Energy|To prove the greenness of electricity, guarantees of origin are used, which have their own market and price. A small producer cannot access this money – but that may be changing.
The summary is made by artificial intelligence and checked by a human.
Small producers do not receive an additional price for the solar electricity they sell, because they either cannot or should not register in the guarantee of origin system.
The price of guarantees of origin has decreased, but the margin of renewable electricity is still high compared to, for example, the margin of exchange-traded electricity.
The new EU regulation may facilitate the registration of small power plants in the future.
For solar electricity involves a strange contradiction.
When I sell the electricity produced by the home’s solar panels to the grid through the electricity company, I get paid the spot price of electricity on the stock exchange minus the electricity company’s commission.
However, if I want to buy electricity produced specifically from renewable sources from the same electricity company, its price is clearly more expensive than regular stock exchange electricity.
At the moment, no one is selling solar electricity alone, but according to the comparison service of the Energy Agency on Thursday, the margin of wind electricity was 0.86–1.59 cents per kilowatt hour on top of the electricity exchange price. Basic exchange electricity is available with a margin of 0.40 cents.
Renewable electricity is therefore more valuable than ordinary stock exchange electricity. Why doesn’t the small producer of solar electricity see that value?
In the electricity market electricity itself and its origin are differentiated into separate products. It means that the electricity producer actually produces two products: the electricity itself and the corresponding guarantees of origin.
Both can be traded separately on the market.
However, this only applies to power plants that have registered as a subsidiary of the grid company Fingrid Finextra to maintain the guarantee of origin register. Registration costs, as do operations related to guarantees of origin.
For small producers, the costs of registration and the other costs of the system would be so high that it would not make sense, and power plants of less than one megawatt are not even included in the register. Because of that, the green value of the produced electricity is not received by the small producer.
Of course, this does not matter as long as you consume the electricity yourself. The electricity produced by the panels is solar electricity, regardless of whether there is an official certificate for it.
But for the electricity sold to the network, the unregistered producer does not receive the additional price due to solar electricity. Officially, that electricity is not actually renewable at all, and even the electricity company cannot sell it as renewable when there are no guarantees of origin.
How is it about big money?
The price of guarantees of origin is formed in the market according to supply and demand. The value of the guarantees is based on the fact that the electricity retailer or buyer can only state that they are selling or using renewable electricity if they have in their possession a number of renewable electricity production guarantee certificates corresponding to the consumption.
This is of great importance to companies that have promised to reduce the carbon dioxide emissions of their operations. That is why guarantees of origin are in demand.
The guarantees of origin of wind power plants or large solar power plants are practically sold together with the electricity produced through long-term PPA agreements. In this way, it is impossible to separate the price of the guarantee of origin from the contract.
Buyers of PPA contracts for renewable electricity are often precisely companies aiming for emission reductions.
Guarantees of origin however, it is also sold separately from electricity. In particular, there are plenty of guarantees of origin for old hydropower.
Often trades are made directly between companies and therefore the market is quite opaque.
Market manager at Montel Markets, the guarantee of origin trading site Laura Malinen price information still exists.
“The prices rose very high from the end of 2022, to almost ten euros per megawatt hour, due to the very dry summer and the crisis in the energy sector. But since then, they have decreased to the current level of around one euro,” he says.
Ten EUR per megawatt hour is already a considerable sum. That would mean an additional price of one cent per renewable kilowatt hour. This year, the tax-free average price of electricity in Finland has so far been 4.7 cents per kilowatt hour.
A euro per megaw
att hour, on the other hand, would increase the price of renewable electricity by only 0.1 cent compared to average electricity. The additional margin currently collected by the electricity selling companies from renewable electricity seems to be many times compared to this.
So much more wind and solar power is being built that it may very well be that the price of the guarantee of origin for renewable electricity will remain this low. Building renewable electricity is currently cheaper than any other form of electricity production, so a small price difference also makes sense.
“But if, for example, hydrogen investments that use renewable electricity take off as expected, the price may also rise. The future prices of the renewable electricity guarantee of origin for the next few years are now in the range of 2–3 euros,” says Malinen.
The futures market deals with guarantees of origin created in the coming years. According to Malinen, the price of the solar guarantee is practically the same as that of wind power.
From a solar power plant built on your own roof, maybe one or two megawatt hours of electricity is sold per year. The value of the related guarantees of origin would be 4–6 euros calculated at futures prices. So it’s not a financially significant amount.
All in total, according to the Energy Agency, there is about 1,000 megawatts of solar power in Finland, and almost all of it is small-scale production on the roofs of homes, shops or farms, for which guarantees of origin have not been applied for.
According to the Energy Agency, a total of 40.41 terawatt hours of electricity was produced from renewable sources last year, of which approximately one terawatt hour lacked guarantees of origin. The majority of renewable production is wind and hydropower.
According to the law, the owner of a power plant with an output of less than one megawatt can say that he uses renewable electricity, even if the power plant is not registered in the guarantee system.
For example, there are many small power plants on the roofs of the S group’s stores, whose electricity the sales group uses almost entirely itself. The S group has not registered small power plants, but it can still count them towards its own renewable electricity production and emission reductions.
“The share of solar power in our electricity consumption is small anyway. We produce most of the electricity in our own wind turbines. They are also registered in the guarantee of origin system”, director of responsibility Nina Elomaa says.
Solar power the situation of small producers may be changing. New energy sector regulation is constantly coming out of the EU.
In the third version of the renewable energy directive, it is desired that power plants of a smaller size category be included in the guarantee of origin register at cheaper prices than at present.
It would hardly be profitable for the power plant of one single-family house, but registration for the common power plant of the neighborhood could perhaps already make sense if a lot of electricity is produced for sale and the registration costs are sufficiently affordable.
On the other hand, the current system is advantageous for small producers in many ways. The price of electricity fed into the grid from home power stations is usually credited on the electricity bill, and no VAT or other taxes are charged. When the scale increases, the business may start to interest the taxman as well.
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