International Renewable Energy Certificates (I-RECs) evolved on the premise that an underlying positive environmental attribute is attached to every one-megawatt hour (1MWh) of renewable energy generated and used. In essence, two commodities are created when renewable energy is generated – first, the electricity generated from say a solar installation, and the second, the environmental attributes. Although there are various renewable energy attribute schemes around the world, the underlying principles of their operation are the same, which is the issuance, trade and cancellation of certificates that allow end-users to claim the use of a given unit of renewable energy (distinct from the mere consumption of the electricity generated). For instance, in North America, they are referred to as Renewable Energy Certificates (RECS), in Europe it is called a Guarantee of Origin or the European Energy Certificate System Guarantee of Origin (EECS-GO), while I-RECS was developed by the I-REC Foundation for the rest of the world, including Nigeria.
In simple terms IRECs are tradeable, market-based instrument that represents the legal property rights to the “renewable-ness” or non-power (i.e., environmental) attributes of renewable electricity generation.
Many organizations, institutions, and governments often lay claim to the amount of renewable energy consumed or used during their operations and, IRECs serve to validate, quantify, and substantiate those claims.
Electricity is not a tangible product that can be seen, handled, or quantified. It is a homogenous product that cannot physically tagged ‘green' or ‘grey' because electricity generated from renewable energy sources is indistinguishable from that produced from any other source. Typically, a power producer injects electric current from its plant into the grid in one place and a consumer (in another location) takes the same amount of current off the grid. It is therefore difficult if not impossible to state with certainty that the electrical current generated is the exact same one used by the consumer.
Thus, IRECs work to concretize environmental attribute of all renewable energy consumed into intangible blocks or units of 1MWh for which a certificate is issued and can be sold in the open market as an energy commodity to earn income. For each MWh of renewable energy produced and sent into the grid or consumed, an IREC is created.
How does IRECs Market work?
Developers of renewable energy projects engage certified registrants and market participants to register their devices (e.g solar plant) with the IREC registry, and upon registration, IRECs are issued for every one MWh of verified renewable energy produced from that device. All IRECs are uniquely assigned a number, and generally include information such as, where they were generated, the type of renewable resource they came from, the details of the device that produced the energy, and a date stamp of generation. The sale and purchase of IRECs is verified, tracked, and recorded.
Corporations, businesses, nonprofits, and individuals for reputational or reporting purposes purchase these IRECs from project developers to provide their organizations with a basis to claim or report that their electricity consumption is produced from renewable sources. Put simply, purchasing IRECs is equivalent to purchasing renewable energy. By way of illustration, if a solar power facility produces 7000 MWh of electricity in a year, 7000 IRECs has been created which can be claimed by the producer or sold to another entity. An organization that buys those IRECs is buying the “renewable” aspect of the electricity from the solar facility and can therefore claim that 7000 MWh of its electricity consumption was produced from a renewable source. For instance, many organizations use IRECs for Scope 2 emissions reporting, climate disclosure, and RE100 – this is a global corporate renewable energy initiative comprised of organizations that have committed to 100% renewable energy consumptions. It is interesting to note that 14 of these companies have operations in Nigeria.
It is useful to note that IRECs issued may be claimed (i.e used for reporting purposes) by the project developer, where it has a reporting obligation, or sold to another entity who claims the certificates. Once claimed, the IRECs are cancelled out by the registry to avoid double counting.
IRECs may be bundled or unbundled. They are bundled when they are sold with their underlying energy, for e.g., an organization buys power from a nearby solar power facility and in addition to using the electrical energy, it also purchases the IRECs on the energy consumed. Where the certificates are sold separately from the underlying energy, they are unbundled IRECs. For e.g., a hydro power generator that supplies renewable energy to a mining company may elect to obtain the IRECs for the electricity generated and sell to another organization different from the mining company. Unbundled IRECs are more readily available and easily tradeable.
Benefits of IRECs and its development in Africa
Although the renewable energy certificates have been used for over a decade in Europe, the United States and Australia, it is only beginning to gain recognition and support in Africa. A leading light in this regard is South Africa. Similarly, Peace Renewable Energy Credit (P-REC- these are IRECs labeled “Peace” with a special feature of having its proceeds re-invested in fragile, energy poor countries ) is currently being issued in Congo, Chad, Somalia and South Sudan by the Energy Peace Partners. The first P-REC transaction was consummated in November 2020 with Microsoft purchasing P-IRECs from a new solar plus storage mini-grid project in Goma in the Democratic Republic of Congo. More recently, the largest P-RECs were issued in South Sudan.
In terms of benefit, organizations can meet their clean energy goals without necessarily installing costly facilities such as solar panels or wind farms whilst also reducing their carbon footprints.
Standardization of IRECs can accelerate Nigeria's energy transition goals by putting an additional marketable value on the production of renewable energy such that producers of renewable energy can sell both the energy and the derivative IREC. This provides a complementary income stream that can be re-invested into the renewable energy production. Also, the IRECs scheme incentivizes investors to venture into renewable energy production, in addition to reducing the reliance on national or public renewable energy support schemes and grants.
The IREC market in Nigeria is still at its nascent stage. To take benefit of the IREC scheme, a robust national framework must be developed for the recognition, registration, sale and purchase of I-RECs as an energy commodity. Given that IRECs can be traded across countries, it presents Nigeria with an opportunity to earn foreign income. Olaniwun Ajayi LP is a certified registrant and market participant and can support project developers and organizations in navigating the IREC market.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.