Regional REC Framework For ASEAN Net Zero Ambition

Renewable Energy Certificate (REC) records the environmental attributes of one MWh of electricity generated from renewable energy (RE) sources. It is used as a market-based instrument or, in a sense, a form of energy commodity. It can be purchased by electricity consumers (companies or individuals) and sold by power companies or developers. Once it is sold, it can’t be purchased again and has an expiry date. Its attributes include the place of generation, the type of renewable resources, and the generation date. REC’s purpose grows eminent when the prices are high enough to incentivise the developers, hence encouraging more RE investment. 

Greenhouse Gas Protocol allows the use of market-based instruments, such as REC and PPA, for scope two emissions accounting. Explaining why purchasing REC has increasingly become a norm for companies to fulfill their net zero ambition. 

Since the launch of the RE100 initiative at Climate Week NYC 2014, 355 companies from over 150 countries have joined the group. In the RE100 2022 Annual Disclosure Report, 334 members reported 376 TWh of electricity consumption, equivalent to 1.5% of the world’s total and claimed 49% is sourced from RE. Albeit the increasing membership, the average RE100 target year has been delayed by one year from 2030 to 2031. This delay is primarily contributed by the new members who chose an average target year of 2036 and 14 existing members who brought their targets forward in the past year by 12 years on average.

Seven years after RE100 inception, the CDP – one of the founding members of RE100, with UN Global Compact, WRI, and WWF launched the Science Based Targets Initiative (SBTi) Net-Zero Standard ahead of COP26, providing the first framework for corporate net zero target setting. This standard could be seen as the extended version of RE100 reporting framework as it is oriented on achieving net zero emission – a more straightforward indicator for tracking the progress towards 1.5^OC Paris goal. However, a study found 48 overlapping members participated in both SBTi and RE100, and 73% of GHG emissions covered by RE100 overlapped with the SBTi.

In ASEAN, REC is not a foreign instrument. Voluntary REC markets exist in most member countries (except Myanmar). Singapore is the only member country among the five countries in Asia (China, India, Japan, and the Republic of Korea) that procured the most renewable electricity, according to RE100. Despite the limited options for corporate RE procurement, Singapore recorded around 720 GWh REC purchases, 100 GWh PPAs, and 10 GWh contracts with suppliers. And the transaction is dominated by cross-border renewable electricity, with only 26% originating from Singapore.

Recently, growing state-owned utilities are facilitating more voluntary REC transactions in ASEAN by selling REC and informing electricity productions of ‘certified’ RE power plants through online platforms. And in most cases, the initiative is endorsed by their respective Ministry of Energy. With the optimistic view, we could expect the lessons learned from these government-led programs to strengthen the country’s readiness to employ mandatory REC market in the coming years.

Indonesia’s PLN started selling REC in December 2021. By January 2023, PLN claimed 1.7 TWh REC sales in 2022 to 40 companies, a five-fold increase from 308 GWh in 2021. The PLN’s REC is offered at USD 2.3/kWh (IDR 35,000/ kWh). In comparison, in the United States, voluntary REC prices between 2012 – 2018 were recorded between USD 0.35 – 1.2/ MWh.

In October 2019, Malaysia’s Minister of Energy, Science, Technology, Environment, & Climate Change (MESTECC) launched the Malaysia Green Attribute Tracking System (mGATS). It is a marketplace that allows generators, retailers, and customers to purchase REC, but so far, it only tracks TNB’s REC. In December 2019, Sarawak Energy delivered first RECs batch from Batang Ai hydropower plant.

In August 2022, the Philippines commenced the interim commercial operations of the Renewable Energy Market (PREM) as the platform for REC trade. The Philippine Electricity Market Corporation (PEMC) is appointed to take on registrar functions, including issuing, keeping, and verifying REC. 

In November 2018, Singapore’s SP Group – a government partner providing services for the open electricity market, such as meter reading, meter data management, and facilitating customer transfers between retailers, launched the world’s first blockchain-powered REC marketplace.In December 2020, Toyota Motors bought the first 10 thousand RECs from Thailand’s EGAT. And two years later, EGAT issued 5.2 million RECs as reported in the 1^st Thailand’s I-REC Standard Conference in November 2022.

On the regional scale, the recent extension of the Lao PDR-Thailand-Malaysia-Singapore Power Integration Project (LTMS-PIP) emphasised REC’s possible role in breaking the cross-border RE-based power trade boundary. In June 2022, Singapore commenced the import of up to 100 MW of hydropower from Lao PDR to pave the way for importing up to 4 GW of green electricity by 2035. 

Suppose the REC framework is established regionally. In that case, such electricity import could be extended to private companies and sourced from multiple countries along LTMS-PIP without being bound by strict bilateral PPAs. Countries with enormous RE potential could benefit economically from exporting REC via ASEAN Power Grid (APG). On the other hand, countries with higher REC demand due to the presence of multinational companies could tap into renewable electricity. Then, the accumulation of REC purchases could be directed back as the stimulus of APG expansions.

Considering ASEAN’s aspirational target alone – 23% RE share of total primary energy, could offer 1.2 million GWh by 2025, according to the 7^th ASEAN Energy Outlook (AEO7). Coupling the REC with APG planning could substantially expand the market size, eventually helping ASEAN member countries realise their net zero pledges.

Writers: Monika Merdekawati, Beni Suryadi