International renewable energy certificates (I-RECs) issued in Mexico have seen a significant increase in demand this year, as foreign corporations attempt to decrease their carbon footprints and policy uncertainty drives generators to seek additional revenue sources, reported Argus.
The I-REC Standard Foundation’s data shows that around 3.79TWh of I-RECs were issued in Mexico from 1 January to 31 May, a 64% increase over the previous year and the most since 2019.
The majority of the demand comes from foreign companies who have activities in Mexico, such as automobile makers. “It has to do with how much of the US supply chain originates in Mexico, if a huge corporation makes its entire supply chain meet baseline Green-e requirements, this ripples into the I-REC market,” reported Argus, citing a market participant.
Another element fueling demand is because certificates in the country’s local clean energy certificate (CEL) program are significantly more expensive than those in the I-REC market. Furthermore, CELs are not recognized outside of Mexico, and since the Mexican economy is export-oriented, demand is shifting to I-RECs, which are recognized internationally.
The I-REC Foundation authorized new issuance standards in January 2021, allowing renewable energy plants in Mexico that were built after August 2014 to issue I-RECs if they did not participate in the CEL program. However, the new rule raises the risk of “double issuance” of certificates. The I-REC Foundation thus intends to announce a new rule next month requiring Mexican generators to first redeem their CELs before issuing I-RECs.
Policy uncertainty is another factor that drives up the country’s demand for I-RECs. President Andres Manuel Lopez Obrador has pursued a policy of limiting private-sector renewables development while prioritizing the production of the state-owned CFE, which forces renewable energy generators to consider I-RECs as an additional source of revenue.
Demand has increased the price for I-REC to US$2-3/MWh per MWh, much above US$0.50/MWh in Brazil and US$1/MWh in Argentina.
In Latin American, demand for I-RECs is significantly rising this year. Brazil, the region’s largest issuer of these certificates, issued 16.18 TWh in January-May, up three-quarters year on year.
Demand for Latin American I-RECs is expected to rise further if Europe implements its carbon border adjustment mechanism, which attempts to prevent corporations from shifting manufacturing to regions with fewer emissions limits.
