Unclear prices hinder Brazil’s IREC market

Market: Electricity, Natural gas
20/03/23

Brazil's lack of price transparency is hindering its International Renewable Energy Certificate (I-REC) market, according to natural gas market participants who attended the innaugural I-REC Day Brazil event.

The event drew participants to discuss the challenges and possibilities of I-RECs, a global tracking system that allows generators to issue one certificate for each megawatt hour or renewable energy that goes into the grid.

The lack of clarity on pricing is one of the main difficulties for the sector in Brazil, according to CGN Brazil Energy's head of trading Ana Carolina Molina. I-REC prices are determined by each generator and can be influenced by power sources, demand, the need to retire the certificates or not and whether there are other ESG certifications coupled within the deal.

Another factor influencing I-REC prices could be that companies include them as added benefits in long-term power generation contracts, Molina said.Since there is no platform for agents to compare I-REC products and prices in Brazil, there is not much transparency in market negotiations.

Despite this lack of information, demand for I-RECs has been growing in Brazil, according to Fabiana Teixeira, market studies and innovations superintendent at Eletrobras subsidiary Furnas. Consequently, she expects I-REC prices to remain somewhat steady or to rise in the near future.

Brazil, helped by its vast hydropower capacity, was the largest I-REC issuer in Latin America with 21.8TWh of certificates last year, more than double 2021.

The high share of hydropower in the mix has kept domestic I-REC prices depressed. Brazil 2022 vintage hydropower I-RECs were seen at just under $0.35/MWh this week, while wind I-RECs were at a slight premium. Some regional markets hold a premium to Brazil — 2022 Colombian hydro was offered at $1.05/MWh this week, while 2022 Mexican wind I-REC prices were seen at $1.50/MWh.

The lack of awareness about the certification and possible benefits also concerns market participants. Buyers still do not have a clear understanding of how important tracking their power sources can be to make their products more attractive, and educating buyers is still a big effort for generators.

The liberalization of the Brazil power market will present opportunities for the I-REC sector, according to Matrix Energia's commercial director Bernardo Alvarenga. As more consumers are allowed to migrate to bilateral contracts, there will be more attention to power consumption and new chances for selling I-RECs to these consumers.

By Rebecca Gompertz and Justin Colley

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