The energy sector accounts for a significant portion of global greenhouse gas emissions. Emissions trading, green certificates and guarantees of origin are some of the schemes that stimulate and guarantee production from renewable sources. What are they exactly?

Support schemes to stimulate increased production of renewable energy:

Several instruments are being used to ensure a faster transition to renewable energy.

"The work is proceeding in two steps: step one is to achieve a switch from 'dirty' power generation, for example from coal, to power generation from renewable sources like solar, wind and water," explains Lars Ragnar Solberg, advisor in Energi Norge. "Step two is to get consumers to use the clean energy."

Solberg is a social economist with a professional background in power trading. He believes Norway is in a fortunate situation compared to many other countries: "We’ve already completed step one by investing in hydropower from waterfalls and fjords right from the start," he says.

"That's why we’re ahead of the pack, and Statkraft is one of the leaders in the field."

EU's emission trading system (ETS)

Illustration of ETS

> The EU's goal is to reduce greenhouse gas emissions in the EU ETS sectors by 43 per cent from 2005 to 2030. The emission ceiling in ETS is being gradually reduced so as to reduce the number of quotas in the market, thus making it more profitable to choose climate-friendly solutions. The price is determined by supply and demand, where companies either purchase or sell quotas in the market according to their need to cover their own emissions.

> Certain competitive sectors receive some free quotas.

> Current quota trading period runs from 2013 to 2020. Negotiations on a revision of the system by 2030 recently concluded, and the formal decision is expected shortly.

Promotes transition

Among the many different schemes established to stimulate and guarantee increased power generation from renewable sources, Energi Norge points to the EU's emissions trading system ETS, electricity certificates or what are known as green certificates, and guarantees of origin.

"We believe ETS is Europe’s most important tool for cutting greenhouse gas emissions," says Solberg. "The system sets a ceiling on emissions in a geographic area so that they are kept at an acceptable level. The EU has set a goal that emissions from the energy and industrial sector (EU ETS) must be reduced by 43 per cent from 2005 to 2030."

Certain sectors are granted free quotas on order to ensure competitiveness.

"What the economists who designed the emissions trading system had in mind was that those who have the highest cost for reducing emissions can buy the quotas they need," says Solberg. "Companies that have the opportunity to restructure their production can do so to reduce their quota needs. They can also sell their quotas on the market. Through the market mechanisms and price signals, the system promotes cost-effectiveness, production of renewable energy and reduction of greenhouse gas emissions."

"Part of the problem in the quota market has been too much supply and hence low prices," he points out. The supply of quotas is predefined and is not affected by fluctuations in the market.

Guarantees of origin

Illustration of guarantees of origin

> The guarantee of origin scheme in the EU Renewable Energy Directive provides consumers with an opportunity to signal a preference for purchases of renewable energy. By purchasing power with a guarantee of origin, consumers contribute an additional payment to producers of electricity from renewable sources.

> A guarantee of origin is a financial confirmation that, at a given power plant, as much power is produced from renewable sources as is purchased. The guarantee of origin says nothing about the power the individual consumer physically receives.

Regional cooperation

The system of electricity certificates is a joint Norwegian- Swedish initiative.

"Power producers investing in renewable power generation have the right to receive electricity certificates for 15 years, and power suppliers are obliged to purchase certificates for a given share of the power supply," he explains. "Trading in certificates takes place on the NASDAQ stock exchange, among other marketplaces, where the producers sell to the suppliers. Norway and Sweden have had a common market since 2012."

After 2021, new projects in Norway will not receive certificates, while the Swedes wish to stimulate increased renewable production until 2030. The system will then continue until 2045, but the quota requirement will not increase after 2030.

"The large power surplus weighed heavily when Norwegian politicians decided to cancel the subsidies, while the Swedes are more uncertain about the future when they will eventually shut down their nuclear power," says Solberg.

Electricity certificates

Illustration of electricity certificates

> In order to increase production of renewable energy, Norway and Sweden agreed on a common market for electricity certificates in 2011. The goal is a total renewable development in the two countries of 28.4 TWh by the end of 2021.

> Power producers who invest in renewable power generation can receive certificates that can be sold in a market. The electricity certificates ensure profitability.

> Demand is ensured because power suppliers and certain power customers are obliged to purchase electricity certificates. The cost is included in the electricity bill to the consumer, who ultimately finances the scheme.

Important part of solution

A guarantee of origin serves as evidence that the power is produced and delivered to the power grid from a specified power plant based on renewable energy. All EU and EEA countries must have a documentation system for power originating from renewable energy sources. By purchasing a guarantee, customers can express their preference for power from renewable sources and signal that production of this type of power should increase. There are different prices for different types of renewable energy, and the revenues benefit the power producers.

"It's difficult to provide consumers with a guarantee that the electricity they consume comes from a renewable energy source, because electricity from many different sources flows into the same market," says Solberg.

"Imagine a bathtub filled with water from different sources and then mixed. When drained it's impossible to say exactly which source the water came from. Similarly, it's difficult to say which power source is used to produce the electricity in your sockets. If you as a customer buy a guarantee of origin, you can at least say that you're paying for renewable power generation and use the documentation in your environmental accounts."

"The thinking behind this is sound and important," he emphasises. "Finding schemes that increase the share of power generation from renewable sources is an important part of the solution to climate change. But the tools used must be refined and further developed. We simply have no choice but to try things out as we move forward."

Lars Ragnar SolbergLars Ragnar Solberg is an advisor in Energi Norge. The interest and employers' organisation offers a series of courses on the electricity market, power grid and renewable energy production.

Auctions taking over

Solberg also points out that experiences of poor market exposure and overcompensation in different renewable energy support systems have led most countries in Europe to shift to different auction models where producers must submit bids and compete on price.

The European Commission's Directorate General for Competition has been the driving force behind this. The winning bids in auctions in Germany and the UK in recent years show that support for renewable energy is now dwindling significantly.

Text: Sissel Fantoft
Illustrations: Mona Holm
The article has also been published in Statkraft's magazine People & Power no. 2/2017.

Other support schemes for renewable energy

CfD - Contracts for Difference: Introduced in the UK in 2014 and replaces the British Renewable Obligation Certificate (ROC) for new projects from 2017. Support contracts are awarded through auctions, and will reduce risk and cost of investing in lowcarbon energy companies by marking up the power price when it falls below a certain level. Thus, the producer receives a fixed total electricity price per MWh for the next 15 years. When the market price is lower, the company receives money from a fund which suppliers of power to end users must pay into. When the price is higher, the producers pay back to the same fund.

RECs - Renewable Energy Certificates: The United States has a number of certificate schemes that guarantee that the electricity is generated from a renewable energy source, including Green Tags, Renewable Energy Credits, Renewable Electricity Certificates and Tradable Renewable Certificates.

I-REC: This is an international standard based on the guarantee of origin systems in Europe and North America and is used in countries that do not have their own guarantee schemes for suppliers of renewable energy, primarily in Asia, Latin America and Africa. In 2016, Statkraft was the first I-REC provider in Brazil and India.

REGO - Renewable Energy Guarantees of Origin: This UK system for implementing guarantees of origin shows the percentage of an electricity supplier’s energy that comes from renewable sources.