After reaching highs of over £20/MWh towards the end of 2023, the certificate market has gradually lost value, currently reaching lows not observed since 2021. Policy and regulatory change, further introductions of renewable capacity onto the grid and reductions in utility demand have all contributed to the downward price trend we’ve observed over the last 18 months.
Unlike other commodity markets, the certificate market exists not due to consumer demand, but because of subsidy support mechanisms like the Renewable Obligation (RO), Feed-in-Tariff (FiT) and the Contracts for Difference (CfD). This policy-driven supply, as opposed to market-led demand, leaves the market open to distortion and unbalance.
Over the past two quarters, evidence of this unbalance has presented itself through a significant oversupply of certificates for the recent Compliance Period and as we approach the cut-off for Fuel Mix Disclosure, demand has not kept pace.
According to Renewable Exchange’s REGO Forward Curve, the near curve has lost huge value – over 80% since September 2024 - with further out vintages lesser affected, leaving a generally “backwardated” market in contango (contango - the price of REGOs for a future compliance period is higher than for the current period).
REGOs associated with wind, solar or hydro technologies have consistently pulled higher prices historically, yet as prices have been driven down the price delta between ‘green’ and ‘fuelled’ certificates has converged slightly.
It’s clear that near time supply is strong and long-term volumes are also relatively secure through successful rounds of the CfD auction, despite the recent cancellation of Hornsea 4, which equated to over a quarter of the AR6 confirmed contract volume. If supply chain issues continue to develop in the build out of large-scale renewable projects, these premiums could remain as electrification of transport and industry increase.
It must be clear that REGOs, and all green certificates for that matter, are price elastic by nature. High prices result in a reduction in demand and vice versa. Geo-political tensions and restrictions to global free trade have obviously been largely apparent so far this year, which has generally dampened the economic outlook and exacerbated the oversupply and dwindling utility demand that’s characteristic of the market in recent times.
This has forced some corporate end-users to potentially rethink their need for green reporting which might leave the door open for those still in the market.
If you’re looking for more clarity around your certificate activities - whether that’s buying, selling, or simply access to data to inform you of where the market is trading – feel free to reach out to contact@renewable.exchange or fill out our REGO Forward Curve form to discuss access to our weekly-updated REGO price data.
