REC Price Bands May Remain Unchaged

CERC is considering leaving the REC price bands unchanged (the limits within which RECs are traded), and also extending the control period from the current three years, reported the Business Standard.

CERC had come out with a draft order suggesting that prices be revised downward to Rs 1,400 – 3,480 for Non-solar, and Rs 9,880 – 13,690 for Solar RECs. Our analysis suggested that this is likely to significantly impact returns on projects, and that the Average Pooled Price (APPC) used in the calcualtions showed significant variation.

The public hearing on the draft order also overwhelmingly suggested that RE project developers feared such a downward revision will impact return and bankability (difficult even in the present scenario). A quick summary of the main points of the hearing are discussed in our most recent newsletter.

If the CERC does indeed let the prices remain unchanged, and also extends the control period it will have a significant positive impact on the bankability of projects opting for the REC mechanism.

REC Mechanism Sees Low Issuance

July saw significant new capacity getting registered. Registered projects capacity increased from 406 MW last month to 623 MW.

However, our analysis found that very little of that is seeing issuance as of now. Approximately 30,000 RECs were issued this month translating to only 42 MW equivalent capacity (using standard PLFs). This represents only 10% of the total registered capacity, or 30% of the effective capacity (after factoring in PLFs).



*Calculated from standard PLFs applied to registered capacity

REC Trading Update – July 2011

REC Trading has been picking up gradually. Both the volumes traded and the price showed some improvement over the last month – approximately 18,500 Non-solar RECs were traded this month, as compared to 16,000 in June.

Price also showed marginal improvement, increasing to Rs 1,555 and 1,550 (IEX and PXIL) from Rs 1, 505 last month.

Its also important to note that RECs available in the market have now crossed 36,000. This is not due to lack of demand (demand was close to 96,000 RECs this month), clearly indicating that sellers are looking for better prices, and expect to get those later in the year, as compliance draws near.

No solar RECs were traded.

Order on APPC of Chhattisgarh declared

Order on Average Pooled Purchase Cost (APPC) by Chhattisgarh State Power Distribution Company Ltd., Bhilai Steel Plant and Jindal Steel and Power Ltd. for the year 2010-11 and 2011-12 was declared recently. The order specified the pooled cost of power purchase for the year 2010-11 and 2011-12 based on actual power purchase cost for the year 2009-10 and 2010-11 is shown below.

Name of DISCOM APPC for FY 2010-11 ( Rs. / Kwh) APPC for FY 2011-12 ( Rs. / Kwh)
CSPDCL 1.62 1.67
BSP-TEED 4.02 3.26
JSPL 3.00 3.00

PSERC’s order on APPC for FY 2011-12

Honorable Punjab State Electricity Regulatory Commission (PSERC) have also determined the Average Power Purchase Cost (APPC) for the state of Punjab.The Commission has determined the ‘Pooled Cost of Purchase’ as Rs. 2.64 per Kwh for FY 2009-10 and Rs.2.69 per Kwh for FY 2010-11 respectively.

Significant Changes are Proposed in the REC Mechanism


NLDC and Central Board of Irrigation and Power (CBIP) organized a day-long workshop on the REC mechanism in Delhi in June.


Shri Pramode Deo, Chairman CERC was the key note speaker at the event. In his speech, he gave a preview of the significant changes expected in the REC mechanism. The highlights of these are:


  • Quarterly compliance of RPO to be put in place soon
    • As we have mentioned earlier in our newsletter and on this blog, this is a necessary step to make the market function smoothly. The interesting point that Shri Deo made was that all the regulatory requirements to implement this change quickly are in place – as a result we may see quarterly compliance sooner that we expected.


  • Vintage based RECs to be considered, particularly in Solar
    • This will help remove a major obstacle in Solar investments. Faced with rapidly reducing capital costs, investors opting for the REC mechanism face a sudden reduction in revenue as REC prices are revised downward, even though they are locked-in with high capital investment. A vintage-based REC will solve that problem. As an example, a 2010 Solar REC may be made equal to 1.3X of a 2012 Solar REC to factor in the higher capital investment required in 2010.
    • Vintage based RECs are a common feature in international markets.


  • Electricity duty exemption clause to be reviewed
    • A large number of units generating RE power in captive mode are in-eligible for RECs as they enjoy ED exemption. However, the ED exemption available and the REC revenue foregone are disproportionate. At the same time, this clause is preventive entire states and regions (like UP, Punjab and Vidharba) from participating in the REC market.


  • Consider Discom’s to sell RECs when they purchase RE in excess of their RPO requirement
    • This will be a welcome step, as this will enable Discom’s to lessen the burden of RE power purchase, particularly as many are not in good financial health. However, this approach also has risks – a Discom may disallow open access in the state and monopolize REC trading. One way out could be to allow this only in states where open access is allowed in its true spirit and form.
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