Mexico's SENER power generation growth forecast poses new opportunities for I-REC issuance

Mexico's latest Energy Secretariat, SENER, forecast sees substantial growth for renewable energy that will also entail more opportunities for International Renewable Energy Certificates (I-REC) issuance, but market participants are holding a reserved stance toward those forecasts on concerns about the feasibility of all the new capacities being built, market sources said.

SENER's Energy Sector Forecast for 2023-2036 was published April 3 and uses a 2.5% compound annual growth rate or CAGR of net electricity consumption for a 38.3% total increase from 347,485 GWh in 2023 to 479,987 GWh in 2037. The expected CAGR for on-peak electric power demand jumps from 50,236 MWh/h in 2022 to 72,376 MWh/h in 2037, a 44.1% increase. To meet this demand, SENER anticipates the integration of additional 64,595 MW of installed capacity, including PV-DG, green hydrogen, and storage systems, for the next 15 years.

On the total sum of installed capacity additions for the short-term (2023 to 2026) equivalent to 20,425 MW, 30.58% will correspond to photovoltaic (PV) solar, 9.18% to photovoltaic distributed generation (PV-DG), 9.60% to wind and 2.27% to hydro. For the long-term additions (2027 to 2037) totaling 39,658 MW, 37.06% will be associated to PV solar, 14.04% to PV-DG, 8.65% to wind and 5.72% to hydro. Moreover, hydrogen is expected to account for 4.08% of power generation, according to the report.

The report highlights that compared to 2022, when 36.9% of the installed capacity was categorized as clean energy, the percentage is forecast to increase to 54.6% by 2038.

Assuming the PV solar and PV-DG capacity additions are effectively executed, they will pose an opportunity for I-REC market growth since some of the new projects may be interested in registering as I-REC issuers. This may stimulate liquidity and generate additional offers that are not currently available, as "to date, it has been challenging to fulfill I-RECs demand fostered by steel and aluminum companies that are seeking these credits to comply with regulations that they are facing when trying to export products to other regions, which has led to a price increase" a trader stated on April 17.

An I-REC is an exchangeable energy attribute certificate that represents 1 MWh of energy produced by a renewable source that provides power generators with an additional economic incentive by selling them in the market, while buyers can use the certificates to support their sustainability claims on the use of renewable energy.

Nonetheless, Joaquin Corella, director at the Energy Saving Intelligence Center, pointed out that at least for PV-DG, currently I-RECs have not acquired much relevance due to lack of information on how to engage in the market and the usefulness of these credits. As a result, the growth of PV solar and PV-DG will not be enough by itself to boost I-REC liquidity and capacity building among potential energy attribute market participants will be crucial to leverage of the opportunities on this regard.

Overall, market participants seek more detailed information on forthcoming editions of the forecast to back up planning and decision making on future investment and project execution. "Even though the growth of renewables in the installed capacity add-ons is encouraging, is not clear how the expected increase will be operational. Granular information per region as well as clarity regarding foresighted challenges and the role that both, the Mexican utility CFE and private market participants will play in attending to future necessities, is crucial to boost constructive conversation among all stakeholders," a power generator commented in response to the SENER report.

SENER did not respond for requests to comment on the forecast.