Review of REC Trading-October 2011

The highlight of this trading session was the increase in volumes (95,504 RECs sold versus 46,362 last month) and price (Rs 2710/ REC*).

The increase in cleared volume of 106% is significant, particularly as increase in volume offered for sale increased only by 62%. This is a clear indication that sellers are expecting a higher price in the future, and are willing to hold RECs for that. Since the price jump was significant this month (~18%, on the back of a 29% jump last month), a lot of the RECs which were held back to be sold only at higher prices were cleared this month.

The price increase was also noteworthy. IEX price was Rs 2,700/ REC while PXIL was Rs 3,000/REC. If we consider the last few months (see past trading reviews here), prices have risen from the floor price to the current level – an increase of 80%.

This is despite that fact the demand volume grew very slowly (only 4% this month, vs 24% in September and 90% in August). This may be due to lower participation during the Diwali holiday season, and also dampening of demand due to the high prices of last month.

No Solar RECs were traded this month, though trading can be expected to begin as the first solar project got accredited recently.

See press coverage on October trading here:

In Business Line. We are also quoted in the article ““The very marginal increase in demand reflects lack of fresh demand being generated for RECs,” notes Mr Vishal Pandya of REConnect Energy Solutions

In Economic Times. The article mentions REConnect Energy as one of the major traders.

Maharashtra Not to Allow Banking of Power to Renewable Generators

In another step back on the Open Access issue in Maharashtra, MSEDCL recently rolled back the banking provision for renewable energy generators opting for open access in the state.

A recent circular released by MSEDCL has proposed new rules for banking of power generated by renewable sources and sold under open access.

The key provisions regarding banking in the new circular are:

 

  • If energy is supplied in excess of consumption for every 15 minute time-block, such energy will lapse (will not be allowed to be banked)
  • If energy is consumed in excess of supply for every 15 minute time-block, the applicable tariff will be that of a Temporary Power connection.

 

The banking related provisions are mentioned below:

 

6.4 It is necessary that the consumer / person who so ever has opted for Open Access shall

use the entire power contracted of Open Access Generator and ensure that the

consumption of the consumer / person in every 15 minutes time block shall match with

the energy received at the drawal point during corresponding 15 minutes time blocks.

 

6.5 Whenever the consumer / person is unable to match every 15 minutes time block

consumption with the energy received at the drawal point during corresponding 15

minutes time blocks, then in such situation:

 

6.5.1 If the net energy received at the drawal point every 15 minutes time block exceeds

the net energy actually consumed during the corresponding 15 minutes time block,

the excess energy received during the said 15 minutes time block shall be treated as

lapsed and the consumer shall neither be permitted banking of such excess energy

nor shall be paid for the same, unless there is a separate agreement for banking or

sale/purchase of this over injection.

 

6.5.2 The facility of banking will be applicable in case of self use only; if permissible as per

GOM policy/ MERC Order/Regulations.

 

6.5.3 In the reverse situation, if the net energy received at the drawal point every 15

minutes time block is less than the net energy actually consumed during the

corresponding 15 minutes time block, the excess energy consumed by the consumer

/ person during the said 15 minutes time block shall be considered as over-drawal

from the Grid and shall be billed at the rate as may be applicable from time to time

for the energy charges payable by a consumer obtaining Temporary Power (for other

purposes) supply from MSEDCL. Further, in such situation, the consumer / person

shall also be liable to pay “Electricity Duty”, “Tax on Sale of Electricity”, etc. on such

excess energy consumed from the Grid.

 

This will effectively bring an end to open access by wind power producers in Maharashtra, as 60-70% of the power is produced in the ‘high season’ (roughly corresponding to monsoons). In the present scenario wind producers bank the excess energy produced in the high season, to be consumed throughout the year. If such a facility is not allowed, then wind generation in the state will not remain feasible, unless power is sold to the Discom. Note that the new rules for banking of power apply only to renewable energy generators under open access (not to captive users).

 

The second provision, under which the consumer will be charged at “temporary power’ connection rates, rather than the regular industrial connection rates will increase the cost of power substantially. (HT Industrial Tariff is Rs 5.27/unit while the Temporary Tariff is Rs 10.12/unit. See Tariff Order for details)

 

In effect, this provision will end ‘open access’ in Maharashtra for renewable energy generators.

 

 

Past articles on the Open Access issues in Maharashtra:

 

Power Exchanges Raise REC Trading Charges

IEX and PXIL have raised trading charges across most categories of power trading products.

However, REC trading charges have only been revised by IEX. REC trading charges at IEX are now Rs 20/REC (up from Rs 10/REC). At PXIL, charges remain at Rs 10/REC.

Relevant circulars can be found here:

IEX

PXIL

 

First Solar Project Gets Accreditated

The first solar project got accredited under the REC Mechanism. The project is of Jain Irrigation, has a capacity of 8.5 MW and is located in Maharashtra.

While this is a start, we believe that the momentum in the Solar REC market is too little to make any impact on the Solar RPO requirements. This was also covered in a recent article on the topic titled “Inadequate capacity clouds solar power renewable purchase obligations“. The article notes that:

According to industry sources, India will barely have the desired solar power installations by March but it would be too late for the distribution companies to procure solar power to meet the entire year’s obligation.

And further:

“The policy framework for solar power in most states is vague. We are finding the centre’s vision to fix solar specific RPO at 0.25% by 2013 and 3% by 2022 unviable in present circumstances,” said an official with one of the state utilities in western India. In Gujarat, private electricity distribution company Torrent Power has already approached the Gujarat Electricity Regulatory Commission with a request to reduce its RPO.

 

 

Try India’s First Online RPO Calculator here

Renewable Energy Certificates needs market push

In an article of The Hindu Business Line the current scenario of the Renewable Energy Certificates market of the country and its upcoming challenges was highlighted.

With an extra one-and-a-half paise added into accounts of people who put up renewable energy capacities such as windmills, biomass and solar plants is an attractive return, justifying their investments.

However, for this to work, a key parallel activity is the development of a robust market for renewable energy certificates and here is where action is needed urgently now.
Read more…

MP Proposes High Cross Subsidy Surcharge

After Maharashtra, it was the turn of MP to propose a high cross-subsidy surcharge. According to an approach paper released on the topic by MPERC, industrial consumers will have to pay upto Rs 1.53 per unit as cross-subsidy. This will make open access a non-starter in the state.

It is particularly disappointing as the RPO/ REC mechanism provides a strong incentive to companies to procure ‘Green Power’ – something that will directly encourage investment in renewables – the primary objective of the scheme to begin with, and something that states like MP can benefit from. But with a high cross subsidy as proposed, it will fail to take off.

Comments can be sent to MPERC by the 17th of this month.

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