Emerging market for Green

Certificates
Dr Marianne OSTERKORN, Director of REEEP
Dr Xavier LEMAIRE, SERN/REEEP

CONTENT

1. What is a certificate system?

2. How certificates system works
3. What are the benefits of certificates
4. Case studies
– The case of harmonisation in EU (RECS)
– The case of the certificates market in the US

1
 CONTENT

1. What is a certificate system?

2. How certificates system works
3. What are the benefits of certificates
4. Case studies
– The case of harmonisation in EU (RECS)
– The case of the certificates market in the US

Certificates provide Information of the added Value of green

Electricity
Market for
Certificates
Environmental
Benefit
Market for Electricity
Certificate

MWh
Certificate =
Guarantee of Origin
Electricity
Market for green
Electricity

2
What is a Green certificate?

• Various types and denominations

Green Certificate, TREC, TRC, REC
Tradable Renewable (Energy) Certificate/Credits
Renewable Energy Credit / Green tags
• piece of information
• represents the benefits (aside from the physical electricity)
associated with electricity generation by renewable sources
• It is a commodity which can be traded

How does a certificate system work

certificate market

electricity market
Supply Demand

Issuing Registration Redeeming

3
 Rationale of Green Certificates

• The main idea is to separate physical flux of electricity from its

environmental benefits

• create a market where Green certificates can be traded distinct

from the market for the supply and demand of electricity

• gives flexibility by allowing green producers of electricity to

reach easily green consumers

• Green certificates could be generated and sold anywhere in

the world where there is demand!

Demand must be created through the right regulatory

framework
Certificate Systems within the right Framework
enable Flexibility and Security for Investors

Feed-in Tariffs Certificate System

+ National Framework

Î Demand is equal to Î Market driven

total Production Demand for Electricity Quota
and Certificates

Îmarket prices for

Î fixed Price
Electricity and
Penalty /
Certificates Incentive
high Level of Security Market induced high Level of Security
for Investors Insecurity for for Investors
Investors

Source: Energy Information Administration: International Energy Outlook 2006

4
CONTENT

1. What is a certificate system?

2. How certificatessytem works
3. What are the benefits of certificates
4. Case studies
– The case of harmonisation in EU (RECS)
– The case of the certificates market in the US

What information is provided through certificates

• paper form
• electronic form

5
Tracking the Life cyclus of certificates

Certification” of the Plant

Measuring of produced Electricity

Issuing of Certificates

Transfer of Certificates

Redemption of Certificates

Life cycle of a Green Certificates

6
Central registration of certificates

Price Waterhouse Coopers, 1999

Example: How to issue Issuing certificates

7
Balance for an account owner

CONTENT

1. What is a certificate system?

2. How certificate system works
3. What are the benefits of certificates
4. Case studies
– The case of harmonisation in EU (RECS)
– The case of the certificates market in the US

8
 How can green certificates be used?
• Monitoring and Statistics:
-Proof of RE generation
- Labelling
- Disclosure ( guarantee of origin )

• International trade :
-Proof of import/export of renewable energy

• Incentive system
– requires Obligations and incentives/ penalties
– together with Feed-in tariff
– together with tax incentive

Proof of RE generation/Labelling/ Disclosure

• Some suppliers may wish to target “green” consumers

by selling them an electricity product with high
renewables content
• The labelling body could require Green Certificates to be
redeemed in order to verify compliance with label
criteria. e.g. generated from hydro plant with a capacity
below 20MW
• Within EU it is obligatory that suppliers provide
customers with information on the fuel mix for their
electricity. Green Certificates can be used as guarantee
of origin

9
Benefits of Green Certificate Systems

• Green Certificates can be traded across country boundaries

• Green Certificates overcome physical electricity transfer restrictions
• Green certificates promote best practice : it gives incentives to
most economical sites , since the physical barrier to trade of RE
benefits is removed e.g. even production of solar electricity in
tropical countries but green certificates bought by consumers in the
North?
• Green Certificates help to remove the requirement that supply &
demand of RE occur at same time
• Green Certificates can prove compliance with public support
schemes

Constraints of Green Certificate Systems

• Risk of double counting must be avoided

• Reliable tracking system of the whole life cycles of the

certificates is a "must "

• Legal framework has to be stable ( obligations, penalties )

• No harmonized market, very scattered systems

• market based prices

10
Conclusions

• Green Certificates provide information

• Green Certificate systems can be used with many different RE
policies
• Green Certificates offer flexibility and transparency for the
market
• Green Certificate systems have been proven to be robust and
fraud-resistant

CONTENT

1. What is a certificate system?

2. How certificate system works
3. What are the benefits of certificates
4. Case studies
– The case of harmonisation in EU (RECS)
– The case of the certificates market in the US

11
In Europe are many incentive systems in place

National Certificate Systems don´t contribute

to a liquid European Certificate Market
Country Start Supported Demand Certificate Validity Target Flexibility Imports
RES Driver Size

Belgium 2002 wind, hydro, Suppliers 1 MWh 5 years 3% (2004) banking No

Flanders biomass, solar, 5% (2010)
tidal, waves,
Geothermal.

