Understanding EAC markets

Energy attribute certificates (EACs) have been around since the late 1990s in Europe and the US. Since then, both public bodies and market players have worked to develop EAC markets around the world. Regulation and procedures may differ between EAC systems in different countries, but all EAC systems serve one common function, which is to trace the attributes of a given volume of energy from a producer to a consumer.

Energy attributes

EAC markets function in addition to traditional energy markets, which have operated since the beginning of the 19th century. Energy markets sell energy as a commodity based on when and where it was generated but with no distinction as to how it was generated. As renewable energy developed, so did consumer demand to buy renewable instead of fossil energy. As energy cannot be physically tracked through public wires or pipes, the only way to identify and trade renewable energy is through a document issued to the generator that certifies their production. This started with electricity, with the possibility to certify the characteristics of a MWh of generated renewable power, such as:

• time and date of production
• location of the generation device
• generation technology (eg. wind turbine, hydropower plant, etc.)
• age of a production device

In energy, these characteristics are called attributes, and the EAC market offers a tool for trading these certified attributes. While we commonly speak of purchasing renewable energy, the consumer is purchasing renewable attributes in the form of an EAC. This is the same for a domestic green tariff, a renewable power purchase agreement, or separate purchases of energy and attributes. All means of buying renewable energy through public grids or pipes depend on EACs. This can be confusing, given that attributes of energy is an abstract concept to many who are focused on using energy from renewables. Therefore, it is useful to also keep in mind that when we trade power, we are not trading physical electricity but we are trading the right and responsibility to inject power into the grid or take it off through balancing markets. So consumers are not really buying ‘power’, they are buying the right to take a given quantity of power from the grid. For more clarification on this, see the next item “The basics of EAC markets”.

The basics of EAC markets

EAC markets were created because electricity cannot be tracked between producer and consumer in the same way as other products, such as Fairtrade coffee. Electricity is not a tangible product that can be physically transported. It is a charge that must be maintained on a grid. Even if you buy your power from a specific producer they cannot box and deliver this power directly to you. Instead, they inject their electrical charge onto the grid in one place and somewhere else you take the same amount of charge off the grid. System operators work to maintain a balance between the injection and off-taking of power. Without this balance, the grid will fail and cause blackouts. Power markets do not trade physical power, they are trading balancing responsibilities.

When we buy power, we are not buying physical electricity, we are buying the right to remove a given amount of charge from the grid. Therefore, currently, the only way to track the production and use of a megawatt-hour of power, along with its attributes, is through a book & claim accounting system, which lets EAC market participants book the attribute certificates when power is injected into the grid, transfer those attributes to their consumer, who then claims them as proof that they paid for a given type of electricity.

At its most basic level, the EAC system works as follows:

1. A producer of (renewable) energy generates 1 unit of energy (generally this is 1 megawatt-hour (MWh))
2. For each MWh of power they inject into the grid, the producer requests an EAC from the issuer; the EAC, which is an electronic certificate, contains factual information about the attributes of the specific unit of energy such as the technology used to generate the power and where it is located.
3. The EAC can be traded between market participants through registries with the ultimate aim of selling it to a consumer (also known as an end-user).
4. The end-user or their representative cancels the EAC to remove it from circulation on the registry so that it cannot be used again – without cancellation, there is a risk that one EAC could be counted twice (known as double counting)
5. The consumer can then claim to have consumed the unit of power that was represented by the EAC.

The EAC market is separate from the energy market. Even though each EAC is associated with a specific unit of energy, EAC markets are not about allocating the energy but are about allocating its attributes. Most often these are “renewable attributes” so that the energy consumer can claim the consumption of renewable power.

Energy attribute certificate systems prevent the double sale or consumption of the attributes of a particular unit of energy. All consumption of energy attributes should have the associated EAC cancelled, since there are no other means to ensure unique claims and protect the consumer’s right to a given volume of energy (i.e. prevention of double issuance or claiming). This applies to all energy purchasing methods, including power purchase agreements (PPAs).

Registries

EAC registries are created and maintained by different companies in different regions. Currently, EU Member States and EEA countries each have their own national issuing bodies and registry operators.

To enable the trade of EACs (Guarantees of Origin in Europe) in the European single market, national registries must be compatible. The Association of Issuing Bodies (AIB) has created a “hub”, a central data space via which trades can take place between compatible European national registries. The AIB also created a standard for issuing, trading, and cancelling GOs, called the European Energy Certificate System (EECS) Rules.

Actors in EAC markets and market participants

The trade of renewable attributes can happen either together with or separately from the trade of the underlying energy. As such, the actors or participants in EAC markets may also differ from the actors in electricity markets. The former often operate in the realm of sustainable and environmental services, while the latter tend to be more focused on the energy itself.

