Guarantees of origin for electricity - an analysis of its potential to increase new renewable energy in the North European energy system

The guarantee of origin scheme (GO) has been criticized for its insignificant impact on the development of new renewable energy and the contribution to reducing CO2 emissions. The reason is that sales of GO from old hydropower, Norwegian hydropower in particular, give buyers an environmental alibi without any real changes in the energy system because the price of GO is too low. Hydropower accounts for about half of all GO certificates canceled in Europe. GO from hydropower is issued by Austria, Finland, France, Germany, Italy, Norway, Spain, Sweden and Switzerland. The GO market has grown steadily over the past decade, and RECS International expects a doubling of the market by 2025. The expected growth in demand for GO is significantly larger than the remaining supply of old hydropower GOs in the market. Old hydropower will thus constitute an increasingly smaller share of the GO market in the future. There is also an increasing willingness to pay for GO from new renewable energy. Analysis of Levelized Cost of Energy (LCOE) indicates that the difference between LCOE for new renewable energy and expected market price is within willingness to pay for GO. Furthermore, the LCOE-analysis exhibits low sensitivity to CO2 cost up to 30 € / ton. To assess the impact of a willingness to pay for GO, we analyze two scenarios where the income from GO is allocated to new renewable energy production. Using the Northern European market model Balmorel, we apply a systems perspective that also considers factors other than LCOE, e.g., demand for electricity and transmission capacity between regions. Scenario 1 assumes an income from GO of 4 € / MWh for new renewable energy production from wind, solar PV, and bioenergy. Scenario 2 assumes 10 € / MWh in the Netherlands and 4 € / MWh in other countries. The results show increased renewable energy production, especially wind power. The extra wind power is not evenly distributed within the North European energy system. With 10 € / MWh in the Netherlands, offshore wind power increases significantly in the Netherlands and partially displaces wind power and solar PV in other countries. The baseline scenario without GO shows a significant reduction in CO2 emissions up to the year 2035. With 4 € or higher willingness to pay, the analysis indicate that GO will induce a small increase in renewable energy production compared to the baseline and thus reduce CO2 emissions. The scenario results also exhibit lower electricity prices compared to a base scenario. The net cost for the buyer of GO will therefore be reduced