Renewables certificate trading from the Windicator

European renewables markets have remained quiet over the last quarter. The main activity has again been in the UK where generators have been renegotiating their off-take contracts (which ended March 31, 2004). Negotiations have generally been for contracts spanning one to five years and (as expected) generators have followed the trend of avoiding speculative positions in the illiquid stand-alone market for Renewables Obligation Certificates (ROCs), preferring to secure contracts for ROC and power output of equal length. Through these negotiations, prices for stand-alone ROCs for the third trading period of the Renewables Obligation (RO) have increased from around £40 to over £42.

Electricity market regulator Ofgem also released seven months of data on the volume of ROCs already issued for the RO's second period, implying that the green generation target for the period will be severely missed. Prices for second-period ROCs, however, remain around £46.50, although Ofgem's data implies the value of the lucrative "recycle" element of ROC prices will be far above the £16 reflected in these stand-alone market prices. (Proceeds from fines on retailers for not acquiring enough ROCs to comply with the RO are recycled to compliant retailers.) In light of this, innovative percentage structures continue to be explored whereby the seller can obtain a greater share of the recycle value and risk is shared between both parties.

Meanwhile, the US compliance markets -- driven by state-level mandates for green power in legislation referred to as Renewable Portfolio Standards (RPS) -- saw mild liquidity in the early months of 2004. Some outstanding regulatory issues remain unresolved in some RPS states in the Northeast, but the issue of ownership of Renewable Energy Certificates has been finalised in Connecticut. Here, the utility regulatory agency ruled in favour of the power off-taker (the utility, Connecticut Power and Light) rather than the generator (Minnesota Methane Inc). Similar cases are now being reviewed in other states, thus hopefully resolving the long running disputes between utilities and generators. In other markets most participants are taking a conservative approach by not trading as they await final RPS operating rules in New Jersey and Connecticut.

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