Renewable Exchange was founded to support transparency, fairness and efficiency for independent generators. As part of this ambition, we have released our first REGO index which provides an industry benchmark for the price at which REGO certificates are trading.
The Index has been independently validated by AFRY (previously Pöyry http://www.poyry.co.uk/) and establishes the average weighted bid prices for REGO certificates for the periods denoted, offered to embedded generators tendering on the Renewable Exchange platform. Bids have been submitted from traders and licenced suppliers in the UK. AFRY’s assessment of the index methodology is detailed in Appendix 1.
Renewable Energy Specialist REGEN has provided commentary on the REGO market detailed in Appendix 2.
Renewable Exchange has developed this index with the aim of providing statistical evidence of REGO value across 2019 and into 2020. The data analysed consists of the REGO component of bids for power purchase agreements on the Renewable Exchange PPA Marketplace. In some cases, offtakers or traders bidding have offered no value for REGO certificates.
UK REGO Weighted Price for bids submitted for all Technologies via the Renewable Exchange Platform
|Bid Price For REGO’s||
About Renewable Exchange
Renewable Exchange is an online digital marketplace and insight platform for Power Purchase Agreements. Founded in 2016 by Robert Ogden, Renewable Exchange serves over 900 independent generators in the UK representing over 1.6 GW of installed capacity.
Renewable Exchange is supporting both existing operational assets and new projects looking to be developed subsidy free in the UK via its suite of market insight tools and an innovative Power Purchase Agreement marketplace which enables any generator of any size to fully optimise and transact the sale of their electricity.
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AFRY is an international engineering, design and advisory company. AFRY Management Consulting provides leading-edge consulting and advisory services covering the whole value chain in energy, forest and bio-based industries.
Regen is an independent not for profit centre of energy expertise and market insight whose mission is to transform the world’s energy systems for a low carbon future.
Views expressed in this commentary are those of Regen and are not intended to be used as a source of advice or analysis with respect to energy market prices or investments.
This note describes the methodology used to derive the REGO Index published by the Renewable Exchange, and presents AFRY’s independent view on the validity of the index.
The Renewable Exchange is an online PPA tendering platform, launched in 2016. It enables renewable generators via the digital platform to analyse PPA value, run competitive tenders to off taker and execute PPAs for 6 months to 3 years.
The platform allows bidders to enter a separate price for the Renewable Energy Guarantees of Origin (REGOs) associated with the renewable generator’s output. The Renewable Exchange has used the REGO price bid date from its tenders to derive its new REGO Index. This is intended to provide a transparent indicator of the current market value of REGOs. Many long-term renewable PPAs refer to the possibility of REGOs having a visible market value, and the Renewable Exchange REGO Index is intended to provide this.
Calculation of REGO Index
The index is calculated for each calendar month. It is based on all bids received for tenders held in the relevant month (not just winning bids), and includes bids for all contract durations and for all renewable technologies which qualify for REGOs.
The index is calculated as a weighted average of all bids received for PPA tenders held in the month, where bids are weighted by the volume of electricity expected to be delivered during the PPA duration. This volume is an estimate entered by the renewable generator, based on expected load factor. Under this approach, longer term contracts and larger capacity projects will have a higher weighting in the index. Note that the weighting includes bids with a price of zero for REGOs.
In the unlikely event that there are no tenders in a given month, the index will not be published. In this case the previous month’s value should be used as a proxy.
AFRY Management Consulting (formerly known as Pöyry Management Consulting) is a leading energy market consultancy which has been advising clients in the UK electricity market for around 30 years.
We have been asked to review the methodology for the REGO Index and provide an independent view on its appropriateness as a reflection of the market value of REGOs. We have been provided with the Renewable Exchange’s calculation of the REGO Index for a number of months (March 2019, and October 2019 to January 2020 inclusive), along with the underlying bid data. We have checked that the REGO Index has been calculated correctly based on the bid data we were provided with.
