Hungary launches an organized market for guarantees of origin in June, SEE Energy News
The guarantee of origin (GO) market in Europe has been growing steadily over the past decade, offering a flexible and efficient tool to help companies achieve their clean energy goals and support renewable energy production. In the long run, such a market-based system helps increase the financial sustainability of renewable energy projects and stimulates investment in the renewables sector, thus suppressing fossil fuels at lower prices and contributing to the EU’s energy transition.
Organized markets focused on guarantees of origin auctions are already widespread in Western Europe, but Central and Eastern Europe is catching up. Hungary recently announced that it will launch its organized market for guarantees of origin to increase transparency and liquidity and support its growing renewable energy sector.
What is a guarantee of origin?
The Guarantee of Origin (GO) is an instrument that enables electricity consumers to actively choose sustainable energy production in relation to fossil fuels and thus send market signals about their demand. It is an electronic certificate that proves to end users that a certain amount of electricity is produced from renewable energy sources.
Guarantees of origin can be registered after production and can be traded electronically on the voluntary market of renewable energy certificates, so they are not related to the physical supply of electricity but represent a confirmation of environmental benefits associated with renewable energy production.
The sellers on the market are renewable power plants, while the buyers are primarily those companies that are committed to the goal of making their energy consumption greener. There is no fixed price for CSOs, but their value depends on market demand.
When a company buys GO, it has the right to announce that the amount of energy consumed is supported by GO certificates produced from renewable energy sources.
The guarantee of origin is then revoked in the electronic register of certificates, which allows tracking of ownership, verification of claims and ensures that guarantees of origin are sold only once.
The CSO market has grown steadily over the past decade and is expected to double by 2025. According to the Association of Publishers (AIB), 835 million certificates (825 TWh) were issued last year.
CSO market development in Hungary
Based on the National Energy Strategy until 2030, Hungary expects growth in renewable energy production and demand for green energy. In 2020, local production of solar and wind amounted to 2 TWh, which can be considered a solid volume at the regional level.
Akos Hamburger, head of the electricity sector’s supervisory and licensing department at the Hungarian Energy and Utilities Regulatory Agency, says the trend will continue and the country will grow sharply in the coming years, especially in solar energy production and use. Since the Hungarian solar and wind production mainly takes place within the feed-in tariff scheme (FiT), the Hungarian organized CSO market will focus on these producers.
The preparation of the regulatory framework for the CSO market has been underway since 2013. Hungary has witnessed the slow development of the CSO market over the past years – the market has remained relatively small and Hungarian CSOs could not be exported because Hungary was not part of the AIB Hub (central point for transferring certificates between registries). Last year, CSOs covered only 2.5 percent of Hungary’s electricity consumption, according to Hamburger.
But the EU’s Clean Energy Package and the new Renewable Energy Directive with new CSO provisions have brought a revision of the rules. In December 2020, HEA applied for membership in the AIB, which was approved in May last year. Last year, Hungary amended its Electricity Law. In February this year, HEA became a member of the EECS (European System of Energy Certificates), and since March 1, Hungary has been affiliated with the AIB Hub. Hungary now has completely new regulations on electricity CSOs and disclosure, taking into account good practices in Europe.
From June this year, the Hungarian transmission operator MAVIR, which is also the operator of this support scheme, will put up for auction the CSOs belonging to the KAT support scheme.
Hamburger hopes that the auction will reduce the operational costs of the KAT system and that domestic market participants will be able to take this opportunity to join the European market through AIB Hub.
Launch of the Hungarian CSO market
There will be two phases of launching the CSO market at HUPX, says Djerdj Istvanfi, director of HUPX. This market will start working with a single vendor model. The Hungarian Transmission System Operator (MAVIR), as the nominated buyer of Hungarian FiT production, will be the only seller of related guarantees of origin through quarterly auctions, while the buyer position will be open to energy traders, end users and other market participants.
There is a constant growth in the volume of installed capacities in the FiT system, confirms the director of HUPX, adding that a huge increase is planned in the coming years (it will amount to about 3,000 MW of installed capacity by 2024).
However, as much of this capacity comes from solar energy, the seasonal nature must be taken into account. Last year, from 3.9 TWh of FiT production, 2.6 TWh came from wind and sun. Due to that, there is a certain fluctuation in the number of offered CSOs in each quarter, adds Istvanfi.