Review of REC Trading-November,2011

Unlike in October, the November REC trading session had few surprises. Prices increased marginally on IEX (From Rs 2,700 to Rs 2,900), while it fell on PXIL (from 3,000 to 2,800). Total volume sold increased from approximately 95,000 to 105,000 (an increase of 10.5%).

Total demand was for over 278,000 REC (growth of over 18% over previous month). This was significant, given that demand had grown only 3% last month, and prices were on an all time high. One possible explanation of this is that new REC buyers are starting to participate in the market as we approach the end of compliance period (March 2012).

Total RECs offered for sale grew from 138,000 to 186,000 (a growth of 34%, on top of a growth of 62% in October). Number of RECs offered for sale as percentage of total available grew to 78% from 70% last month. Last month’s record prices are likely to have played a role in increased seller participation.

Overall, the fact that we are only 4 months from the end of compliance period, and that prices have increased significantly over the last few months has resulted in increased participation from both buyers and sellers. We can expect the trend to continue in the coming months. The demand and prices may receive a significant push upwards if one of the larger states like Maharashtra or Tamil Nadu were to take steps in enforcing RPO regulations. Short of that, we can expect demand, supply and prices to grow only gradually from here onwards.

No Solar RECs were traded this month.

Press Coverage for November trading session:

In Business Line. REConnect is mentioned, with a quotation from Mr Vishal Pandya.



Try India’s First Online RPO Calculator here

GEDA is Directed to Monitor RPO In Gujarat

The Gujarat Electricity Regulatory Commission (GERC) has directed the state nodal agency GEDA to the renewable power purchase obligation on regular basis and submit the report to the Commission quarterly basis.

We believe this is an encouraging step, albeit a small one towards enforcement of RPO regulations. A major shortcoming in the Gujarat regulation is that captive and open access users currently do not have any obligation. The regulation states:

Clause 1(iii) – These Regulations, excluding clause 8 shall come into force on the date of their publication in the Gazette.

Clause 8.1 – The quantum of RPO mentioned in clause 4.1 shall be applicable to captive and open access user(s)/ consumer(s) from the date as would be notified in the Official Gazette.

Till date the separate gazette notification for captive and open access users has not materialized.


Try India’s First Online RPO Calculator here

Power Tariffs Likely to Increase Signficantly: CERC

In recent days, power projects and tariff have made news in almost every newspaper. There have been reports of power projects being in trouble, state electricity board being denied loans by banks, and tariff increases.

The article on tariff increase cites an interview with CERC chairperson, Dr Pramod Deo. He is quoted as saying that in order to ensure that new capacity continues to be build, consumers should be ready for a 15-20% tariff hike for the next several years.

The article further states:

India’s state electricity distribution companies (discoms) reported an aggregate loss of around 40,000 crore in the year ended March, which is as high as the government’s annual divestment target. The losses are estimated to soar to over 1.16 lakh crore by 2014.

In the year so far, around 12 states have increased power tariffs in the range of 9-34% to ease the burden of distribution companies. States like Rajasthan, Tamil Nadu, Madhya Pradesh, Uttar Pradesh and Bihar account for 70.6% of the power distribution losses in the country. Though states like Maharashtra have been revising tariffs regularly, other states like Tamil Nadu and Rajasthan have not revised them for seven years and four years, respectively.

TNEB was also the subject of an article which mentions that banks are denying further loans due to its financial condition. The article states:

TNEB’s current loss was at Rs 40,659 crore, and it had a debt burden of Rs 42,175 crore. “Its debt is expected to likely to cross Rs 53,000 crore by end of the current fiscal,” she added. Besides, the Board has to pay around Rs 10,000 crore to power producers and contractors

This is in keeping with REConnect’s experience on the ground. Wind and other power projects have delays of upto 8-10 months to realize revenue from sale of power to TNEB. No wonder REC mechanism is the preferred more of new investment in the state – it eases the cash flow of projects substatially.

It all boils down to making the Discom’s independent of political pressures and recapitalizing them. The article on stock market valuations of the power companies points to that, and so does Dr Deo – “Deo said state power regulators need to be independent of political pressure while considering revision of power tariffs”

Tulsi Tanti of Suzlon also echoed this at the recent WEF Summit – “A major concern is that most of the state utilities are in poor financial health. Banks are not interested in financing the power sector,” Tanti said. “The private sector should be allowed a play in the entire value chain.”

See past article on related topics:

Try India’s first RPO calculator here

Launching India’s First Online RPO Calculator

We are pleased to present the online RPO calculator. Its a first of its kind tool in India (and possibly in the world!), and will help you plan and manage your RPO liability in a easy and effective manner.

We developed the calculator in response to our on-ground experience in the REC market. While the REC market has taken-off and gets all the news, the RPO side is important to understand, given the complexity in regulations and the fact that there are small and big differences in regualtions from state to state. For example, we have noticed that some captive plants in Gujarat have purchased RECs, while the regulation there currently does not put an obligation on captive users.
You can access the RPO calculator using the link below:

(you will be required to fill a very simple form to access the calculator)

As mentioned, RPO regulations differ from state to state, and in their entirety present a complex challenge to understand and manage. We hope that this calculator will help simplify and answer questions regarding RPO in different states.

Asian Development Bank Proposes ‘Fuel Security’ Credits Markets

While the carbon markets are struggling due to policy uncertainty and recessionary prospects in Europe, the market based approach to tackling climate and other ‘tragedy of the commons’ type issues is gaining ground. REC is one such market.

Earlier we had talked about plans for Air Pollutants Trading in India. Now, recently ADB proposed ‘Fuel Security Credits‘. The article mentions the following:

[ADB] estimates that, under the current growth trajectory, expenditure on roads, vehicles, parking and fuels in the region will total approximately $56 trillion between 2010 and 2030, representing nearly 4% of GDP. At this level, it will limit the funding available for other critical development needs such as education and health care, the bank says.

To try to curb this growth, the ADB has set up the Sustainable Fuel Partnership, a technical assistance project co-financed by the Austrian government. Within this initiative, it is exploring the possibility of treating fuel security as a public good that can be valued and translated into cash to fund sustainable transport projects and thus reduce fuel demand.

See a recent New York Times article on regional cap-and-trade programs here.






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