The volume of bids on which the index is based varies from around 0.1TWh in the lowest month (March 2019) to 2.1TWh in the highest month (December 2019). A large number of off-takers (licensed suppliers) use the Renewable Exchange platform, and individual tenders may receive bids from 10 or more bidders. In our view, the REGO Index is a reasonable reflection of the price which PPA off-takers are prepared to pay to purchase REGOs.
21 Feb 2020
Price transparency is welcome, but can REGOs play a material role to achieve net zero carbon?
The global Keith Anderson, CEO of Scottish Power’s, recent blast against traders in REGOs “playing games with bits of paper” has put the spotlight on whether the system is working to reflect the value that energy users put on renewable power and encourage further investment in renewable energy. Regen has raised similar concerns regarding paper REGO trades being used for the purpose of greenwashing so called ‘100% renewable energy’ tariffs.
It is worth going back however to the original idea behind REGOs (and the wider international system of guarantee of origin certificates). The ability to trade the attribute of the greenness of energy was intended to provide an additional source of value, and market incentive, for renewable energy generators. Of course when the scheme was devised the amount of renewable energy available was tiny, compared to the nascent demand for greenness, and so it was envisaged that certificates of origin would have significant worth.
The reality however in those countries, like the UK, with growing levels of renewable generation has been a story of REGO supply far out stripping demand, leading to REGOs trading for a few pence per MWh. This has in turn enabled a boom in ‘green’ energy tariffs that cost energy suppliers and off-setters very little, without having a material impact to encourage investment in new projects.
So do REGOs really matter? In the days of high subsidies and Contracts for difference (CfDs) the value of the REGO was less important. However as we look forward to post-subsidy developments, or subsidies set at or below wholesale prices, a mechanism to reflect consumer and corporate demand for green energy could now play a key role in the business case for new renewable energy projects. For the REGO market to support decarbonisation as intended however there needs to be a significant increase in demand compared to supply, or changes to the way in which REGOs are traded.
A starting point, both for the industry and for policy makers, is to understand what the trading value of REGOs actually is. So the launch of Renewable Exchange’s Rego Tracker is a very welcome development to shine the light of transparency on REGO prices for generators and traders alike.
Renewable Exchange’s figures show that prices for REGOs have been trending upwards in recent months, and are significantly higher than the anecdotal price points we were previously aware of. A positive trend perhaps reflecting the number of corporates purchasing ‘green’ power and the continued growth of ‘green’ supply tariffs. However, at around £0.5 per MWh the value of a REGO is a useful fillip for existing generators, but remains below the level where it would play a significant role in the way investors look at new renewable energy projects. Renewable Exchange’s data also shows the wide variance of REGO bid prices made, and that there are still a number of trades for which the effective REGO price is zero. So the REGO market is still finding its value.
With more corporates committing to ‘zero emissions’, and consumer demand for green energy, there are clearly demand side factors that could lead to the upward trend of REGOs value continuing. There is also the opportunity to up-sell REGOs from local community energy and iconic technologies for their corporate and social responsibility value. Across the broader market however, with major offshore wind projects, and potentially solar and onshore wind, coming online over the coming years, there will also be an increase in REGO supply.
The key factor that could disrupt the market is Ofgem’s commitment in its new decarbonisation action plan to review the marketing of green tariffs to protect customers. The decarbonisation action plan was launched on by Ofgem’s new CEO, Jonathan Brearley, on his first day in the role, and it looks like this is an area that will be vigorously pursued.
In the longer term a rise in the value of REGOs could be engineered in a number of ways including by setting a minimum REGO obligation, via the introduction of higher carbon prices, or the reconfiguration of existing environmental levies into a form of carbon levy. One possibility floated by market participants is that not all REGO’s should be born equal – projects built without subsidy could, for example, get a ‘super green’ REGO that would carry additional value by, for example, further reducing the burden of environmental levies.
For now market supply and demand dynamics continue to drive the value of REGOs, but it could be the regulator that disrupts this market in the months ahead.