Implications of the RE100 market boundary change in the context of corporate PPAs
At the end of 2022, RE100 updated its technical criteria with the purpose of accelerating corporate impact (1). The Initiative announced two changes to the technical criteria, designed to meet the needs of the growing market and encourage more impactful procurement actions from all members2. These changes were:
- a revised definition of a single market for renewable electricity in Europe
- a new 15-year commissioning or re-powering date limit for renewable electricity purchasing.
The single market revision stipulates that countries must:
- be part of the EU single market;
- be part of the AIB (Association of Issuing Bodies); and
- have an interconnected grid.
This applies across all countries in Europe, excluding microstates. It ensures that members are sourcing their energy from the same region and are not purchasing from a different region to meet their renewable energy commitments, thus ensuring shared regulation of the energy sector, consistent accounting of energy attribute certificates (EACs), and physical grid interconnectedness.
The following countries listed in RE100’s note on market boundaries from 27 May 2019 are now individual markets for renewable electricity (2):
Reason for exclusion
Bulgaria is not an AIB member
Cyprus is not grid-connected to the single market for renewable electricity in Europe recognized by RE100
Ireland is not grid-connected to the single market for renewable electricity in Europe recognized by RE100
Malta is not an AIB member
Poland is not an AIB member
Romania is not an AIB member
Serbia is not in the EU single market
The United Kingdom
The United Kingdom is not in the EU single market and is not an AIB member
The 15-year commissioning date sets a target for members to purchase renewable energy from new installations that have been commissioned within 15 years of their commitment. This encourages members to invest in newer renewable energy projects, and support adding new capacities to the grid as well as repowering existing ones rather than relying on older projects for energy supply.
The goal of the RE100 is leverage the corporate sector’s voluntary demand for renewable energy to progress carbon free grids by 2040. By activating this demand, a clear signal is delivered to policy makers that corporates are investing at scale in renewable electricity, and active engagement can support addressing barriers corporate buyers face. RE100 technical criteria are regularly reviewed and revised every two years to reflect current challenges and market dynamics. These latest changes, requiring RE100 participating companies to adhere to the amended criteria for the procurement of renewable energy, will enter into force from the first reporting in January 2024.
We take a deeper look at the impact of the single market revision on our European PPA clients, what it has meant in practice and the knock-on effect in the wider EU market with Ivana Đurović of our PPA Advisory Team.
FAQ – What does this mean for corporates?
Most of the focus is placed on RE100 membership, what does this mean for corporates not partaking in the programme?
While the change is broadly framed in the context of RE100 members (of which there are currently 399), it will also affect the considerably larger number of corporates reporting to CDP, as it is announced that CDP will now align its market boundary rule with RE100, thus making these changes very relevant for the nearly 15,000 companies currently reporting into CDP.
What are the implications we are seeing for our clients engaged in a PPA contracting process?
Previously corporates considering cross-border PPAs in Europe could reference all countries enrolled in the AIB, however now there is a single-market consideration to add to the mix. This means that if a corporate has consumption in Serbia, Iceland, or Cyprus where previously they could consider sourcing EACs for a cross-border PPA, they now must exclude these volumes and instead consider local and onsite PPAs based on these new criteria. For some of our clients, this has meant revisiting planned volumes and either downsizing or breaking down the PPA demand.
To give context to the potential impact, based on data from RE100 members reporting to CDP in 2022, at least 604 GWh of procurement of renewable electricity from 46 RE100 members operating in 24 European countries would not meet the new market boundary definition2. And this is only for RE100 companies, the impact is even larger with companies only reporting to CDP.
However, Corporates which have signed PPAs with a Commercial Operation Date (COD) of before Jan 1st 2024, will be able to still apply the previous market boundary rules and their contracts will be grandfathered until they expire, meaning their credibility would be upheld2. This allows some dispensation for corporates with signed PPAs or in advanced negotiation stages whereby the asset is due to go live end of this year. Here the early engagers in PPAs now realize a two-fold benefit by firstly benefiting from high market prices of 2022 and latterly these boundary adjustments.
What about the local markets in EU member states?
Mid-term we anticipate that EAC prices will spike in member states’ markets which are now excluded under the single market revision. This will further create a signal that local projects are needed as a more long-term commercially sustainable option for corporates to procure bundled EACs, meaning demand for projects will be higher.
Serbia is interesting in this regard as export to other AIB members was already limited under the EU Renewable Energy Directive’s second revision (REDII) and will continue to be under the forthcoming REDIII. The RE100 technical criteria now fuels an incentive for local renewable energy development in Serbia, as corporates will now require this in order to comply. Previously, the limitation around exporting certificates limited the commercial value for renewable energy developers seeking to export certificates to the European market. For a country which is generally lacking independent projects outside of the subsidized scheme, Serbia will be an interesting market to watch from a renewable energy development standpoint.
Are we expecting to see any longer-term implications based on the changes?
While the demand from corporates for renewable energy projects remains high, there are two obvious routes for member states’ renewable energy markets. Successful development of an internal PPA market remains one option, and the alternative is joining the AIB. It could be that we see those grid-connected countries aligning on membership to the EU single market for renewable electricity, which would allow for trading of certificates, alignment on regulatory framework, and consistent accounting. It also guarantees a grid connection to a country that also maintains these standards.
If you would like to know more about our PPA advisory services for corporates, renewable energy transitioning or setting climate targets for your business, contact us for more information.
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