Outcome of Icelandic export ban provides little to no assurance

Context

Following the conditional lifting of the AIB’s ban on the export of Icelandic GOs, initially put in place in light of double claiming, as some Icelandic offtakers are using the location-based approach to claim renewable energy consumption, Landsnet was due to provide a report to the AIB by 1 October 2023. The assessment panel could then reassess the situation. The report was supposed to reflect the actions taken to remedy any non-compliance regarding the GO issuance in Iceland, as per the AIB’s press release.

Criteria for evaluation include the correct application of market-based and location-based reporting, GO cancellation where the location-based method is used, implementation of necessary rectifications, enforcement measures, and effective prevention of double counting and double claiming.

Based on the assessment report, on 10 November 2023, the AIB decided not to reinstate the suspension of exports of EECS GOs out of Iceland. Issues detected by Icelandic authorities are left to be dealt with internally, the AIB added in its communication to Landsnet.

The assessment report reveals no double counting in Iceland; identifies double claiming instead

The Icelandic Energy Regulatory Authority (ROE) prepared a status report with an assessment of possible double counting of GOs and the measures taken to remedy the situation. It found that no double counting was taking place in Iceland as Icelandic producers followed the EECS rules, however identified instances of claims made by consumers (double claiming) as a problem.

Through ROE’s investigation, it became clear that none of the power-intensive users in Iceland have GOs to fully back their RES-E consumption claims as of 2022, despite claims made in marketing materials.

The ROE highlights that the EECS rules do not address end-user claims or statements and do not provide a definition of double claiming as such. Consequently, double claiming does not constitute a breach of EECS or EU rules as those only apply to disclosure of the origin of electricity by the electricity supplier to the consumers.

Instead, the ROE points out that the Icelandic power-intensive users were in breach of national Regulation 757/2012 which obliges consumers to base all statements regarding the origin of electricity consumption on disclosed origin supplied by their energy suppliers. The Icelandic Consumer Agency does not typically initiate investigations on its own, rather relying on complaints from the affected companies; therefore, it does not seem that the power-intensive companies received any penalties.

It is outside of ROE’s mandate to supervise or enforce actions towards electricity consumers regarding disclosure obligations. The ROE points out that there are no provisions on how to deal with double claiming cases where a location-based approach is used to base RES-E claims. As a result, the authority took the issue up to the Icelandic Ministry of the Environment, Energy and Climate.

ROE concludes that action is needed at the European level to address systematic deficiencies such as double claiming, with the argument that EECS rules and relevant EU/EEA directives address disclosure, while not explicitly speaking to claims.

ROE’s assessment found that disclosure of origin in Iceland is in line with EECS rules; pointing out their inadequacy to manage instances of double claiming. The authority did not find any evidence of authorities in other EECS countries supervising claims made by end consumers.

Until the Icelandic GO export ban, the AIB has not placed GO restrictions on the grounds of double claiming, as no complaints have been brought forward. Clarifications from the AIB indicate that the organisation can only launch an investigation upon a complaint from a GO market participant, not on its own accord. The Icelandic GO export ban marks the first time a market player lodged a double claiming complaint. Prior to this only precedents based on double counting led to export bans by VREG (Flemish Regulator of the Electricity and Gas Market) applied to Iceland (2012) and Norway (2013), due to their disclosure practices.

Preventative measures taken by Icelandic GO market players

To increase the transparency of the GO system in Iceland, ROE will follow the Belgian example (Greencheck) by setting up a portal where the origin of electricity can be checked for individual companies.

Landsnet, in turn, currently amends the issuing process by introducing:

• an annual internal audit of the existing producers and mapping with respect to end-user marketing claims;
• in case of double claiming, escalation to ROE is envisaged 1) to verify marketing claims made by new end-users entering the market and their intentions to (not) use GOs; 2) map contractual claims of end users with producers of renewable energy with regards to GOs;
• offering automatic cancellation of issued GOs for contract-based consumption.

Market impact

Overall, the AIB’s assessment served as a litmus test for how to deal with and address double claiming. What transpired, however, is uncertainty following the resolution of the Icelandic export ban, due to the lack of transparency in the handling of the process, and differing positions taken by Icelandic authorities and the AIB on the issue. This means that the market is not out of troubled waters and the possibility of an Icelandic-style GO export ban should not be completely ruled out in the future.

This is especially relevant amid the Norwegian Government’s December announcement to keep Norwegian State aid rules for indirect emission costs intact, retaining the location-based approach to prove that at least 30% of electricity consumption comes from RES to qualify for such aid. Such application of State aid rules is problematic for the GO market due to the double counting or claiming potential, signalling a bearish outlook for Norwegian GOs and bullish for EECS GOs to the extent that the market is risk-averse, as per our earlier analysis.

The uncertainty following the seemingly differing positions of the Icelandic authorities and the AIB on double claiming could have similar impacts. GOs from domains with higher double claiming risk can experience a bearish outlook (such as Norway and Iceland), while countries with more credible systems can see prices supported. This problem will be present as long as there are uncertainties concerning the remits of the AIB to act upon double claiming allegations.

For Icelandic GOs, we gauge that the measures taken by the Icelandic authorities could have little to no impact on demand: market participants showed only a short-lived bearish reaction following the export ban, as prices dipped by 10 eurocents during the period of the ban, and restored to their pre-ban levels shortly after the lifting of the ban. The measures taken within Iceland to mitigate the double claiming risk while improving the credibility of the system to a certain extent would not completely eliminate double claiming: issues pertaining to contract interpretation of energy sales agreements between suppliers and offtakers persist, falling outside of Landsnet and ROE’s mandate. Measures taken by Landsnet could have the greatest effect on the new market players while existing end-users could stick to the location-based practice.

In the meantime, the European Sustainability Reporting Standards, to be used by 50,000 companies in the EU, could provide further clarity. While the standards alone cannot completely eliminate the problem of double claiming, market-based reporting will be strengthened, which likely reduces the use of location-based method.

Watch our latest webinar on the European Sustainability Reporting Standards and their impact on the GO market together with CerQlar here.