Guarantees of origin for electricity from renewables in Ukraine
What are they based on and why are they needed in Ukraine
On January 20, 2022, the State Agency on Energy Efficiency and Energy Saving of Ukraine published for public scrutiny the draft of National Renewable Energy Development Action Plan until 2030 (“National Renewable Action Plan”). Taking into account the existing challenges faced by the renewable energy sector, the draft National Renewable Action Plan focusesso attention on the introduction of a mechanism for issuing guarantees of origin for electricity generated by renewable energy sources. Specially for Mind, Sayenko Kharenko’s expert on energy projects and Ukrainian Wind Energy Association (UWEA) board member Maryna Hritsyshyna explain the guarantees of origin scheme, how it works, and why the introduction of the guarantee of origin scheme for renewable energy is important for Ukraine.
Electricity supplies to Ukrainian consumers through the grids from various sources and different producers including nuclear plants, coal generation, and electricity producers from renewable energy sources (RES) There is therefore no way to determine the source of origin of the consumed electricity. For this reason, the introduction of a traceability system such as a guarantee of origin scheme is one solution for this problem. EU countries commenced the use of guarantees of electricity origin generated by renewable energy sources long ago. The concept of the guarantee of origin scheme was firstly introduced in 2001 with the Renewable Electricity Directive 2001/77/CE.
According to the data from the web-site Ukrenergo, the Ukrainian transmission system operator, the installed capacity of renewables in Ukraine in December 2021 was 8,148.50 MW or 14.5% of the installed capacity of the Integrated Power System (IPS) of Ukraine. At the same time, Ukraine still does not have any working system for confirmation of electricity generated by RES.
Ukraine has one of the most unusual situations regarding guarantees of origin for renewable electricity. Regulations for issuance of guarantees of electricity origin were introduced in Ukraine in 2013:
- the Law on Alternative Sources of Energy was amended with the provisions for issuance of guarantees of origin, and
- the Cabinet of Ministers of Ukraine adopted the Procedure for Issuance, Use and Termination of the Guarantee of Origin of Electricity for Business Entities that Produce Electricity from Alternative Energy Sources. However, notwithstanding the fact that this Procedure is still in force, in Ukraine it does not work in practice.
It is worth noting that nine years ago, when the Guarantees of Origin scheme was first introduced in Ukraine, the issuance of guarantees of electricity origin was not necessary for RES producers as well as consumers. RES producers worked under the feed-in tariff and business did not have any reasons to purchase electricity from RES producers.
However, the situation has now changed, due to an increase in demand for renewable electricity from consumers. At the same time on the basis of Ukraine’s new obligations to implement the new Directive 2018/2001 on the promotion of the use of energy from renewable sources under the Decision of the Ministerial Council of the Energy Community dated 30 November 2021, the existed guarantees of origin scheme in Ukraine is subject to revision.
What is a guarantee of origin?
The guarantee of origin is an electronic document issued at the request of the RES producer to provide t the final customer with confirmation of production of a certain share or quantity of energy from renewable sources.
It should be noted that guarantees of origins shall comply with the following:
- To have the standard unit of measurement equal to 1 MWh;
- With regard of each unit of energy no more than one guarantee of origin can be issued;
- Shall be valid for 12 months after the production of the energy.
It should be noted that guarantee of origin schemes in the EU countries are based on the European Energy Certificate System (EECS) rules, but said rules shall be replaced by the standard CEN – EN 16325 according to the new Renewables Directive 2018/2001.
In the EU, guarantees of origin for renewables are circulated through the following platforms:
- Electronic register, where guarantees of origin can be issued and transfers among participants of this platform;
- AIB hub, where members of Association of Issuing Bodies (AIB) can trade with their guarantees of origin on an international level;
Trading platforms where guarantees of origins are traded as goods between market participants.
In other words, guarantees of origin can be traded and used at the national and international level. In order to understand the main peculiarity of each level, it is important to understand the main procedure for issuance.
What is the procedure for insurance of guarantees of origin?
The procedure of issuance and the issuance body are determined in each country at the national level. Meanwhile, the European Energy Certificate System (EECS) determines the following main participants of the guarantees of origin scheme:
Issuing body. Most of EU countries empower the transmission system operators (TSOs) or regulators to issue guarantees. However, some countries have other approaches. For instance, the issuance body in France is subject to determination on the basis of competition procedure and the issuance body can be appointed for a maximum of years. Currently this issuance body in France is the European Energy Exchange AG (EEX). At the same time, the main requirement of the issuance body under the new Renewable Directive 2018/2001 is that it shall be independent of production, trade, and supply activities.
