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Certificate trading framework nearly there

A core group of power market players are proceeding to build a framework for a support system for renewables based on trading the environmental value of green energy on a separate market to that for the physical electricity. The EU is quietly indicating its approval with financial support for the group's work

Despite a bout of last minute nerves, a system for trading renewable energy certificates internationally is on schedule to begin its test phase before the end of the year prior to implementation in 2001, says the chairman of Europe's Renewable Energy Certificate System (RECS) group, Peter Niermeijer. RECS has been working for several months on a framework for cross border trade of renewables credits.

Speaking at a workshop on green certificate trading in Brussels on October 12, Niermeijer said that plans for the launch of the RECS system have now reached a critical phase. An earlier RECS group meeting in Stavanger on September 22 had been very "positive" but had failed to produce the letters of commitment from the various national groups necessary to move from the design to the test phase. Accordingly, the national groups from Denmark, Norway, the Netherlands, Germany, Italy, Belgium, Austria and France were given until October 28 to sign letters committing themselves to finance independent certificate issuing bodies within their own countries. Britain's national RECS group will not be formally constituted for the deadline, but expects to become a fully fledged member shortly thereafter.

"Understandably people are nervous about making a financial commitment, but I believe we will have the three letters necessary to begin testing the system within a couple of weeks, and if not we will have a clear idea of where the problems lie," says Niermeijer.

At stake is the willingness of market players in each of the interested countries to finance the independent issuing bodies (IBs) which will be responsible for issuing, registering, monitoring and redeeming tradable green certificates (TGCs). Effectively, RECS members, who range from utilities to power brokers to wind turbine owners' associations, are being asked to take a leap into the dark. The Brussels workshop focused largely on shedding some light on what the likely shape of the future market will be.

EC watching

Delegates will have taken some comfort from the nod of approval contained in the keynote address from the EC's Directorate General for Energy and Transport, DG Tren, where a stand-in for renewables chief Luc Werring hinted at favourable political winds. "The directive's decision to allow each member state five years to meet its indicative targets with its own support schemes means there is a real danger that a number of mutually exclusive support schemes will become firmly entrenched across Europe," he said, referring to the draft renewable energy directive proposed by the commission. "The DG recognises this danger and is following green certificate developments with great interest," added the DG Tren official.

The DG's proposed introduction -- within three years -- of compulsory "Guarantee of Origin Certificates" enabling the identification of the source of renewable energy sold on the market also chimed well with RECS members. The aim is for the certificate to be mutually recognised by member states.

On the issue of harmonising renewables support, however, the DG's position was unchanged. The issue would be reviewed in five years. The clear need for international action on harmonisation of standards was clearly demonstrated by Electrabel's Ann Goosens, who collated and compared the existing European certification schemes in order to establish whether certificates could at present circulate freely. With huge variations in certification criteria, this seems very unlikely.

For its part, Niermeijer explained, the RECS group proposes ensuring the compatibility of different national certificates through the creation of an Association of Issuing Bodies (AIB). The AIB will immediately produce a "basic commitments" document setting out the criteria for membership, which will in turn ensure the compatibility of the various national certification schemes. From thereon it will be the responsibility of the individual national groups to police each other's certification systems.

The problem of what constitutes good renewable energy and what not, along with the problem of ensuring that subsidised kWh are not resold under the RECS system, will be solved by ensuring that the source of every kWh is clearly marked on every certificate.

As RECS supporters, most present were less concerned with the system than with its likely market. With the variety of demand mechanisms currently operating and variables such as the potential of offshore wind to be factored in, market modelling is particularly complicated. Nevertheless, a number of studies are attempting to assess the potential of a TGC market.

Presenting an EC-sponsored report on the potential size and monetary value of a tradable green certificate market, Isabel Kühn said the study showed a "substantial market size and cross-border trading volume" after taking into account the most likely TGC trade scenarios. Further, without TGCs it was likely that Austria, Finland, Luxembourg, and Sweden could fail to meet their national targets for renewables electricity. Kühn is an economist with The Centre for European Economic Research in Mannheim, Germany.

Reinhard Haas of the Vienna University of Technology also gave TGC the thumbs up: "Feed-in tariffs have proven their dissemination effectiveness, but tradable green certificates are a very promising tool for the next stage of market introduction."

Too aggressive

The World Wildlife Fund's Stephan Singer presented a more critical perspective on the TGC. Asking whether RECS would interfere negatively with the support systems that have proved so successful in Germany and Spain -- which require the purchase of all renewable energy at a fixed price -- and whether the proposed REC would be a strong enough document of origin to guarantee the credibility of the system, he suggested there should be a conscious effort to making legislation less aggressive to state aid for renewables.

The delegates extended a more enthusiastic reception to trader Garth Edwards of Natsource-Tullett Europe Ltd. He believes there is a clear opportunity for brokers in the renewables market right now. "Voluntary sales of green electricity are encouraging but the real kick-in-the-pants for the market is the knowledge that RPS is coming down the line," he said, referring to Renewable Portfolio Standard (RPS) legislation adopted by some states in America which dictates a minimum standard of renewables in electricity supply portfolios, facilitated by green certificate trading.

In a quick course on broker-speak, Edwards explained the difference between trades and transfers and outlined some likely constructions on the new market including monetizing forward streams to finance new projects, locking in the value of plant through futures contracts -- and hedging against the implementation of RPS legislation through options.

His enthusiasm seemed to have had the desired effect. As Niermeijer rounded off the workshop, the mood among the country groups was upbeat with most proclaiming themselves ready to sign their letters of commitment in the near future.

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