Market participants may broadly be categorized into generators, brokers, traders, suppliers, and consumers. The majority of RECS members are market participants of one type or another. RECS collects, summarises, and advocates for the views of its members towards energy regulators. RECS calls for the measures needed to deliver efficient and effective EAC markets that can help to accelerate the energy transition.

Issuers of EACs

Issuers of EACs are generally independent organisations that facilitate the market and do not participate in the generation, purchase, sale or trade of the EACs. EAC issuers in regulated markets are often TSOs, regulators, or other natural private parties and most of these are appointed by the national government to conduct this role. In some EAC markets, the issuer will be appointed by a group of local stakeholders or market parties if the government has not appointed a responsible authority.

Consumers

EAC systems enable consumers to choose renewable energy and to claim the use of power from renewable sources. Consumer choice has always been a major driving force behind the development of EAC markets, and RECS has witnessed at firsthand the role of consumers in accelerating the transition to renewable energy. Some consumers, particularly smaller ones such as households, rely on electricity suppliers to offer ‘green tariffs’ which they deliver by cancelling GOs on behalf of their customers. Larger consumers, such as big corporate entities, source power themselves and make deals directly with electricity producers. As a result, many renewable energy markets have become more diverse and mature.

Household consumers, despite consciously choosing a renewable tariff, are commonly not concerned with, or aware of EAC systems. They rely on their suppliers to manage the legal side of EAC markets, and they can do so with confidence because the GO is well established in EU law.

Large multinationals with legal and compliance teams, on the other hand, may have detailed procurement policies and operations in multiple countries. Corporations must be sure that they are securing agreements that meet their specific needs at a reasonable price. Therefore, they may use diverse methods for their renewable energy portfolio such as on-site installations or power purchase agreements (PPAs).

Historical background to EAC developments

The founders of RECS created the first EAC system back in the late 1990s. These first “RECS” systems, as they were called back then, no longer exist but they provided the foundation for what was to become the Europe-wide system for reliably tracking electricity attributes: the Guarantee of Origin system.

Historically, electricity markets in Europe were monopolies and electricity consumers were unable to choose their preferred electricity supplier. With the implementation of the 1996 EU Liberalisation Directive (96/92/EC), electricity markets in Europe opened up. The idea behind this reform was to increase competition, lower prices, and enable electricity consumers to choose their electricity suppliers based on their preferences for service and price.

Renewable energy technologies were still in their infancy in the early 1990s, but the development of environmental policies in the Netherlands started to create consumer demand for electricity from renewable sources. Electricity suppliers in the Netherlands, who at that moment still held a monopoly position, were obliged to deliver a given percentage of electricity from renewable sources. A simple book & claim system was created to share the cost of the production evenly among the various suppliers.

This initial book & claim system served as a prototype of the first Renewable Energy Certificate System (RECS). A pilot was conducted in the Netherlands, the United Kingdom, Denmark and Germany. The point of departure was to allow attributes of electricity from renewable sources to be traded across national boundaries. A pan-European system was on the horizon and producers and suppliers across Europe initiated national RECS systems. At this stage, there was little interest from governments or other policymakers to engage with the development of RECS systems. As such, these initiatives were led by producers and suppliers together with RECS as their representative. Together they pushed for the further development of tracking systems in Europe, and for harmonizing these national systems across the continent.

In 2001, the European Union introduced the Guarantee of Origin (GO) in the first Directive on the promotion of the use of energy from renewable sources (2001/77/EC). This system was based on the RECS system and, once it was proposed by the European Commission and agreed upon by the Council and Parliament, the RECS system was replaced by the GO system. The adoption by the European Institutions of this EAC system was a great achievement and meant that it was now no longer governed by the market but became legally embedded into European Union law.

The GO market has since undergone tremendous development. The Association of Issuing Bodies (AIB) created a standard for the GO system called the European Energy Certificate (EECS) standard, to harmonize the various national systems and to offer a central “hub” for the trade of certificates between compliant national systems. While the AIB focused on the registry and the process of using the GO (issuance, trade, and cancellation), RECS took on the role of representing the users themselves, their position in the markets, and their needs from a wider perspective.

Compliance markets and voluntary markets

EACs can be used to measure progress towards national renewable targets, in which case they are part of what is called “compliance markets”. These are markets where the cancellation of an EAC is proof of contributing to compliance with the target. Such compliance markets exist, for example, in certain US states where renewables targets are set in the form of ‘portfolio standards’ under which suppliers have to provide a certain percentage of their power supply to customers as renewable. Even in such compliance markets, consumers can voluntarily choose to buy a greater percentage of renewables than what’s on offer from their supplier. This is called “regulatory surplus” – the use of EACs above what is needed to meet the national target.

