International Renewable Energy Certificates: The I-REC Standard (Part-I)

Key highlights

• Global market of Renewable energy certificates can be used to offset your scope 2 emissions of greenhouse gas (GHG) protocol and achieve the RE100 standards which shows the 100% commitment of organization towards renewable consumption.
• The I-REC Standard, EECS and TIGR are the major global renewable energy certificate systems which have different registries, issuers, and platform operators.
• More than 95% of the internationally traded RECs are covered by I-RECs standard, which encompasses 53 countries and 18 issuers.

Internationally traded Renewable Energy Certificates serve as an instrument that enables the transfer of environmental attributes of renewable energy across international boundaries. These certificates can be traded independently of the physical electricity, enabling purchasers worldwide to lay claim to the environmental advantages of renewable energy. Renewable energy producers can register their electricity generation with global registries and generate I-RECs, which can be traded internationally. The term “International Renewable Energy Certificates” referred to as I-RECs are the renewable energy certificates associated with the I-RECs standard.  More than 95% of the internationally traded RECs are I-RECs, supported by the framework set up by the I-REC foundation, which is explained in depth later in this article. Purchasing an I-REC allows the buyer to claim consumption of one MWh of renewable energy. I-RECs can originate from wind, solar, ocean energy, biomass, hydropower, landfill gas, aerothermal, geothermal, and landfill gas projects, etc. The global market for Renewable Energy Certificates (RECs) is still in its nascent stage, with demand largely spurred by voluntary commitments of companies to increase their consumption of renewable energy. Electricity consumption is categorized as Scope 2 emissions, as per the GHG Protocol, and RECs play a pivotal role in mitigating such emissions, making them a significant tool in reducing an entity’s emissions. Overall, the internationally traded RECs enable companies to reduce electricity emissions at a cost lower than the domestically traded voluntary RECs (v-RECs). Alongside, these also support renewable infrastructure build-out in developing countries. This article, first in a series of articles we will be releasing on RECs, covers the registries and other parties that support the program, the standards I-REC follow, the benefits of using I-RECs, and the challenges.   The issuance of internationally traded certificates is operated by different registries. REC registry is a centralized system that records the issuance, transfer, and information of product certificate renewable energy certificates. Here we have introduced the top three registries for internationally traded RECs:

International Registries for RECs

1. The I-REC Standard’s Evident Registry: Encompassing 53 countries,Evident is the registry of I-REC Standard, a global standard for the certification of renewable energy attributes.
2. European Energy Certificate System (EECS): The EECS includes guidelines for the issuance and transfer of RECs in European countries through Association of issuing bodies (AIB).
3. Tradable Instrument of Global Renewable (TIGR): A platform for select Asian countries.

These registries help to ensure the transparency and integrity of the REC market. They also provide a mechanism for buyers to verify the origin and redeem the benefits associated with the certificates at national and international level. Evident is the only registry of The International REC Standard Foundation (I-REC Standard), which is a non-profit organization that provides a robust standard for developing attribute tracking systems. The framework is used across the world which covers more than 95% of internationally traded RECs.

I-REC Standard

I-REC Standard is the major RECs framework dealing with global RECs, spanning across 53 countries, 18 issuers involved in the issuance of 199 million RECs in 2022, and redeeming 97 million RECs in the same year.

Figure 1: Map of Countries registered in I-REC standard (Source: I-REC Standard)

Stakeholders of I-REC Standard

The I-REC standard has multiple stakeholders assigned with specific functions and relations with each other which is divided into three major parts: the standard setting bodies, market facilitators and market entities.

Figure 2: Flow-diagram of different stakeholders involved from generation to redemption of I-RECs (Source: I-REC Standard)

Standard setting body (I-REC standard): It comprises the board of the organization which defines how various organizations can coordinate and facilitate attribute tracking systems and their associated markets. Market facilitators: Includes several stakeholders which cater to generating, tracking and redeeming of certificates; registration of production facilities, issuance of product certificates; setting up criteria for production facility or product certificate to adhere to the product code & standard; facilitation of marketplace and providing improved visualization tools. Refer to appendix for details on top issuers Market Entities: Refers to the entities participating in the trading and transfer as end users, and those responsible for the registration of production facilities for issuance of I-RECs.

Benefits of I-REC Standard

1. Lower price of I-REC: The average price of I-REC is 30-50 cents per Mwh, which is much lower than the US RECs whose average price remains above $30 per Mwh (Price of PJM Tri qualified RECs).
2. Lower registration price for production facilities and participants: For I-RECs it is $1100 (EUR1000) per five years, as against $500-$1000 per year for domestic US RECs.

Challenges/Threats

Even though the I-REC is structured and well designed, there are several challenges associated with global RECs market such as:

1. Double counting of certificates: Lack of regulations creates double counting due to co-existence of regional and global markets.
2. Pricing mechanisms of I-REC: Decentralized and mostly operated by platform operators or traders. Varies across the globe, in China it is as low as 10-15 cents per certificate while in Turkey it is 40-50 cents per certificate.
3. Oversupply of I-REC certificates could make the market less stable in the long run, while demand remains limited to voluntary side of corporates.
4. Lack of additionality associated with voluntary certificates: Certificates alone can’t fulfill the additionality claim of renewable energy, it is necessary to be in long run Power Purchase Agreements (PPAs) or other instruments to claim the additionality along with retiring certificates.

Conclusion

The functioning of I-REC standard involves multiple stakeholders e.g. registries, issuers, platform operators, participants and registrants for smooth function of the I-REC issuance and retirement process. Considering the various challenges associated with I-REC, and an expected rise in demand, a multi-pronged approach would be required comprising reliable tracking system, credibility, and centralized market of I-RECs.

Note

1. Russia excluded from issuing of I-RECs since March 2022.
2. The use of I-RECs is restricted to making voluntary disclosure claims, such that I-RECs cannot replace other (national) certificates that are used to meet national targets unless authorities specifically recognize I-RECs as an instrument to comply to their targets.

Click Here for Part II: I-RECs gain popularity with volume soaring 179% in 2022