News and insights News The market outlook for International Renewable Energy Certificates

The market outlook for International Renewable Energy Certificates

Fresh data shows a rising market, policy shifts, and developments that will present new challenges and opportunities for clean energy buyers worldwide.

Written by Ecohz
Published on 27 May 2024
Written by Ecohz
Published on 05 May 2024

International Renewable Energy Certificates (I-RECs) are booming. According to the latest data by the I-TRACK Foundation, I-REC issuance grew 50% between 2021 and 2022. The demand (redemptions) also increased by more than half over the same period, reaching 165 TWh.

2023 is set to break all previous records. Although data for the year is still unfinished, issuance is projected to reach 350 TWh, while redemptions could exceed 200 TWh for the first time.

Despite this acceleration, corporate buyers still face obstacles when buying I-RECs in some regions. In this article, we explain some variables that companies should consider when purchasing documented renewables around the world, as well as some tactics to fine-tune procurement and take advantage of upcoming opportunities.

What are the most common hurdles when buying I-RECs?

The most common barriers for corporate buyers of I-RECs fit broadly into five categories:

  • National and regional market conditions
  • Availability of volumes and high costs (in some countries / regions)
  • Changes in regulations
  • Climate conditions
  • Full recognition when reporting

We should start by acknowledging that the I-REC market is not one, but many. “There are many differences across national and regional markets,” Arturo Sánchez, Senior Key Account Manager, says. “We are talking about 55 different countries, each with its own characteristics.”

Regional features such as energy policies, the design and operation of electricity markets, political shifts and changes in government, and geographical conditions determine the availability and price of I-RECs.

Availability can also become an issue in some locations. While a growing number of countries and producers are looking to get power plants registered, some geographies still experience supply constraints that can result in high prices. “We have seen companies delay their I-REC purchases in challenging countries because the costs are impacting their financial operations,” Arturo explains.

Weather conditions can further squeeze the pool of available I-RECs. Countries where production is heavily dependent on hydropower have seen reduced supply due to dry spells. 

Lastly, evolving requirements from voluntary standards can sway demand. The Science Based Targets initiative (SBTi) now advises companies to purchase renewable energy in line with RE100’s new technical guidance, which is expected to impact the market.

 

Map August 2023 I-REC smaller file

Map of countries registered in the I-REC system. 

For example, in Colombia, a micro monopoly emerged, as there is only one power plant that fulfils the RE100 guidelines. “Something similar happens in the Philippines,” Adrien Mathys, Renewable Portfolio Manager, explains. “Currently, it is very hard, if not impossible, to find compliant power plants.”

Shifting conditions constantly pose new challenges for buyers. To overcome them, it is essential to have a global perspective and follow the latest changes in different geographies.

What is new in the I-REC market in 2024?

One of the most prominent developments is the implementation of the GEC certificate system in China, which some feared could displace I-RECs.

“The GEC scheme has now been implemented for all power plants owned by Chinese citizens, which represent 95% of the total production in the country,” Adrien Mathys says. However, the production of Chinese I-RECs will not stop. “So far, so good. There are still I-RECs being issued. The remaining 5% is plenty to cover the needs of I-RECs consumers.”

Meanwhile, I-REC membership keeps growing, with new countries in almost every continent joining the system. These include Kenya, Japan, Nicaragua, Jamaica, and New Zealand.

“Nevertheless, we should differentiate between active countries and issuing countries,” Adrien warns. “Not all active countries have power plants issuing I-RECs. Japan is a good example of this. Others like Burkina Faso, Pakistan, Ecuador, and Oman had been registered for some time but had not issued certificates yet. Companies will finally be able to buy in 2024.”

What determines the price of I-RECs?

The price of I-RECs is generally stable. As opposed to the ups and downs observed in the European Guarantees of Origin market, I-RECs have remained constant. However, developments are difficult to predict.

“I-REC markets are not transparent,” Adrien says. “Many of them are dominated by bilateral agreements between producers and buyers. We often don’t have an open marketplace where consumers can procure the certificates they need. Thus, it is very difficult to foresee where prices will go.”

Price curves vary from country to country. In China, wind and solar I-RECs experienced an uptick in 2023 as buyers moved to secure volumes aligned with the RE100 guidelines. However, at the start of 2024, prices dropped, perhaps due to the uncertainty around the introduction of the GEC system.

India saw the price of hydropower I-RECs decrease in 2024, since new regulation allowed more producers to come into the market. Meanwhile, Singapore, famous for having extremely limited supply, has seen prices stabilise and remain well above other I-REC regions.

mariana-proenca-GXiHwHkIdVs-unsplash2

How can buyers adapt their I-REC purchasing strategy to mitigate risk?

Despite the unpredictability of the market, there are some tactics buyers can use to optimise I-REC procurement. The key lies in being adaptable.

“Some companies establish a specific date to carry out their global procurement. This might not be the best strategy,” Arturo says. “If you buy large volumes in a single transaction, you risk pushing prices up. It might be better to spread your consumption throughout the year and buy in smaller batches to avoid making waves in the market.”

Agile buyers can also take advantage of arising opportunities. “Ecuador is a good example,” Arturo continues. “Two years ago, there was no possibility to buy I-RECs, even though some power plants were already registered. Issuance has finally begun in 2024, and those who move the quickest will secure access to the new volumes. Conversely, waiting until the end of the buying period means the certificates could sell out.”

Framework agreements are often useful tools. These contracts allow companies to have an advisor monitor the market for them and purchase quickly when new opportunities surface, securing volumes at the best prices possible. Ecohz works with many clients under framework agreements that guarantee transparency and minimise risk.

Reporting correctly is the final part of the puzzle. “According to RE100, out of the companies that reported between 90% and 100% renewable energy consumption in 2022, 20% of corporate claims missed some data and were deemed not credible,” says Arturo.

Transparency remains an essential ingredient of correct reporting. So does knowledge and expertise. Closely following developments in the most relevant markets and having an advisor that act as a guide can greatly simplify decisions for companies as they purchase renewable electricity around the world.

How can Ecohz help?

Ecohz supports businesses worldwide in procuring renewable energy and reporting correctly to international standards. Advisors and market experts monitor I-RECs globally to ensure agile, timely, and cost-effective procurement.

Simultaneously, Ecohz provides reporting services that ensure companies reap all the benefits from their renewable energy strategies. This includes assistance in reporting to CDP and RE100, as well as procuring energy that aligns with the requirements of international standards.

Do you want to know more about our product and services? Let’s have a chat.

Get in touch

Arturo Sanchez
Senior Key Account Manager

Book a meeting

Adrien Mathys
Renewable Portfolio Manager

Related Content

Renewable energy
What the new SEC climate disclosure rules say, and how you can prepare
27.05.2024
Ecohz
CDP A List 2023: Ecohz’ clients recognised for climate leadership
27.05.2024
Ecohz
E-world 2024: join us at the Smart Energy Hall
27.05.2024
Renewable energy
Ecohz renews its support for Ukraine through solar energy
27.05.2024
Renewable energy
Global ripples: the effect of EU climate policies on the I-REC market
27.05.2024