At the European level, targets are set for the amount of renewable energy produced either at a national level (under the 2009 Renewable Energy Directive) or at the EU level (under the 2018 Renewable Energy Directive and subsequently under the 2023 Renewable Energy Directive. Where compliance markets do operate in the EU, such as the Scandinavian El-cert scheme, they are purely created as a support scheme and by purchasing the certificate no claim can be made about the consumption of renewable electricity. Buying GOs (European EAC) is completely voluntary in Europe but must be done to claim the usage of renewable energy for disclosure purposes.

Voluntary disclosure is often done by large organizations that report their electricity usage to third-party sustainability standards (such as CDP, RE100, GHGP, or others). This is a voluntary form of public information that is not legally mandated but is part of an internal expectation regarding transparency around their energy use. Generally, it is viewed as a best practice that voluntary disclosures are verified and audited by third parties. Compliance disclosure, on the other hand, is a legal requirement to release information about energy use (or fuel mix (the percentage of a supplier’s power that comes from different generation technologies) if a supplier) to the relevant authorities.

The relevance of the residual mix

The true value of purchasing EACs becomes clear when the opposite has no value. In other words, when not purchasing EACs leads to negative consequences, creating an incentive to make a deliberate choice for renewable attributes. EACs provide the instrument for deliberately choosing electricity from renewable sources. Any electricity that is not documented via an EAC tracking system is defined as the residual mix.

If all consumption is not tracked using GOs, a residual mix is needed to define the attribute values of electricity which was not documented with a tracking instrument. If the renewable attributes were tracked on a tracking system but were not removed from the residual mix, then these could be counted by suppliers when disclosing their energy mix, and result in double counting of the attributes. Therefore, only certificates that are not cancelled are included in the residual mix.

This mostly impacts the carbon intensity of the grid. Where the carbon emissions associated with renewable attributes are zero, the carbon value of non-documented electricity is an average of the carbon emission of all the resources in the residual mix. However, imported and exported attributes need to be taken into consideration and since Europe is an integrated electricity network, the residual mix is calculated centrally. The AIB publishes the residual mix of Europe on an annual basis: the European Attribute Mix (EAM).

The role of the residual mix

Consumers who make a deliberate choice to purchase EACs can claim the use of renewable attributes, and those who do not purchase EACs consume the Residual Mix. The more renewable energy attributes are documented and consumed, the more these will be removed from the country’s Residual Mix. As such, the Residual Mix will become “dirtier”, containing more non-renewable attributes, with higher carbon intensities. For companies who need to reduce their environmental impact, using this dirty Residual Mix becomes a risk. Ultimately, this then creates an incentive for companies to deliberately consume renewable electricity, as proven through certificates that detail their attributes.

Standards for trading energy attributes

At the national level, regulation of EAC markets and systems is intertwined with national laws, usually related to environmental or electricity-related laws. RECS works with members and stakeholders in these national EAC markets and provides expertise to members who seek to become active in these markets. For countries within the European single market, the rules and regulations which govern their national GO systems must be standardised and harmonised to avoid trade barriers and to secure a level playing field.

Standards are required for the successful development of EAC markets around the world. The importance of standards is seen clearly in Europe with the development of the Guarantee of Origin system. The creation of the EECS (European Energy Certificate Standard) for GOs allowed the development of a robust and reliable EAC market in Europe. This robust attribute tracking market is only possible because of the adherence to best practice standards such as EECS.

Experience in Europe shows that adherence to a standard for RECs is important for growth and development:

1. It increases the use of the system by corporate companies (e.g. stimulating external/foreign investment)
2. Simplifies the choice and trust consumers have when choosing renewable
3. Eliminates implementation problems when starting a new system, and
4. Can reduce or even eliminate costs around implementing a REC system.

Other REC standards, beyond the EECS, are the I-REC Standard and the US REC system which is largely organized by United States laws and consumer regulations. While many REC markets are large and highly regulated systems all REC markets start their development in a simple step-by-step process. It is a series of very small steps that create a valuable market for renewables producers in the country.

EAC market in Europe and the EECS standard

The GO market in Europe is enshrined in EU law and has been developed through a series of Renewable Energy Directives that came into force in 2001, 2009, and 2018. The new Renewable Energy Directive (2001/2018/EC) includes Article 19 on Guarantees of Origin, which both expands their use in the EU and strengthens the systems that support that use. RECS has developed a detailed analysis of this law, along with guidance for the EU Member States on its implementation at the national level. This guidance follows general principles:

1. The use of GOs in different EU Member States should be harmonised and standardised. An important step to achieving this will be ensuring that every EU Member State has a nationally mandated body as a full AIB member.
2. GOs should be issued for all renewable energy generation, whether it benefits from a support scheme or not so that every consumer can know about the power they are using.
3. Member States should move beyond basic implementation and towards the development of ‘full disclosure’ systems where every unit of energy production is certified by a GO.

