges the complexities of such an evolution, the association, therefore, proposes a stepwise implementation that mimics the evolution of the wholesale electricity market.

Additionally, they continue to suggest that this should continue to be a voluntary evolution with the pace determined at a national level and as such expect differences to occur across the various European countries.