Xpansiv, a global energy transition market infrastructure provider, just released its 2023 performance to update investors. The results mark another transformative year for the company, recording a massive increase in revenue of 39% despite a low-performing market.
Unprecedented Growth Despite Market Challenges
Xpansiv experienced a remarkable 39% net revenue growth in 2023, primarily attributed to its strategic acquisition of Evolution Markets. Since 2020, the company has sustained an impressive Compound Annual Growth Rate (CAGR) of 165%.
Notably, revenue diversification was evident, with electricity accounting for slightly over half of the net revenue, followed by carbon and fuels.
Approximately 60% of the revenue was from execution and advisory services, while the remainder came from tech-enabled Software-as-a-Service (SaaS) revenue across various business segments.
This growth was achieved through careful cost management, focusing on integration and synergies from multiple acquisitions. Notable acquisitions include Evolution Markets brokerage, a marketplace technology team, and a minority stake in Evident, a registry provider.
Moreover, the strategic focus includes diversifying revenue by strengthening positions in domestic and international renewable energy credit (REC) markets.
Accomplishments in this area included record REC volume on the CBL exchange, I-REC trading launch, and the integration of the Evident registry. These acquisitions enhance Xpansiv’s platform infrastructure, reinforcing its ability to provide holistic market solutions for the global energy transition.
Xpansiv also aimed to maintain leadership in registry and exchange services for carbon offset markets. However, a slowdown in Voluntary Carbon Markets (VCM) in 2023 posed a challenge, impacting several areas of Xpansiv’s business. This included registry software, exchanges, and brokerage businesses trading in voluntary carbon.
However, an uptick in activity in December 2023 suggests potential growth in these markets in 2024.
Navigating the Evolving Energy Landscape
The year 2023 witnessed dynamic shifts in environmental commodity markets, signaling an accelerated pace in the global energy transition. In notable achievements, Xpansiv introduced new products on its CBL platform, expanded its registry offerings, and made significant strides in the green hydrogen sector.
In the United States, the renewable energy sector sustained strong momentum throughout 2023, with renewable sources contributing over 20% of the nation’s electricity generation. This growth trajectory was supported by various government initiatives, including the Inflation Reduction Act (IRA) clean tax credits.
Trading volumes on Xpansiv’s platform infrastructure reached record highs, impacted by these initiatives and state Renewable Portfolio Standards (RPS) policies. Trading activity reached 2.6 million units, accounting for an 88% increase from 2022.
Internationally, the momentum towards renewable energy adoption surged, with increasing corporate initiatives and regulatory support. There are over 23,000 companies with a total market capitalization of $67 trillion participate in the CDP for environmental disclosure.
Xpansiv responded by diversifying its market offerings to assist clients in meeting global renewable energy commitments. This included the introduction of International Renewable Energy Certificates (I-RECs) and strategic investments in companies such as Evident.
In 2023, the I-REC market saw significant growth, with 283TWh worth of certificates issued, a 42% increase from 2022. Solar and hydro assets drove this expansion, with over 216GW of capacity registered across 48 countries. Demand surpassed supply, with 176 million redemptions, an 81% increase from 2022. I-REC trading on CBL launched successfully in June 2023, with 120,000 I-RECs exchanged by year-end.
Resurgence and Resilience in Carbon Markets
Despite facing challenges, the VCM experienced a resurgence in the fourth quarter of 2023. Corporate demand for carbon offsets remained robust, leading to record levels of retirements. However, delays in purchases by new market entrants exerted downward pressure on prices and secondary trading volume.
Efforts to bolster market integrity are underway, with initiatives aimed at enhancing climate disclosures and restoring market confidence. These include SEC’s new climate disclosure rule, CFTC’s new proposed guidelines, and ICVCM’s CCP, and CORSIA’s first compliance phase.
In 2023, CBL achieved volumes of 40.2 million metric tons (Mt), a figure more aligned with 2020’s 31.3 Mt compared to the elevated levels of 2021 and 2022. Xpansiv’s Transaction Services contributed an additional 22.5 Mt of voluntary carbon transactions.
While initial volume was down, the fourth quarter witnessed a resurgence in trading and retirement activity. In fact, 42% of CBL’s carbon offset volume occurring in Q4 alone. Notably, December set a monthly retirements record of 39 Mt, marking a 20% increase over the previous record set in December 2021. However, low prices significantly impacted carbon finance.
The value of credits traded via CBL plummeted 85% from an all-time high of $795 million in 2022 to $118 million in 2023.
This, in turn, affected broader societal, health, economic, and biodiversity co-benefits delivered by such projects. Yet, with robust fundamentals such as growing corporate demand, evolving registry regulations, and integrity initiatives, there are indications of potential stabilization in asset pricing.
Derivatives markets also experienced further growth, with trading volume of CBL GEO futures contracts listed by CME Group surpassing 216,000 lots in 2023, up 3% from 2022. The GEO accounted for 52% of the traded volume, and open interest hit a record high in May, exceeding 32,000 lots.
Advancing Towards a Sustainable Future
Xpansiv’s transaction services arm has also extended its presence in compliance markets across the US, EU, and beyond. Evolution Markets, acquired by Xpansiv, arranged 1.8 billion metric tonnes in transactions in 2023, notably excelling in the EU and UK ETS markets. Xpansiv’s expansion includes the launch of ACCUs and preparations for CORSIA’s compliance phase in 2024.
Looking ahead to 2024, Xpansiv maintains its focus on accelerating the world’s energy transition. Key areas of focus include cementing its role as a global market infrastructure provider, emphasizing the capabilities of EMA, and building product diversity.
The near-record annual retirement volume, substantial increase in companies joining CBL and entering the VCM, along with new data showcasing the superior sustainability performance of companies using carbon credits, all reinforce the significance of corporate sustainability in shaping market dynamics.