The GO supply – demand balance has lately been experiencing uncertainty, with high volatility of GO prices, which peaked in November 2022 at a price level of almost 10 EUR / MWh for the 2022 and 2023 GO contract, before falling to levels close to 5 EUR / MWh. We currently see prices at around 6,00 – 6,50 EUR / MWh which makes GOs essential components to support the expansion of renewables. GOs could now, for certain technologies, replace production or investment support previously set up by most European governments to subsidise domestic renewable generation. Thus, GOs are nowadays considered one of the most crucial factors that steer investment decisions by producers, project developers or financing institutions to invest in new renewable generation plants with most renewable assets having a lifetime of 15 – 20 years. At the same time, GOs have become increasingly important for corporate electricity consumers, with support of international standards and EU regulatory policy, to manage carbon intensity of products and services for greater commercial value. Foreseeing GO price movements have against these developments become increasingly important.

LT Model: Price development

Veyt’s Long Term GO model is determined by projecting the relation between green supply (renewable power generation per country and per technology adjusted by GO issuance projections) and green consumption (electricity consumption per country and per industrial/non-industrial sector/size adjusted by GO cancellation projections) across four different scenarios. Green consumption is influenced by willingness to pay (WTP), which refers to the maximum price a consumer is willing to pay for a GO. It is calculated for different residential and commercial consumers based on size, income, profit, electricity consumption and electricity prices in our model.

Our Long Term GO model currently forecasts GO prices until 2040, covering 21 European countries, along four different scenarios. In the short term, the GOs reach their price peak around 2023 – 2024, depending on the scenario, with the price curve pointing downward in the long run, as supply outstrips the demand.

However, it is imperative to note that our model builds on available GO transaction data, which means that it does not include 2022 vintage cancellation statistics, as most covered countries have an electricity disclosure deadline by the end of March in the following year for respective vintage. This means that our projection at this stage does not cover trends in GO demand for vintage 2022, which is a year when corporate demand for GOs might have increased as a result of, inter alia, the entry into force of the EU Taxonomy Climate Delegated Act and the adoption of national state aid schemes for indirect ETS costs. This will be covered in updated versions of our projections.

Scenario assumptions of the Long Term GO model

LT Model: Scenario Assumptions

Our Long Term GO model builds on the projection of Business as Usual (BAU) GO supply and demand patterns, as they relate to renewable electricity generation and electricity consumption, across different policy and power sector transition scenarios.

Against a fundamental power market and capacity build-out model, which determines GO supply as a BAU correlation ratio to actual renewable electricity production, we project how GO prices could develop under a conservative low electrification scenario and a more ambitious electrification scenario. Below is an overview of the scenarios and assumptions on the different variables which we explain then in more detail.

Geographical coverage and technology scope

Our first release of the Long Term GO model covers 21 European countries as displayed in the graphic below.

LT Model: Countries Heatmap

All countries covered have an affiliation to the Association of Issuing Bodies (AIB) and adopted the European Energy Certificate System (EECS), which is a precondition for cross-border transfers and trading of GOs in the European market (EECS market). Most countries covered by our model are EU Member States and are subject to a legal requirement to implement a national GO registry system in accordance with Article 19 of the Renewable Energy Directive. We also included Norway and Switzerland into the scope of the model. Norway is fully connected to the EECS market area through the EFTA agreement. Switzerland is also an AIB member but regarded as the third party by the Renewable Energy Directive. It means that their GO system needs to be recognised by the EU which is not in place yet. However, Switzerland has decided to (temporarily) accept the import of GOs from other EECS countries. This is accounted for on the GO demand side in our model.

The following European countries are not covered by the LT GO model: Bulgaria, Croatia, Cyprus, Greece, Luxembourg, Malta, Poland (all EU Member States, but with low or no data availability for power generation and consumption or for GO issuance and cancellation) as well as Iceland and the UK. Other third countries or regions with potential accession to the European GO market, e.g. the Energy Community (currently establishes its own GO system) have not been considered yet as they also require prior recognition by the EU. We expect to include more countries in the next releases of the model.

Within the LT GO model, the technology focus is on Wind, Solar and Hydro (WSH) as the main natural available sources of renewable generation moving forward.

