RPO Compliance May be Required More Frequently

After the low trading volumes in April, we strongly advocated quarterly compliance in order to make the REC market functional.

Now it has been reported that the CERC has been actively considering such a proposal (See Business Standard article here). An official from CERC said “It is proposed to make it mandatory for the states to meet a certain percentage of their entire five per cent RPO biannually or four times a year. Discussions are underway with various stakeholders right now.”

Our May 2011 newsletter (currently available only to subscribers) also highlighted this point, and presented data from other countries where quarterly compliance is the norm.

This will be a very important policy change, particularly because in the current set-up the market will be skewed towards the last quarter of the year as obligated entities do not have to meet RPO requirements till the end of the year (March 2012).

Another key aspect is the demonstration of enforcement. State regulators should use the March 2011 window to notify the obligated entities. Unless that is done, a key question that will remain the minds of REC buyers is whether RPO regulations will be enforced. With such a doubt, no market can take off.

Significant Jump in REC Trading Volume in May

Review of REC Trading – May 2011

After a slow start, REC Trading picked up this month. There was a significant increase in the volume – combined volumes on both exchanges was 18,500 RECs (representing 18.5 million units). This is an encouraging sign. Most obligated entities had remained away from the market last month, as they don’t have to meet RPO compliance till March 2012. However, last months low prices also presented a bargain to the buyer – prices will certainly be higher in the last quarter of the year.

The pricing remained subdued in this session as well. Price realized on both exchanges was Rs 1,500/ REC, or the floor price. Part of the reason is the low volume last month – sellers were being conservative and wanted to ensure the sale of RECs. From our extensive on-ground experience, we can say that broad approach of market participants remains ‘wait-and-watch’. Market is still looking for signs of enforcement of the REC mechanism, and significant supply capacity is yet to see issuance (current trading is from only 3-4 projects, representing less that 30MW of capacity, as against over 400MW accreditated). Without a strong signal on the enforcement of RPO, we can expect low prices of RECs for some time.

There was no trading in Solar RECs.

Supreme Court Allows Open Access in Maharashtra

The Supreme Court has dismissed the petition of MSEDCL for a stay on Open Access in Maharashtra. For those in the industry who have been tracking this issue for a while now, the Supreme Court action came quickly (only very recently the HC had dismissed the stay as well) and is a big relief.

Details are covered in the news article here and here.

Its noteworthy that the Supreme Court has refused to stay the granting of Open Access permissions – the courts have not ruled on the Cross-subsidy issue as yet, the SC has merely said that till such a ruling is made, MSEDCL cannot stay the grant of open access permissions.

For several people this is a big relief – as an example there are many windmills that are generating power for a long time and feeding into the grid without getting paid as the open access permission was withheld. We can now hope that MSEDCL’s high handedness will subside and they will work in true spirit towards power market reform.

Updated in September 2011:

An interesting article providing context and summarizing the issues is available here.

Also, MSEDCL put a snapshot of the judgement, with their interpretation – that’s available here.

The on-ground situation is that matter remains unresolved in MERC as of today. However, MSEDCL has granted “open access” to certain wind generators on a selective basis, and against some cross-subsidy commitments. However, true “open access” remains elusive.

Important Order from CSERC on Metering

An important order was passed by Chattisgarh State Electricity Regulatory Commission (CSERC). Metering in the case of captive units has been an issue in claiming REC. While the CERC procedures are very clear about the requirements – need for a special energy meter and being grid-connected, the on-ground reality, as always, has been more complicated. If a co-located CPP were to install the required meter, will the SLDC read it?

The matter has been laid to rest in a recent order by CSERC, which requires the local DISCOM to install the required meter and for the Chattisgarh SLDC to read it on a regular basis to enable the petitioner to claim RECs.

The case is particularly interesting as the petitioner has common injection point from 3 turbines, only one out of which from a renewable source (biomass). Please see the order for more details.


Try India’s First Online RPO Calculator here

Karnataka proposes to develope 300 MW of Solar Power by 2016

Karnataka has notified draft policy on Solar Power development for the state of Karnataka. According to the drat policy, Karnataka is gearing up to install total 300 MW of additional capacity from Solar power plants (PV & Thermal collectively) in a phased manner by year 2015-2016.Of these 300 MW, 200 MW of capacity is envisaged to be purchased by Energy Supply Companies (ESCOMs) of Karnatakato meet their Renewable Portfolio Obligations (RPO) which currently stands at 0.25% for FY 2010-11. Read more…

REC Trading Off to a Slow Start

Further to our analysis of REC trading in April, The Hindu recently covered the same, and so did Business Standard, which mentioned that the REC price declined by 61.5% in just the second trade.

We agree with their comment of REC Trading needing a ‘booster’. However, we believe that booster will come in the form of more frequent compliance requirement – clearly, if the obligated entity has time till March 2012 to meet the compliance requirement, why bother spending the money now? Read more…

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