Appointed Agents. To performance its functions the issuing body can appoint:
- A Production Registrar that inspects of the generating facilities and verifies energy consumption;
- An Auditing Body that is responsible for verifying the issued guarantees of origin with regard of compliance with the registered generation capacities;
- A Registry Operator that performs administrative functions related to the electronic registry.
Meanwhile the guarantees of origin scheme in the EU countries that complies with the European Energy Certificate System (EECS) consists of the following main phases:
- Issuance: the guarantees of origin shall be issued in the electronic register in respect of generated energy by the registered on the national level facilities;
- Transfer: the guarantees of origin may be transferred from the RES producer account to the trader or other user of the electronic register;
Cancellation: the guarantees of origin are subject to removal from circulation after purchase by a consumer or in other cases determined by the national legislation.
Guarantees of origin can also be withdrawn due to their issuance with mistakes. Guarantees of origin may be terminated if they are not cancelled by RES producers within 12 months after the generation of energy.
It should be noted that special requirements for issuance of guarantees of origin are determined for RES producers within the framework of supportive schemes. If the RES producer receives incentives under a supportive scheme, the market value of the guarantee of origin must be duly taken into account in the relevant supportive scheme.
Thus, guarantees of origin could be traded at market basis or through auctions (e.g. for RES producers receiving state support). In addition to the national level, guarantees of origin can be transferred also at the EU level, but under certain conditions.
How can be guarantees of origin transferred at the international level?
In order to have an opportunity to transfer guarantees of origin at the international level, the issuance bodies of EU countries should become members of the AIB. The AIB is an international organization that has a mission to guarantee the origin of European energy. The members of the AIB are competent bodies from 28 countries that have guarantee of origin schemes to confirm the source of electricity production.
The main advantages from membership in the AIB include the possibility of trading guarantees of origin of electricity at the EU level on the basis of the AIB hub. At the same time, it should be taken into account that membership of non-EU countries in the AIB is subject to discussion due to certain restrictions in the new Renewables Directive 2018/2001.
According to the new Renewable Directive 2018/2001, EU countries shall recognise guarantees of origin issued by other EU countries. At the same time, EU countries shall not recognise guarantees of origin issued by a third country except where the EU has concluded an agreement with that third country on mutual recognition of guarantees of origin. This means that guarantees of origin of electricity issued in Ukraine can be recognised in the EU only on the basis of international agreements.
Why is the implementation of guarantees of origin scheme very important for Ukrainian businesses?
The Ukrainian economy depends on exports to EU countries. This EU trade accounts for 36% to 42% of Ukrainian export. Meanwhile, EU countries are working towards implementation of the Green Deal and one of the key elements is the Carbon Border Adjustment Mechanism (CBAM).
When the CBAM becomes fully operational (preliminary from 2026), it is expected the EU importers will declare the amounts of included carbon emissions in goods production and will purchase carbon certificates corresponding to the price of carbon that would have been paid if the goods had been produced in accordance with EU carbon pricing rules equal to those emissions. It is planned that CBAM will initially apply only to the following goods: cement, cast iron and steel, aluminum, fertilizers, electricity.
It is also important to take into account the growth of carbon dioxide (CO2) prices. In recent years in the EU, average carbon dioxide prices increased from EUR 60 till EUR 97 per tonne of CO2 on 8 February 2022. From 1 January 2022, the tax rate on carbon dioxide emissions in Ukraine was raised to UAH 30 per 1 ton from 10 UAH.
For Ukrainian companies, the purchase of the energy generated by REC producers can be an option to decrease carbon dioxide emission in their business and production of goods. However, without a functioning guarantee of origin scheme for renewable electricity, Ukrainian companies cannot confirm the consumption of renewable energy. Considering the expected operation of the CBAM from 2026 and growth of carbon dioxide prices in EU countries, it is crucial to implement the guarantee of origin scheme for electricity from renewables as soon as possible.
In summary, the implementation of the guarantee of origin scheme is crucial for Ukraine not only for the development of the renewable generation but also for providing opportunities for industrial producers to confirm the use of renewable energy in production of goods and avoid additional costs connected with the CBAM and carbon dioxide prices and taxes. At the same time, the introduction of the guarantee of origin (GO) scheme is a rather long process that can take at least one year. For this reason, it is important to commence the implementation of the GO scheme in Ukraine as soon as possible.
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