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Trading with certificates

In principle certificates can then be traded between obligated and voluntary parties through bilateral contracts or on a dedicated platform for the spot market. By including trading, the EEO can become an incentive for the voluntary parties to implement and report energy efficiency measures.

While an EEO can work just as a target imposed to an obligated party (DSO, supplier, end user, etc.), the obligation can be combined with some flexibility by giving other actors, the so-called voluntary parties, with the possibility to get white certificates for implementing energy efficiency projects.

There are several aspects to be taken into consideration when designing a trading scheme. One of these aspects is the decision on issuing certificates for energy efficiency projects and timing associated with them. For example, in France, all certificates are issued at once, while in Italy, they are issued over a period of several years.

Tradable markets usually require or are coupled with the possibility of banking of certificates. Banking increases the flexibility of the scheme but also the risk of speculation.

Tradable market 

A tradable market can be useful especially if a country wants to promote the ESCO market and there are no DSOs capable of playing an active role in the EEO for some reason. From a market perspective, a tradable market can create better synergies among ESCOs and obligated parties. For smaller players, it is easier to react quicker to market price changes.

Market structure

Large and small players contribute differently to the trading market. While the former are slower in identifying the energy efficiency measures but quicker in adapting to the market price, the latter (together with ESCOs) can identify energy efficiency measures faster and thus contribute to keeping prices on low levels.

Tradable market’s impact on the cost effectiveness of a scheme

As long as prices can change, trading can improve the cost-effectiveness of the scheme. However, EEOs prices should remain stable enough to ensure that cash flows generated by energy efficiency projects can be accounted for by risk assessment analysis by banks.

The choice to enable trading also depends on the envisaged type of energy efficiency industry. If the goal is to create a market with many players of various sizes and ESCOs, the issuing of certificates creates a market for them.


• In Italy, this approach triggered a growth in the ESCOs market. 

• In Denmark, they did not opt for white certificates, which created certain stability in the market over the years and kept the quality of the energy savings projects at the same level.

Cost of a trading scheme

Using the Italian scheme as an example:

In Italy the certification scheme costs 0.1 Euro/certificate. At current obligation targets, this results in a total cost of the tradable market of around 600,000-800,000 Euro per year. This amount is roughly 0.1% of the total system costs of the white certificate scheme (including DSO's tariff reimbursement, administrative costs and certification costs of the scheme). 

From this example, the costs of a tradable market are justified provided the EEO targets are high enough.

Transparency of prices

Transparency should work as an incentive for market operators and end-users. Players need to know price trends in order to develop projects and borrow money from banks. Two important factors for ensuring transparent market prices are:

  • Availability of the spot and bilateral market prices, at least as averages and minimum/maximum values
  • Awareness of the target in advance 
  • Qualification of experts to bring savings to the market (as outsourced to externals or developing in stock capacity in obligated parties)

Introducing caps or minimum thresholds for market prices

It is advisable to constantly monitor the development of the market and price trends that are not in line with certificates supply and demand trends.

Caps include the level of penalties and an eventual reimbursement for obligated parties. The introduction of thresholds to limit the fluctuations of market prices over time can favour the development of financial tools and the involvement of banks to support ESCOs and end-users in implementing energy efficiency projects. However, such provisions can alter the capability of the system to ensure cost effectiveness. 

In the absence of a sufficient supply of certificates (with banking provisions), suppliers tend to keep certificates to sell later, and this raises the price for obligated parties and reduces profitability of ESCOs. To control this either a small penalty on the banked certificates can be introduced, or a cap to the maximum price of the certificates can be set. However, in case of oversupply the price of the certificates can fall at a very low level. This second issue can be limited by introducing an increase of the target for the next year linked to the amount of excess certificates, provided it doesn’t alter the cost of the system too much.

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