Physical renewable electricity generation and GO issuance

Our projection for the future renewable electricity production is based on a fundamental power market and capacity build-out model, provided by THEMA Consulting. The capacity build-out in this model reflects the progression, as assessed through qualitative analysis, towards reaching EU’s long-term goal of net zero emissions by 2050 and covered countries’ respective National Energy and Climate Plans (NECP).

Because GOs are not issued for all renewable electricity production, such as in cases where national law restricts issuance for subsidised generation, the BAU GO supply trajectory in our model is derived from historical GO issuance data (per technology and country) based on 

 and how they relate to the total production of renewable electricity. This GO issuance trajectory also accounts for renewable generation volumes for which generators did not request issuance as well as for those volumes of supported GOs where EECS members chose not to issue GO for supported generation.

Since our power market model builds on a capacity build-out trajectory, different generation technologies will be dispatched depending on our electricity demand-side scenarios. This typically means that expensive carbon-intensive electricity production will be ramped up or down depending on the direction of the electricity demand.

Under the BAU GO supply trajectory we also assume two sub - scenarios which reflect changes in the national policy and regulatory framework that impact the GO supply side and may affect GO prices.

The first sub-scenario covers a situation where GO supply may be destructed, for instance by countries leaving the EECS market due to regulatory change. This would classify a black swan event: a highly unlikely event that could have significant consequences on the GO market. We modelled such a scenario by cutting Norwegian supply of GOs from hydropower. It covers GO supply that could have been affected if Norway left the EECS collaboration as discussed in autumn 2021 when the Norwegian government announced that it intends to pull out from the European GO market.

The second sub-scenario models the GO price formation when EECS countries suddenly inject additional volumes into the GO market, without any additional renewable electricity capacity build-out. We modelled this for Germany which is one of the largest domestic generators of supported renewable electricity in Europe. So far Germany does not allow the issuance of subsidised GOs under the German Renewable Energy Act (EEG) – a state funded Feed-in Tariff (FIT) system – mainly subsidising wind and solar generators. According to the EEG legislation generators are quasi prohibited to issue GOs as they would lose the eligibility for state support. This makes German electricity retailers the largest importers of GOs, mainly originating from Scandinavia. As Germany has changed the recycling mechanisms for the EEG as of 1 July 2022 this option may become attractive to the German government to recycle revenues from the auctioning of supported GOs to their energy transition and climate fund.

We project these modifications of the THEMA-based GO supply trajectory onto a low electrification scenario described further below, under the scenario names; ‘Low Electrification (Norway exit)’ and ‘Low Electrification (Germany ramp-up)’.

Physical power consumption and GO cancellation

GOs are an important instrument for informing consumers about the attributes of purchased electricity. The attributes of GOs can be claimed upon cancellation of the GOs for the corresponding amount of electricity consumption, effectively allowing the consumer to make green power consumption claims for specific periods, commonly on a yearly basis.

We used annual historic transaction-based GO cancellation data (per technology and per country) published by the AIB for estimating a future trajectory of GO demand, based on the BAU relation between GO cancellation and electricity demand. Because most countries have their fuel mix disclosure deadline for specific years by the end of March of the following year, we apply a “shifted demand” approach. This prescribes the amount of cancelled GOs allocated to green electricity consumption for the period April of (Production) Year X - March of Year X+1. Our model assumes that all GOs cancelled during this period are GOs issued for generation in Year X. Since our BAU projection builds on historical GO cancellation data, which is only available up until vintage 2021 (as represented under the shifted demand by GO cancellations between April of 2021 and March 2022), it is important to note that our projection at this stage do not cover trends in GO demand for vintage 2022, which is a year when corporate demand for GOs might have increased as a result of, inter alia, the entry into force of the EU Taxonomy Climate Delegated Act and the adoption of national state aid schemes for indirect ETS costs. This will be covered in updated versions of our projections.

In this version, the projection of GO cancellation is based on two demand-side scenarios, i.e. a low and a high electrification scenarios, which represent two different development pathways for electricity demand in the covered countries. In the context of the ongoing conflict in Ukraine, protracted energy crisis, inflation, and signals of a looming recession affecting some EU Member States (e.g. Germany), we believe that it is valuable to compare a scenario with lower electrification rate with a more ambitious electrification rate. Electrification of industrial processes and the transport sector are important decarbonisation strategies, but this development is dependent on many variables, such as resource availability and macroeconomic conditions. We have for this reason used our capacity build-out model, with its dispatchable power generation, on two main scenarios for electricity demand, namely the IEA’s "Stated Environmental Policy " (STEP) and the “Net Zero Emission” (NZE) scenarios. These scenarios have been tailored to the development of the European countries’ electricity consumption.

