Renewable energy investments by their very nature are subject to political risk. This is especially true of the European REC markets, which since the last long-term update in March have been plagued by high levels of policy uncertainty. Italy has revised its REC scheme to that of a feed-in tariff by the end of 2015. The UK has announced that it also intends to change to a feed-in tariff, although green certificates will continue to trade until 2027. Romania and Poland are all considering amendments to their schemes and Sweden is preparing to link its scheme with Norway next year. This report provides an overview of the recent market developments and a long-term, fundamentals perspective on these programmes with projections for REC demand, supply and price.

The Renewable Energy Directive dictates that the EU must source 20% of its primary energy requirements from renewable technologies by 2020. However, member states are free to choose how they will meet their obligations. While many countries have chosen to incentivise renewables through feed-in tariffs, six countries have chosen to implement renewable electricity certificate (REC) schemes with tradable certificates. The Bloomberg New Energy Finance European REC service provides coverage of the REC schemes in Italy, Poland, Romania, Sweden and the UK.

The REC schemes covered in this report have varied in their success to date. Oversupply in the Italian market, for example, led the government to intervene by purchasing certificates to support prices. This proved unsustainable for government finances in light of budgetary pressures. The result was a policy u-turn in March leading to a gradual phase-out of its green certificates scheme and its replacement with a feed-in tariff. The Romanian and UK schemes, on the other hand, have been in deficit. This has resulted in changes in banding levels to support greater renewables build-out.

Source: Bloomberg