It is important to highlight that this marks the first disclosure period in which European Guarantees of Origin (GOs) are no longer permissible for disclosure in the UK. In the past, the UK imported a significant volume of European GOs. Needless to say that this change in regulation has played a substantial role in the price surge. In addition to this, various other factors have contributed to the upsurge in REGO prices:

Lower Wind Output in the UK: One significant factor contributing to the rise in REGO prices is the lower-than-expected wind output during April to June of 2023. Wind speeds during this period have been approximately 1.3 knots or 16% lower than the 20-year average. This unanticipated wind shortfall prompted some generators to repurchase volumes, increasing demand and driving prices upward.

Reluctance to Sell by Generators: Many generators have already contracted nearly two-thirds of their expected output for CP22. The remaining volumes, which will be sold later in H1-24, are becoming scarcer. The anticipation of future scarcity is adding to the price surge as buyers rush to secure their energy needs. Additionally, the rapidly rising prices have made producers with available energy volumes for future contracts hesitant to sell. They are closely monitoring market dynamics due to the ongoing price increases. This hesitancy on the supply side has further limited the availability of REGOs, boosting prices.

Aggressive Buying Strategies: Some retailers and power suppliers have adopted highly aggressive buying strategies in the REGO market. This, combined with robust seasonal procurement where energy suppliers seek to secure volumes for both the current year and the year ahead simultaneously, has further driven up prices. Moreover, the absence of larger volume offerings in CP22-23 means that some sellers are offering smaller profiles ranging from 25 to 50 GWh. Buyers are left with no choice but to continually acquire these smaller profiles to obtain the volumes they need, causing prices to rise rapidly.

In summary, a combination of lower wind output, reluctance of generators to sell, and aggressive buying strategies by retailers and power suppliers, along with the discontinuation of EU GOs, have collectively contributed to the significant increase in REGO prices in the UK.