LT Model: Electricity Consumption Scenarios

The underlying difference between the IEA’s STEP and NZE scenarios is that the latter has in-built pre-defined temperature and temporal decarbonisation outcomes, namely, the achievement of net zero by 2050 and keeping global temperature increase to 1.5°C as per Paris Agreement. In contrast to this, the STEP scenario does not establish such outcomes, but builds instead on demand driven by existing EU policy targets and objectives. These have, together with policies in other regions under the IEA’s STEP scenario, been estimated to lead to an average temperature increase of 2.5°C by the end of the 21st century. Furthermore, the EU does not reach the net zero emission target by 2050 in the STEP scenario.

The High Electrification scenario based on NZE has a stronger electrification rate than the STEP scenario, as the former to a larger extent build on decarbonisation of different sectors with existing electrical technologies by 2050 to achieve the global temperature goal, regardless of the regulatory policy landscape. In essence, this scenario can be said to work its way backward from the desired outcome, principally relying on slashing GHG emissions, without taking into consideration the European green policy framework. However, it is important to note that both our demand-side scenarios operate in conjunction with our capacity build-out model, which includes a renewable electricity generation build-out towards realising countries’ NECPs.

Our assumption of the WTP during the model horizon is based on the revealed historic willingness of different types of consumers – residential and commercial ones – to pay for the specific quality of green electricity - here in the form of GOs. Consumers’ WTP are grouped together across countries by different categories, such as size, sector of industrial activities, electricity consumption, electricity prices as well as by their respective environmental concerns.

Consumer-specific WTP is calculated based on historical data. It remains constant over the considered time horizon. In case of an oversupply situation in the GO market for specific year, the estimated WTP is adjusted downwards so that consumers pay a reduced value for the GOs.

Furthermore, the GO demand in our model also reflects the assumption that consumers tend to minimise costs in an oversupplied market. Therefore, we assume that GOs with prices above the lowest levelised cost of electricity (LCOE) will not be purchased as it would be cheaper for consumers to acquire electricity through other (contractual) mechanisms or even by claiming location-based CO2 factors in grid zones with a high share of carbon-free electricity.

In the short term, the GOs reach their price peak around 2023 – 2024, depending on the scenario. Across all scenarios, the price curve points in the downward direction in the long run, as supply outstrips the demand. At the same time, it is worth noting that the model underestimates GO demand to a large extent.

The overall GO price level of the Long Term GO model reflects the mix of implemented policy measures targeted at net zero GHG emissions and shifts in consumer increasing voluntary demand for green electricity, especially by corporate consumer. Various (voluntary) corporate reporting initiatives such as RE 100, CDP, Science Based targets (SBTi), or Climate pledge require companies to report on their GHG emissions and decarbonisation measures from their operations and supply chains. We see the push for green power by corporate consumers as the tipping point in the supply–demand balance of the European GO market in 2023. However, as mentioned above, this version of our model does not build on GO cancellation trends that could be affected by regulatory developments in the EU from 2022, such as the entry into force of the EU Taxonomy Climate Delegated Act and the adoption of several national state aid schemes for indirect ETS costs. Other factors that may change the future GO supply – demand balance, includes, implementation of full disclosure legislation in EU member states, the adoption and content of the imminent European Sustainability Reporting Standard, increasing reliance on green public procurement and the adoption of life-cycle emission reporting requirements for products and traders.

There is also an increasing role of weather conditions – accelerated by climate change – which amplifies the sensitivity of the GO supply – demand balance, especially as new renewable power generation is expected to be covered by intermittent wind and solar installations.

We are determined to address different policies and market drivers in future releases of our model as it allows for a high granularity on domestic policy assumptions and targets as well as covering changes for different customer segments.

The model results - GO price formation during 2023 – 2040

Premium subscribers can access the detailed results section of the model in our full report. To get access please contact 

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