Since the adoption of the 2018 EU Renewable Energy Directive, Member States are required to put in place mechanisms for the management of GO systems that are compliant with the European CEN – EN 16325 standard. As of mid-2024, this standard is being updated.

EAC market in the US and the REC standard

Energy attribute certificates in the U.S. are called RECs (Renewable Energy Certificates). As in Europe, a REC is issued for every 1 MWh of energy production. US REC markets are governed at the state level and as such the country has a mix of compliance markets and voluntary markets. Most U.S. states have adopted some form of Renewable Portfolio Standard (RPS). Utilities in states with RPS mechanisms are required to comply with rules to sell a specified percentage or amount of renewable electricity to their customers – hence the term compliance markets. Transmission organizations (TSOs/DSOs) or independent system operators (ISOs), which are administered by the Federal Energy Regulatory Commission (FERC), track the generation and retirement of RECs in such compliance markets.

Even in compliance markets, a portion of RECs can be sold on a voluntary basis, outside of the required volumes set out in the RPS schemes. These additional sales are referred to as regulatory surplus. Note that this concept is not relevant in Europe, where consumption of renewables is never subject to targets, and as such cannot be exceeded.

RECs in the voluntary U.S. market are generally sold unbundled from physical electricity delivered to the grid. The U.S. voluntary market is not regulated by TSOs or ISOs, but the Department of Energy and the Environmental Protection Agency (EPA) do encourage the use of tracking systems to regulate generation and retirement and prevent double counting.

I-TRACK Foundation’s Standard

The International Tracking Standard Foundation (formerly known as the International REC Standard Foundation) is a non-profit organization that provides a robust standard for developing attribute tracking systems. The I-TRACK Foundation is committed to ensuring unbiased access to product information and allowing end-users to confidently procure products whose origins are well documented and clearly accounted for. This is accomplished through the implementation and adherence to the I-TRACK Foundation’s International Attribute Tracking Standard (Standard), which ensures market facilitators adhere to best practices and good governance principles for the tracking instrument and the associated markets they manage.

The Standard defines how various organizations can coordinate and facilitate attribute tracking systems and their associated markets, be Accredited or proven as compliant with the regulations outlined in the Standard, as well as ensure that affiliated tracking Products (not only electricity but also those beyond the energy sector) are accurately tracked. In this way, the Standard is a reference to the governance document owned by the I-TRACK Foundation. The Standard is most well-known for its implementation of a tracking standard for electricity-based certificates, [I-REC(E)] and the I-REC(E) market.

Non-standardized EAC markets

Non-standardized EAC markets are seen in a few locations around the world. This can make it difficult for stakeholders to fully understand what they are purchasing or compare this to a standardised EAC. Another issue with non-standardized EAC markets is that they often lack a broad understanding of the basic principles of attribute tracking and place requirements on producers or consumers that limit the use or effectiveness of these markets.

The role of consumers in driving renewable energy growth

EAC systems allow for the allocation of renewable attributes from a producer to a consumer. Not only does this provide consumers with an option to choose a specific energy product, but it also puts a level of responsibility on electricity consumers for the choices they make. Consumers have a choice to purchase renewables or to do nothing. Civil society can, therefore, put pressure on consumers, particularly large corporate consumers to be responsible for their energy use and to participate in the energy transition.

RECS and consumer choice

Historically national electricity markets in Europe were regulated from the top-down, based on monopolized markets where consumers could not choose a specific electricity product. With the liberalization of the electricity markets in Europe, this changed. (See “Historical background to EAC developments”).

Claiming the use of renewable energy

Reliable claims of renewable energy consumption (“renewable claims”) are an important part of the transition to renewable energy economies. Without trust in the claims of renewable energy, the power of consumers to help drive the energy transition will be significantly reduced.

Consumers may claim for various reasons, such as branding, complying with internal environmental regulations, or reporting policies.

One example of a consumer claim is: “Our company has consumed 100% renewable electricity this year”

Such claims are not generally regulated by national governments. Before the establishment of attribute tracking standards, such claims could not be verified for reliability and false claims could not be challenged. In response to this problem, standards for good practice in purchasing renewables were established.

Labels

It is important not to confuse a ‘Green Label’ with an energy attribute certificate (EAC). An EAC can be applied to energy unit of energy, be it renewable, fossil or nuclear. The EAC only provides information about how, where, and when a given unit of energy was produced.

A green label, on the other hand, can be used to identify a certain quality of EAC, such as one coming from a particular type of energy generation site. For example, when recasting the EU Renewable Energy Directive European legislators instructed the European Commission to: “present a report assessing options to establish an EU-wide green label to promote the use of renewable energy coming from new installations. Suppliers shall use the information contained in guarantees of origin to prove compliance with the requirements of such a label.”