COMMODITIES 2025: Heightened EAC market activity in first half of the year

This is part of the COMMODITIES 2025 series where our reporters bring to you key themes that will drive commodities markets in 2025.

The general sentiment across most Energy Attribute Certificate (EAC) markets suggests an increase in market activity in the first half of the year. Price trends may, however, vary depending on geography due to supply and demand dynamic.

International Renewable Energy Certificates (I-RECs)

In the Brazilian I-REC market, the first half of the year is dominated by issuance and redemption of previous-year certificates. Demand rises at the start of the year until May, when it sees the peak of the activity period. Market participants rush to issue their second half of the previous-year production before the May 31 deadline, which results in price increases. Meanwhile, the second half of the year has lower-volume demand and fewer trades.

Similarly, the Chilean I-REC market foresees a price surge early in the year due to low liquidity, as a handful of participants handle large volumes through a limited number of transactions. Demand is primarily motivated by ESG and decarbonization goals, which often align with first quarter reporting cycles, increasing trading and redemptions as early as February 2025. The price spike is mostly seen on previous-year certificates, while current-year certificates remain stable until mid-year. The biggest price driver is the balance process of the National Renewable Energy Registry (RENOVA), which is expected to shape overall supply, demand, and pricing dynamics.

In the Mexican I-REC market, shortage of current-year certificates in the spot market is expected to continue as holders retain their remaining inventories for PPAs or forward contracts. The supply situation is further strained by the minimal growth in new installations and devices registering for I-REC issuance. This tight supply-demand dynamic has driven current-year certificate prices significantly higher, which may continue into the new year, according to Normex. In response to global retention practices, an Advance Redemption Fee will take effect on Evident's platform starting January 1, 2025, set at Eur0.06.

Meanwhile in the US RECs market, the entry of the new administration would not necessarily mean a change on the supply and demand dynamics, according to sources. Other market participants also mentioned the Republican-led states have experienced job growth due to renewable energy projects, which may lead them to oppose the repeal of the Inflation Reduction Act. On the voluntary market, corporates might want to send a "stronger" message by increasing or accelerating their renewable energy and sustainability goals, similar to Trump's previous administration.

Conversely, in the Vietnamese I-REC market, oversupply remains a significant issue, leading to a sharp decline in wind and solar prices in December. Market participants anticipate this trend to continue into 2025, with prices potentially plummeting to 30 cents/MWh. Meanwhile, activity due to increased issuance is expected to peak in the second quarter, while redemption trends can be mixed.

Thailand's I-REC market also grappled with oversupply throughout the year. However, towards the end of the year, rising demand for solar and biomass I-RECs stabilized prices in the last quarter. Despite this, the outlook for 2025 remains pessimistic, as the persistent oversupply is expected to limit any significant price rebound.

In Malaysia, solar I-RECs had limited supply for the whole year, coupled with high demand. Supply for solar I-RECs is expected to replenish, as several new solar power projects are scheduled to launch in 2025, potentially bringing more balance to the market. I-REC redemption is foreseen to rise in the first quarter, while issuance has no particular trends.

India's I-REC market saw a shift from oversupply to supply constraints by October. Prices rebounded by December, driven by stricter issuance processes by the Indian Carbon Exchange (ICX) and growing corporate demand for I-RECs ahead of annual emissions reporting. Prices in India are expected to continue rising into March 2025 teasing at 80 cents/MWh level and above. Issuance of I-RECs tends to peak in the second half of the year, while redemption increases in the first quarter as the financial year closes in March every year. This is expected to raise prices due to a supply constraint.

In Turkey the I-REC market is expected to see rising prices temporarily in the first quarter before they drop again. However, market participants cited the vast number of small I-REC issuers in Turkey is going to continue to saturate the market, resulting in reduced profitability. Some sources said the only hope for a market rebound is if CBAM accepts I-RECs as a tracker for Scope 2.

European Guarantees of Origin (EuGO)

In the European GOs market, the first quarter is considered a busy period ahead of the end of compliance period on March 31. Further issuance of 2025 certificates early in the year is expected to put pressure across the curve for EuGOs. Meanwhile, the elevated hydro levels across Europe have added to an already bearish market due to oversupply and little buying activity. Norwegian hydro forecast is expected to remain high, which will put downward pressure from the first quarter onwards, according to market participants.

Renewable Guarantees of Origin (REGOs)

In the UK REGOs market, there is a strong outlook on renewable capacity supported by the government's schemes promoting healthy renewable output. As a result, prices for future years will see fewer rallies as supply is known to be increasing. Additionally, willingness to pay high values for REGOs seen in CP-22, means that we can expect demand to adapt to pricing in 2025. While a hike in price might see a marginal loss in demand, it is expected that big players will still be voluntarily buying the EACs for their Scope 2 emissions.