I-RECs gain popularity with volume soaring 179% in 2022

Figure.2. I-REC Redemptions (Demand) Year-wise Growth (Source: I-REC Standard)

The market is in nascent phase where the major demand is coming from corporates and sustainability driven organizations to decarbonize their scope 2 electricity consumption emissions, in view of their RE100 commitment. RE100 is a global initiative that brings together influential businesses committed to 100% renewable electricity for their operations (Scope 2 Emission), and they can use I-RECs to prove that the electricity they consume comes from renewable sources. I-RECs are used to track and verify the use of renewable electricity by RE100 members, helping these companies to meet their renewable energy commitments and demonstrate their sustainability efforts.

What’s driving the I-REC market?

• One key reason for the high demand for I-RECs is their low price compared to other regional compliance RECs markets. For example, while US RECs can cost an average of $30 per MWh (PJM Tri qualified RECs), the average price of I-RECs was only 30-50 cents per MWh in 2022. Even compared to China’s Green Electricity Certificate (GEC) market, which saw a price drop from an average of $27/MWh in 2017-2021 to $7/MWh in 2022, I-RECs remain much cheaper, with an average price of $0.75/MWh in China.
• Furthermore, the I-REC market is more established and mature than the new and unstable GEC market of China. Additionally, most accounting climate groups, such as RE100 and CDP, prefer I-RECs over GECs because of the lower double-counting risks associated with I-RECs, and it takes less than a month to register a plant and issue an I-REC certificate.

These factors encourage registrants and participants to opt for I-RECs, which increases their demand and supply in the market.

China issued more than 40% of global I-RECs in 2022

In 2022, China was the largest issuer and redeemer of I-RECs, followed by Brazil, Turkey, Chile, and India. China alone issued 88 million certificates, which accounted for 44% of the total issuance of I-RECs that year. Brazil issued 21.86 million certificates, and Turkey issued 16.69 million certificates in 2022.

Figure.3: Supply of I-REC country-wise for 2022 (Source: I-REC Standard)

Figure.4: Demand of I-REC Country wise for 2022 (Source:I-REC Standard)

This increased pool of supply is caused by multiple factors like regional market integration, increasing renewable energy capacity of China and Brazil where China added more wind generation capacity in the past two years than over the previous seven year. In 2022 China generated 46% more wind power than all of Europe. While Brazil has increased 8.2 GW generation in 2022 in which renewables contributes 5.97 GW and 60% of the total capacity comes from hydropower.

69% of the I-REC Issuance comes from the Hydro capacity, followed by 16% from wind energy and 11% from Solar energy

Figure.5:  Technological generation Capacity registered in I-REC (Source: I-REC Standard)

According to the I-REC standard data, most of the I-RECs are issued from registered capacity of hydro energy (115001 MWh), followed by wind energy (26804 MWh) and solar energy (19077 MWh) since the inception of I-REC standard till 31 March 2023. In 2022 the new capacity added was 20993 MWh of hydropower, 2944 MWh of wind power and 2937 MWh of solar power.

Brazil surpasses China in issuance and redemption of I-REC in Q1 2023

Brazil surpasses China in total issuance as well as redemption in Q1 2023. Brazil issued 16.91 million certificates and redeemed 13.96 million certificates in the first quarter of 2023, recording a 47% increase in issuance (8.9 million in Q1 2022) and 39% increase in redemption (8.5 million in Q1 2022) respectively. On the contrary, China issued 14.02 million certificates and redeemed 13.91 million certificates in Q1 2023, recording a 35% y-o-y decline in issuance. Chinese I-REC demand suffered by lower power usage in China. Chinese demand declined by more than 31% on the year in January-march. while Brazilian consumption decreased by around 4% on the year in the Q1. In terms of pricing, in comparison to other markets, Brazilian I-REC pricing remained cheaper. Brazilian wind certificates from the 2022 generation were selling for around $0.40 per MWh in March 2023, compared to $0.70 and $0.45 per MWh in China and Turkey, respectively.

Figure.6: Q1 2023 top five issuer countries (Source: I-REC Standard)

FIGURE.7: Q1 2023 top five countries for redemptions (Source: I-REC Standard)

Competition from domestic markets could pose challenge to I-REC

There could be a potential decrease in the supply of I-RECs in the global market in the upcoming year. This could be due to the migration of renewable energy projects towards domestic or local markets, like the GEC in China. The Q1 data has shown a declining trend of issuance in China, indicating that there may be a shift towards local markets. However, it is also suggested that despite the potential decrease in short-term supply, the demand for I-RECs is expected to grow in the long run. This growth in demand is expected to come not only from multinational or national corporations but also from a wider range of industries and organizations that are focused on sustainability. As more industries and organizations adopt sustainable practices, the demand for renewable energy certificates like I-RECs is expected to increase, which could ultimately help the I-REC market to grow in the long term.

Conclusion

Despite facing competition from regional RECs markets, the I-REC market has witnessed rapid growth in its supply. Moreover, the market’s positive growth trend is expected to continue as demand for sustainable energy use expands. This growth indicates that companies and organizations worldwide are committed to fulfilling their renewable energy obligations.

Note: I-REC market data has been used in the analysis. (upto 31^st March 2023)

Key highlights

• The I-REC standard issued 199 million certificates in 2022, a growth of 179% y-o-y in volume.
• China was the largest issuer and redeemer of I-RECs in 2022, followed by Brazil, Turkey, Chile, and India.
• The majority of I-REC issuance comes from hydro capacity, followed by wind and solar energy.
• In Q1 2023 Brazil surpassed China in total issuance and redemption of I-RECs.

