Oversupply of green certificates
For at least 2 years Polish Wind Energy Association (PWEA) has been proposing to introduce a
transparent green certificates market information scheme. The very scarce legal provisions pertaining
to information obligations result in endless speculations concerning the true image of the certificates
of origin market, which contribute to its destabilisation. On the basis of available data PWEA made an
attempt to aggregate and publish the data on its website at least once per quarter in order to enable
a more complete diagnosis of the green certificates market.
Rarely published information concerning the certificates of origin market do not allow for the analysis
of supply and demand, including the oversupply of certificates of origin, on a current basis, what
distorts market operation as well as making rational investment and regulatory decisions. Ministry of
Energy and the Energy Regulatory Office are publishing insufficient data with insufficient frequency and
too much a delay (30 or 45 days after the end of a quarter).
In a situation where the green certificates market will operate until the year 2035, the information
scheme has to be transparent and ensure access to current data at least once per month, as in
Sweden, Norway or UK. Such solutions are also possible and required in Poland.
The green certificates market faces severe oversupply since 2012. The reason is attributable to many
complex factors, independent from the investors. First, in 2010-2013 the ERO published certificate
market situation data only once per year, rendering impossible analysis of the market situation on a
current basis. Second, the period saw the quickest growth in the supply of certificates from producers
using multifuel combustion technology, who are the only ones capable of controlling the certificate
supply at their discretion (including decreasing the supply to zero) without any adverse consequences.
In 2010-2012 the obligation to purchase certificates was maintained at the same level. Moreover, the
market situation was further aggravated by the still unexplained consent to the payment of the
substitution fee when certificates were available on the SPOT market.
During the works on the RES Act the quota for 2015 and 2016 was maintained at the level specified in
October 2012 despite the already apparent oversupply issue, resulting in the knowledge that the quotas
are insufficient compared to the RES production potential created. Moreover, the Act introduced
exemptions for energy-intensive sectors of the economy that further limited the demand for green
certificates. The obligation quotas were not adjusted.
Therefore, the adoption of the RES Act did not stop adverse trends on the green certificates market.
Demand and supply simulation models clearly demonstrate that it is possible to limit the oversupply to
approximately 25% of annual GC demand in 2020. However, the only tool to achieve this is through
substantial increase in the obligation quota for the next years.
The majority of discussions during the two recent years was dedicated to the new auction scheme,
while even in 202 at least 2/3 of renewable energy source installations will still operate in the green
certificates scheme.
Currently the extent of the oversupply is greatest in the entire history of the support scheme in
Poland. At the end of March 2016 the oversupply of green certificates reached 20 728 GWh. From
the beginning of 2015 the surplus increased by 7 303 GWh and continues to grow systematically.
Moreover, the data presented by the ERO only include the number of certificates applied for by
producers of electricity that have been issued by the Energy Regulatory Office. The ERO data
demonstrate that the aggregated volume of issued certificates minus the total number of cancelled
certificates amounted to 11 889 GWh, i.e. approximately 3 times more than a similar value as of
31.03.2014 (3 483 GWh). Alas, such an approach shall be deemed illegitimate, for it does not take into
the number of certificates for electricity that has been produced and not yet confirmed with the
issuance of a certificate of origin. To reliably demonstrate the oversupply in a period other than the full
year of settlement of the obligation one shall also consider the expected demand for green certificates.
To fully demonstrate the increasing oversupply below we present a graph of the situation at the end of
2014, 2015 and 1Q 2016.
The graph below demonstrates the increase in the oversupply of certificates of origin from the moment
statistical tools enabled PWEA to carry out the analysis.
Oversupply of green certificates from 31.03.2014 to 30.06.2016 (GWh)
Polish Wind Energy Association analyses demonstrate that the package of solutions contained in the
draft amendment to the RES Act of 5 May 2016 (Law and Justice parliamentary draft, Sejm paper 406)
will not solve the issues related to the oversupply on the green certificates market. Therefore, a
package of additional measures recommended by PWEA shall be implemented to stabilise the green
certificates market. The wind energy industry is proposing to increase the obligation quota for the
2017-2020 period in accordance with the trajectory laid down by the National Renewable Energy Action
Plan (NREAP). This is the first real step towards the restoration of market balance. The effects of its
introduction shall not be demonized. Experts estimate that price effects of the reduction of the
oversupply of certificates of origin, assuming the increase in the average certificate of origin price to
200 PLN/MWh in 2017 (from the current 100 PLN/MWh) may charge the sale of electricity to final
consumers with an amount of 14 PLN/MWh. For an average household this would result in the
increase of electricity bills in the order of 3 PLN/month (approximately 2%). This is a theoretic estimate,
only referring to the price impulse related to the increased price and volume of green certificates
subject to cancellation. In practice the impulse may be irrelevant or be “diluted” in other factors
affecting energy prices. It shall be noted that although after 2011 the market experienced almost
threefold decrease in certificate of origin prices (from approximately 300 PLN/MWh to below 100
PLN/MWh) and a decrease in wholesale electricity prices by almost 20%, the price of electricity for final
consumers is maintained at the same level or even slightly rising. Therefore, one cannot discuss direct
effects of the increased obligation on energy prices unless the correlation is uni-directional. The graph
below presents an overview of components of the current cost of electricity for a final consumer. RES
support contributes to 4.3% of the cost incurred by the final consumer.