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About Commodity Insights
28 Feb 2024 | 19:28 UTC
By Fabio Alfaro and Carlos Barraza
Highlights
I-REC prices in Mexico steady at the beginning of the year
2023 registration tiers split across device sizes
Could alter Power Purchase Agreements
International Renewable Energy Certificate (I-REC) prices in Mexico have remained steady following an initiative from the local I-REC issuer to attract small generators to the market. From Feb. 1- 27 the average Platts assessment for I-REC Previous Year in Mexico fell under $1.35/MWh, while for its Current Year counterpart the average is $1.50/MWh, according to S&P Global Commodity Insights.
An I-REC is an electronic tracking certificate that represents the environmental attributes of electricity generated from renewable energy sources once transmitted into the grid, according to S&P Global Commodity Insights. These can be linked to Power Purchase Agreements or traded in the spot/futures market.
In a bid to incentivize medium-sized companies to install distributed power generators with a capacity of less than 0.5 MW, Mexico's standards regulator, NORMEX, updated its registration requirements for the lowest tier of production devices in January by lowering the registration fee for production devices of less than 1MW to Eur100 ($108).
"Since 2017, the distributed generation industry [in Mexico] has grown 25%-30% annually", a market participant said Feb. 8. However, the small generation I-REC devices registered in Mexico have not grown proportionally, as there have been no new device registrations since 2022. NORMEX expects that its change could impact this.
"This change will incentivize I-REC generation and could potentially lower certificate prices in the short-term due to the increased supply," a source said. "Although it is unlikely to jeopardize the big generators' market share, it will be interesting to witness if this update brings changes to Power Purchase Agreements."
In Mexico, distributed generation is limited to an installed generation capacity of less than 0.5 MW and the companies within this segment focus on the installation of photovoltaic panels for residential, commercial and medium-size industrial clients. The latest report from the Mexican Energy Regulatory Commission (CRE) estimates that by the first semester of 2023, the total installed capacity of solar distributed generation was 2,935.25 MW.
Due to expressions of interest coming from major retail corporations, the auto parts industry and food companies in formalizing their energy consumption, small generators are exploring new business lines to certify renewable electricity production installed in medium-sized companies by matching it with an International Renewable Energy Certificate (I-REC).
Previously, generation tiers were divided into two categories: those smaller than 5MW and those larger than 5MW. As of 2024, there are 21 registered devices for I-REC generation falling under the less than 5MW tier. However, these represent less than 1% of the total I-REC installed capacity. The remaining 99% consists of devices larger than 5MW, according to International Tracking Standard Foundation (I-TRACK) data.
On Jan. 9, NORMEX, I-REC issuer in Mexico, announced an update to its lowest tier of production device registration.
"This initiative aims to increase registration and incentivize smaller generators to produce I-RECs. In this way, we hope to incentivize generation capacity installation and the signing of more Power Purchase Agreements." NORMEX said in a statement Feb. 1.
In 2023, the lowest tier comprised devices with a maximum capacity of less than 5MW and were charged a fee of Eur500 per device registration.
From 2024, this tier was divided further and now the charges are Eur100 per registration of single devices with a maximum capacity of less than 1MW, while for devices with capacities between 1MW and less than 5MW, the charge is Eur500 per device. For single devices of more than 5MW capacity, the fee is Eur1,000.
These fee structure adjustments are possible on an annual basis; NORMEX notified the I-TRACK Foundation in November 2023, and once these were accepted, the updated prices were published in January 2024.