To achieve carbon neutrality, we need to fix the system that guarantees the origin of electricity

The European Commission is about to modernise its Renewable Energy Directive. It has to take this opportunity to start the necessary process of revising the system for guaranteeing the origin of electricity, which is currently suffering from shortcomings that prevent it from achieving its objectives.

The European system for guaranteeing the renewable nature of electricity does not fully achieve the virtuous objectives it seeks to promote. In practice, it allows any electricity to be labelled as “renewable”, provided that at some point in the past twelve months an equivalent amount of renewable electricity has been fed into the grid somewhere in Europe. For example, a consumer in Northern Europe can guarantee that one MWh of electricity consumed at 7pm in winter is “renewable” thanks to the certificates generated by the production of one MWh of electricity at 1pm during the previous summer by a solar photovoltaic plant in Southern Europe.

This system operates as a free virtual storage of renewable electricity. It deters the deployment of storage infrastructures and the changes in usages made necessary by the intermittent nature of renewable electricity to maintain the equilibrium between supply and demand at all times. This undermines the sustainability of the European electricity supply and the achievement of decarbonisation objectives.

How do guarantees of origin for electricity work?

In the current Guarantee of Origin (GO) system for electricity (open only to renewables), a producer produces electricity and guarantees of origin. Both are independently tradable and, by default, a guarantee of origin is valid for one year.

In concrete terms, this means that a producer can sell its electricity to supplier A (necessarily in real-time, as electricity is difficult to store for large volumes) and its guarantees of origin to another supplier B at any time during the year following the production of this electricity. Thus, the electricity consumed by A's customers cannot be qualified as renewable (even if it is), unlike the electricity consumed by B's customers, even if it is physically produced from fossil fuels (coal, gas...).

This mechanism gives no incentive to make the electricity system more flexible, either through controllable supply, electricity storage or demand-side flexibility.

How can we fix the GO system?

In order to align the renewable electricity actually produced and consumed in real-time, the lifetime of guarantees of origin should be gradually reduced. Today it is one year. It could be reduced immediately to one month (as it is already the case in France), and a timetable for the progressive reduction of the validity of GOs to one hour should be announced. This would give time for producers and suppliers to adapt their contracts and investments to provide the required level of flexibility (supply, demand and storage sides).

Furthermore, in order to avoid that guarantees of origin issued in certain States could flood the European market, international exchanges of guarantees of origin should be limited to the reservations of interconnection capacities. Thus, it would no longer be possible to sell more guarantees of origin than can physically be exchanged between countries, a practice that is common today and leads to a structural weakness in the price of guarantees of origin.

This would allow Europe to aim at a 24/7 supply of low-carbon electricity. Several companies, including Google, are already addressing this challenge.

GOs could be an effective tool to track the electricity supplied

Today, GOs are increasingly used to “trace” electricity and allow actors to claim that their consumption is from a renewable origin. Once the corrective measures described above have been implemented, it would be possible to extend the GO system to all energies used to produce electricity (coal, gas, fuel oil, nuclear, etc.).

Issuance of guarantees of origin and their transfer to the final consumer should become mandatory. This would improve consumer information by displaying on the bills the breakdown by source of the electricity supplied, as well as the associated carbon impact. Consumers could therefore make an informed choice between different electricity supply contracts.

Guarantees of origin and hydrogen production

The evolution of the GO system for electricity is also essential to avoid that the hydrogen promoted by the EU and Member States is produced from fossil fuels but mislabelled as “renewable”. Otherwise, the production of hydrogen by electrolysis, which is supposed to be more climate-friendly, would risk emitting more CO2 than current production processes, to the detriment of the fight against climate change[1].

Of course, the European Commission is considering a more stringent system for tracking electricity for hydrogen production, with a quarter-hourly time step, local production and requirement for additional renewable capacity. However, even if these provisions were to be put in place, it would not make sense to keep a failing system for all electricity applications except hydrogen production. The certification mechanism must be functional, robust and universally applicable.

The development of flexibilities (supply, storage and demand) will be a long process. It needs to be approached gradually in order to reduce costs and for new consumption patterns to be established. Developing the system of guarantees of origin would make it possible to accelerate the necessary efforts, to the benefit of the European objectives of decarbonisation and stability of the electricity system.

This article is also published in French in La Tribune. Energy Voices is a democratic space presenting the thoughts and opinions of leading Energy & Sustainability writers, their opinions do not necessarily represent those of illuminem.

Footnotes

[1] S. Sarrade, B. Charmaison and M. Cordiez, "Hydrogen: what for and why", Confrontations Europe, 2021