The future of REGOs
The surge in market value of Renewable Energy Guarantees of Origin (REGOs) has slowed and even partially receded. However, REGO prices are still significantly higher than they were several years ago. A shortage of supply following Brexit and the ensuing UK ineligibility of the equivalent European certificates, Guarantees of Origin (GoOs), has sustained the value.
If REGO prices stay at this elevated level, there’s a question as to how willing electricity customers will be to incur the associated cost. After all, until relatively recently, REGOs cost as little as 20p. It seems possible that some customers may choose to explore other, perhaps more affordable, activities as a means of addressing climate agendas.
Market developments
Let’s look at some recent developments to better understand the market’s direction of travel.
Hourly matching
Until now, showing renewables consumption has relied on matching customer energy use on an annual basis with REGOs for that period. However, the market’s evolving to offer more granular proof of renewables consumption. This makes sense as some forms of renewable generation are intermittent in nature and therefore can’t offset consumption at all times.
We’ve seen the emergence of hourly – or 24/7 – matching, data evidencing the origin of consumed energy on an hour-by-hour basis. Certificates don’t yet exist to back up hourly matching. However, it’s likely that we’ll see this become an accepted means of organisations further proving their commitment to decarbonising and supporting a renewable-energy future. Multinationals are beginning to follow Microsoft Sweden’s commitment – and the trend looks set to continue.
Increased transparency
Given the raised price of REGOs compared to five years ago, it’s also likely buyers will demand more certification transparency. They’ll want to know what they’re getting for their money and how they’ll be able to use it to promote their sustainability credentials.
The Government’s intervention will also be influential as it looks to design a framework for transparency of carbon content in energy products. Whatever shape this takes, we can expect to welcome new purchasing platforms over the coming years that promote clarity and help consumers make informed investment decisions.
Large-scale renewables connection
We’ve seen huge renewables project developments start to come online recently. What will be the world’s largest offshore wind farm, Dogger Bank, began generating in late 2023. By completion in 2026, it’ll satisfy the electricity needs of six million homes.
The Government awarded 95 contracts in the fifth round of its Contracts for Difference support scheme (AR5) in the second half of last year. Once these projects reach fruition, we’ll see a sharp rise in REGO volumes. This is likely to help limit the prices to which REGOs can rise.
Other considerations
Certain events outside the REGO market will also influence the future of UK renewable energy certification.
Ongoing requirement for proof of energy origin
The majority of electricity suppliers now offer green energy tariffs. And it’s likely that organisations on such contracts – whether to eliminate their reportable Scope 2 emissions or to boost their sustainability credentials – won’t be comfortable reverting to ‘brown’ power. Doing so would represent a backwards step and could seriously damage brand reputation.
Accordingly, suppliers will need REGOs to be able to honour their existing customer deals – and customers will need them bundled with their purchased electricity for proof of sustainable sourcing.
Additionally, large organisations are increasingly looking to their supply chains to reduce reportable emissions. Tenders – particularly public sector ones – often require companies to report on their emissions or provide proof of their sustainability commitments before accepting bids. Scope 2 emission reporting checks are the easiest to carry out.
These developments point towards a likely increase in REGO demand.
Possibility of price outweighing perceived value
There does exist the possibility that consumers will turn their backs on REGOs, deciding that prices have become prohibitive. Decision-makers may feel that they can make sustainable investments elsewhere to fulfil their sustainability promises or maintain an environmentally conscious profile. Such commitments might include developing on-site generation assets or electrifying vehicle fleets.
However, the importance of sustainability credentials and the relative ease of accessing REGOs seem likely to outweigh any perceived financial disadvantage.
Impact on prices
So, what does this all mean for REGO prices?
Well, prices have stabilised for the moment within the range of £5 to £10 per certificate.
It, of course, remains to be seen in which direction prices will travel in the coming years.
The value that REGOs offer consumers in terms of evidencing their sustainability credentials suggests that prices won’t drop back to anywhere near their 2019-20 levels. But the market’s recovery from the shortage of certification supply following Brexit – and the emergence of significant new-build renewable assets – suggests we’re unlikely to see prices skyrocket again.