This post is the first of Green Dealflow's encyclopedia which aims to answer FAQ within the renewable energy sector.
The article was written and first published on kyos.com.
A green certificate is a tradable asset which proves that electricity has been generated by a renewable (green) energy source. It is also referred to as Renewable Energy Certificate (REC) or Renewable Obligation Certificate (ROC). A green certificate is typically issued per 1 MWh of renewable power. Alternatively, the number of green certificates may depend on the source, whereby greener or more innovative technologies may obtain more certificates than other technologies per MWh of power produced.
Green certificates are issued and traded primarily because of governmental policies which require suppliers to have a certain percentage of renewable production in their supply portfolio. With green certificates, governments can set exact targets as to the level of renewable production in a country, while the market finds the most efficient way to meet these targets. It is an alternative to other policy mechanisms, such as renewable investment subsidies, renewable production subsidies, fiscal benefits and feed-in tariffs.
A green certificate may also be considered the opposite of an emission certificate. Whereas emission certificates, such as EUA’s, impose a cost on non-renewable production and set a maximum to the total emissions, green certificates create an extra revenue for renewable production and guarantee a minimum of renewable production.
The price of the green certificates depends on the scarcity in the market. The price is higher when the green certificates scheme is driven by tight targets of government policies. European countries where green certificate policies are in place include Poland, Belgium, Sweden and the UK. The green certificate market in Italy has been replaced by feed-in-tariffs on 1 July 2016. In the UK the green certificate mechanism (ROC) will end in 2017.
A green certificate is traded separately from the power itself. Certificates cannot be transferred between the European markets, as opposed to emission certificates, so the total market size is often small and trading rather illiquid. Most trading activity is via brokers, such as STX, Cleanworld, Evolution Markets and Amsterdam Capital Trading.