Belgium 2002 hydro <20 MW , Suppliers 1 MWh 5 years 5% (2010) banking Yes - under the
Wallony wind, solar, condition of
biomass, biogas, reciprocity
geothermal,

Italy 2002 hydro (after Producer / 100 MWh 1 year 2% (2002) borrowing Yes – if
4/´99), waste, Importer 6% (2006) against a accompanied by
biomass, solar, >100GW h 8% (2008) penalty price actual electricity
wind, tidal import and
reciprocity

Nether- 2001 solar, hydro < 5 Suppliers 1, 10, 100, 1 year 5% (2010) no banking Yes – if
lands MW, biomass, 1.000 MWh 10% accompanied by
wind (2020) actual electricity
import

Sweden 2003 wind, solar, End users 1 MWh Unlimited Additional banking, No
hydro up to 1,5 10 TW h borrowing
MW, geothermal, until 2010
biofules, waves

UK 2002 hydro (< 20 Licenced 1 MWh Unlimited From 3,1% Limited No

MW), wind, suppliers (2002) to banking and
solar, biogas, 7,7% borrowing
biomass, waves (2010)

Existing Green Certificate Systems

• EU : UK, Italy, Belgium, Sweden, etc. – Renewables Obligations

• Netherlands – Certificates facilitate tax exemption
• Europe – private RECS initiative
• US – Several states use Green Certificates + moves to establish
a North American Green Certificate market
• Australia – Sustainable Energy (Electricity) Act introduced RE
Certificate trading
• South Africa?

12
RECS - the only voluntary reliable certificate system
• Harmonised European standard for (national) Tradable Renewable
Electricity Certificate Systems
– Basic Commitment = Overall standard
– Domain Protocols = (National) implementation
– Technical specifications interfaces certificates registries

• Comprises all major European utilities – for disclosure and green

customers

• Launched in 1998 today implemented in 18 countries: 15 EU members,

2 EU accession countries, + Norway + Switzerland, Slovenia

• Currently no European market, but RECS provides a working exchange

platform for diverse TREC systems

RECS meets high Quality Standards

1. Only Plants selected through a precise

Procedure are eligible for RECS Certification
2. Continuous Auditing of the actual Operation is
implemented
3. Any Subsidies the Plant receives must be
declared on the Certificate
4. Issuing of RECS Certificates is exclusively
based on Metering Data (1MWh - 1 Certificate)
5. RECS Certificates have unique Numbers throughout
their Lifetimes (5 years)

13
 Association of
AIB RECS International
Issuing Bodies

Supply / Demand

Registry
Issue
Transfer
Redemption
Issuing Body

NL
Supply / Demand

Registry
Issue
Transfer
Redemption Supply / Demand
Issuing Body

AT
Registry
Issue
Transfer
Redemption
Issuing Body

DE

Countries RECS members

EC likely members
Accession - 2004
Accession - 2007
Current members

14
Certificate Issued by technology
RECS Certificates Issued per Technology
Ind.& comm.waste,
Onshore wind,
95,619, 0%
355,251, 1%
Mun.solid waste, Offshore wind,
336,796, 1% 3,268, 0%
Other biogas, 0, 0%
Sewage gas,
25,100, 0% Photovoltaic, 0, 0%

Landfill gas, 20,885, Thermal, 0, 0%

0%

Forestry etc,
12,151,721, 43%
Hy dro,
15,282,644, 54%

Offshore wave, 0, 0%

Offshore tidal, 0, 0% Geothermal,

Onshore wave, 0, 0% 166,024, 1%

Energy crops,
86,249, 0%
Onshore tidal, 0, 0%

Status: 1. August 2003

CONTENT

1. What is a certificate system?

2. How certificate system works
3. What are the benefits of certificates
4. Case studies
– The case of harmonisation in EU (RECS)
– The case of the certificates market in
the US

15
Certificates in the USA
• 14 of 19 RPS states in USA uses Certificates to demonstrate
compliance
• There is also a strong voluntary market which cannot be
neglected
• Prices can vary a lot on the compliance markets
– From 0.70 US cents/MWh (Maine)
– To 35-49 US dollar/MWh (New England)
• Prices on the voluntary market
– From 2 US dollar to 6 US dollar (new generation)
– But some sources like 200 US dollar/MWh
– From 1 US dollar to 3 US dollar (existing generation)

Market size in the USA

16
Tracking system in the USA

Use of certificates in the USA

• Certificates can be sold

– Bundled with the electricity to local retailers
– Unbundled at a regional or national level

• Certificates can be aggregated from small systems

• Certificates can be sold in advance of generation

17
The future of TREC in the USA

• National registration?
– State registration currently so a generator can be in several
tracking systems and issue REC in each tracking system

• Link with the emission certificate market?

– Currently RE not eligible or there is no rules to allow
participation

• Clarity of the system for end-users?

– Currently, the system tends to get too complex to be
understood
• E.g. sale of certificate without the totality of their
environmental attributes, sale of certificates without
corresponding electricity

Conclusions

• Green Certificates provide information

• Green Certificate systems can be used with many different RE
policies
• Green Certificates offer flexibility and transparency for the
market
• Green Certificate systems have been proven to be robust and
fraud-resistant
• Green Certificates will be used in an growing market

18