Brazilian International Renewable Energy Certificates (I-RECs) market grows

Demand for International Renewable Energy Certificates (I-RECs) has grown rapidly in Brazil as a rising number of local firms seek to reduce their carbon footprints. The director of Instituto Totum, Fernando Lopes, tells Argus he expects the market to expand further, even without policies to promote it.

How has demand for I-RECs progressed in Brazil?

In 2020, I-REC sales reached 4mn and more than doubled last year to 9.5mn. This shows that a growing number of consumers are seeking to guarantee the renewable origin of their electricity.

 

Are there any specific sectors that have been more active in the market?

Publicly traded companies — especially those on sustainability indexes — have been active on the market. We have also seen growing demand from companies that voluntarily report their carbon emissions and want to reduce their footprints. In 2021, for every 1MWh of energy consumed in Brazil, a company has a 120kg increase in CO2 emissions. Electricity emissions increased substantially last year, from 40-50kg/MWh during 2020, because of rising thermoelectric generation amid the drought [in the country].

How has the price for I-RECs developed in recent years?

The average is 2 reals per I-REC, but there are variations. One I-REC is 1MWh of renewable power, but there are wind I-RECs and there are I-RECs for sustainable hydro. Some buyers want renewable power at the lowest cost, but others want solar or demand a sustainability seal. Globally, more companies are looking for I-RECs with hourly distinction. If a company buys solar power for all of its electricity needs, it can allege that it is 100pc renewable. But if a company operates at night, it is not using renewable power. If it buys an I-REC based on the time of day, it can guarantee that it is consuming renewable power at night.

 

What is the outlook for the market?

We launched [the I-REC market] in Brazil in 2013 and it has only gained traction in the past three years. For 2022, we expect 14mn-15mn I-RECs. Energy consumption will increase as the economy recovers. Over time, more and more companies are incorporating I-RECs in their purchase contracts. We have seen growing participation among companies in the wholesale market. Every week, energy trading companies call us to ask for I-RECs. While I-RECs are by nature instruments of the non-regulated market, individuals can also acquire them as a separate contract, which is not directly associated with a power purchase agreement.

 

What else is needed to boost demand for I-RECs?

In the EU, more than 95pc of renewable power is allocated by I-RECs, but in Brazil, [it is] less than 5pc. In the EU and US, firms are required to acquire I-RECs for part of their energy needs but in Brazil it is 100pc voluntary. The new energy sector law indicates that the natural attributes of certain types of power need to be priced. But we do not expect mandatory quotas for renewable power in Brazil.

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