The International renewable energy certificate (I-REC) market has rapidly grown over the last five years with 88% CAGR.  I-RECs, built on the I-REC standard, is rapidly expanding across the globe with presence in 53 countries. The I-REC standard issued 199 million certificates in 2022 in comparison to 71 million in 2021, an increase of 179%.

Figure.1: I-REC Issuance (Supply) Year-wise Growth (Source: I-REC Standard)

The expansion of I-REC market is not only evident from the supply side growth, but the redemption has also surged significantly from 48 million in 2021 to 97 million in 2022, a remarkable 102% increase in demand from the previous year.

Figure.2. I-REC Redemptions (Demand) Year-wise Growth (Source: I-REC Standard)

The market is in nascent phase where the major demand is coming from corporates and sustainability driven organizations to decarbonize their scope 2 electricity consumption emissions, in view of their RE100 commitment. RE100 is a global initiative that brings together influential businesses committed to 100% renewable electricity for their operations (Scope 2 Emission), and they can use I-RECs to prove that the electricity they consume comes from renewable sources. I-RECs are used to track and verify the use of renewable electricity by RE100 members, helping these companies to meet their renewable energy commitments and demonstrate their sustainability efforts.

What’s driving the I-REC market?

• One key reason for the high demand for I-RECs is their low price compared to other regional compliance RECs markets. For example, while US RECs can cost an average of $30 per MWh (PJM Tri qualified RECs), the average price of I-RECs was only 30-50 cents per MWh in 2022. Even compared to China’s Green Electricity Certificate (GEC) market, which saw a price drop from an average of $27/MWh in 2017-2021 to $7/MWh in 2022, I-RECs remain much cheaper, with an average price of $0.75/MWh in China.
• Furthermore, the I-REC market is more established and mature than the new and unstable GEC market of China. Additionally, most accounting climate groups, such as RE100 and CDP, prefer I-RECs over GECs because of the lower double-counting risks associated with I-RECs, and it takes less than a month to register a plant and issue an I-REC certificate.

These factors encourage registrants and participants to opt for I-RECs, which increases their demand and supply in the market.

China issued more than 40% of global I-RECs in 2022

In 2022, China was the largest issuer and redeemer of I-RECs, followed by Brazil, Turkey, Chile, and India. China alone issued 88 million certificates, which accounted for 44% of the total issuance of I-RECs that year. Brazil issued 21.86 million certificates, and Turkey issued 16.69 million certificates in 2022.

Figure.3: Supply of I-REC country-wise for 2022 (Source: I-REC Standard)

Figure.4: Demand of I-REC Country wise for 2022 (Source:I-REC Standard)

This increased pool of supply is caused by multiple factors like regional market integration, increasing renewable energy capacity of China and Brazil where China added more wind generation capacity in the past two years than over the previous seven year. In 2022 China generated 46% more wind power than all of Europe. While Brazil has increased 8.2 GW generation in 2022 in which renewables contributes 5.97 GW and 60% of the total capacity comes from hydropower.

69% of the I-REC Issuance comes from the Hydro capacity, followed by 16% from wind energy and 11% from Solar energy

Figure.5:  Technological generation Capacity registered in I-REC (Source: I-REC Standard)

According to the I-REC standard data, most of the I-RECs are issued from registered capacity of hydro energy (115001 MWh), followed by wind energy (26804 MWh) and solar energy (19077 MWh) since the inception of I-REC standard till 31 March 2023. In 2022 the new capacity added was 20993 MWh of hydropower, 2944 MWh of wind power and 2937 MWh of solar power.

Brazil surpasses China in issuance and redemption of I-REC in Q1 2023

Brazil surpasses China in total issuance as well as redemption in Q1 2023. Brazil issued 16.91 million certificates and redeemed 13.96 million certificates in the first quarter of 2023, recording a 47% increase in issuance (8.9 million in Q1 2022) and 39% increase in redemption (8.5 million in Q1 2022) respectively. On the contrary, China issued 14.02 million certificates and redeemed 13.91 million certificates in Q1 2023, recording a 35% y-o-y decline in issuance. Chinese I-REC demand suffered by lower power usage in China. Chinese demand declined by more than 31% on the year in January-march. while Brazilian consumption decreased by around 4% on the year in the Q1. In terms of pricing, in comparison to other markets, Brazilian I-REC pricing remained cheaper. Brazilian wind certificates from the 2022 generation were selling for around $0.40 per MWh in March 2023, compared to $0.70 and $0.45 per MWh in China and Turkey, respectively.

Figure.6: Q1 2023 top five issuer countries (Source: I-REC Standard)

FIGURE.7: Q1 2023 top five countries for redemptions (Source: I-REC Standard)

Competition from domestic markets could pose challenge to I-REC

There could be a potential decrease in the supply of I-RECs in the global market in the upcoming year. This could be due to the migration of renewable energy projects towards domestic or local markets, like the GEC in China. The Q1 data has shown a declining trend of issuance in China, indicating that there may be a shift towards local markets. However, it is also suggested that despite the potential decrease in short-term supply, the demand for I-RECs is expected to grow in the long run. This growth in demand is expected to come not only from multinational or national corporations but also from a wider range of industries and organizations that are focused on sustainability. As more industries and organizations adopt sustainable practices, the demand for renewable energy certificates like I-RECs is expected to increase, which could ultimately help the I-REC market to grow in the long term.

Conclusion

Despite facing competition from regional RECs markets, the I-REC market has witnessed rapid growth in its supply. Moreover, the market’s positive growth trend is expected to continue as demand for sustainable energy use expands. This growth indicates that companies and organizations worldwide are committed to fulfilling their renewable energy obligations.

Note: I-REC market data has been used in the analysis. (upto 31^st March 2023)