How will new sustainability reporting requirements affect Guarantees of Origin (GOs)?

Guarantees of Origin (GOs) is an important means for companies to be able to prove that they contribute to an increased share of renewable energy in the energy mix. But as stakeholders' expectations for sustainability reporting become increasingly demanding, how will GOs be affected?

Purchasing GOs has been a relatively cheap way to lower carbon emissions and claim 100% renewable energy. However, during 2022, prices rose to unprecedented price levels and many analysts expect prices to remain elevated. There are many factors influencing the price levels of GOs, and a robust demand from corporates with ambitious renewable energy procurement strategies seems to be the driving force.

Changes to sustainability regulations and reporting guidelines are coming, so we sat down with Miranda Engdahl, client executive at Alight, to discuss what that could mean for companies’ renewable energy procurement strategies.

GO price development for production year 2021-2023, Source: Greenfact
GO price development for production year 2021-2023, Source: Greenfact

Power plants have to be younger than 15 years to motivate green energy claims

RE100 brings together large ambitious companies committed to 100% renewable energy, such as H&M, BMW Group, ABB, and Pernod Ricard. Its members in Europe have a joint electricity consumption of 61.5 TWh, and the number of members with headquarters in Europe has grown by 28% since 2020. As of January 2024, RE100 will only consider GOs from assets that are younger than 15 years for green energy claims. “With criteria like this, RE100 not only influences the electricity sourcing of its members, but sets the standard for renewable energy procurement in the industry,” says Miranda.

A majority of GOs issued come from hydro plants, which means that hydro supply has significant influence over GO prices (see purple bars in graph below). Since most hydro plants were commissioned longer than 15 years ago, purchasing GOs from hydro will in most cases not motivate green energy claims according to the updated RE100 criterion. A likely outcome of this new trend is that GOs from young and additional sources will become more attractive in the market.

Source: Association of Issuing Bodies

Public disclosure of sustainability performance will accelerate the need to buy renewable energy 

The new EU Corporate Sustainability Reporting Directive (CSRD) defines rigorous requirements on an expanding number of companies to measure and report on their GHG emissions. Requirements include emissions from its own power procurement (scope 2) as well as its entire value chain (scope 3). “This means that the electricity that companies buy will be subject to scrutiny by shareholders, customers and consumers as sustainability reporting will be publicly disclosed and subject to independent third-party assurance,” adds Miranda.

The Science Based Target initiative (SBTi) has seen significant growth in companies defining scope 2 and 3 targets in recent years (80% increase in growth 2023 compared to 2022), which is starting to have ripple effects on entire supply chains. The introduction of the CSRD will most likely expedite corporate climate action and strengthen demand for GOs.

Number of companies added to Science Based Targets across all industries in Europe and USA every year

The concept of additionality is gaining recognition as a more efficient way to decarbonise electricity supply

There is a growing concern about the insufficient impact of buying GOs, as it doesn’t necessarily drive real change to the energy mix. Organizations like SBTi, RE100, and GHG Protocol are reviewing their approaches to scope 2 emissions accounting to promote more impactful renewable energy procurement practices. 

The EU recognizes the importance of additionality, adopting new rules for production of renewable hydrogen and hydrogen-derived fuels (renewable fuels of non-biological origin, RFNBO). Green hydrogen producers must match power consumption on an hourly basis with additional renewable energy production that would otherwise not be used. From 2038, they must source their renewable electricity from installations that have been in operation for less than 36 months before the electrolyser. The “additional” renewable energy demand will likely be significant as the Commission estimates that around 500 TWh of renewable electricity is needed to meet the 2030 ambition in REPowerEU of producing 10 million tonnes of RFNBOs.

Tightening requirements are likely to underpin a high demand for GOs, especially from young and additional assets

New reporting criteria and new best practices in energy procurement will have ripples on market demand for GOs. 

“It is impossible to say exactly what the outcome will be in an unpredictable market. But one thing seems certain: Demand for renewable energy will remain high and the GO market will become more fragmented, with some young or additional energy sources being valued higher than others,” says Miranda. “Companies with ambitious climate targets are wise to secure long-term access to green energy and future proof sustainability claims.”