REC Trading Report – December 2011

REC markets continue to grow, albeit more slowly than in the earlier months. Total treaded volume increased to approximately 120,000 (an increase of 14%), while price increased marginally to Rs 2,950/ REC (vs. Rs 2,900 last month; IEX prices). Prices at PXIL increased to Rs 2,950 from Rs 2,800 last month.

Total demand volume grew marginally from 278,000 to 285,000 (an increase of 2.5%), while RECs bid for sale decreased by 3% to 180,000. This was on the back of significantly lower level of issuance this month – only 87,000 RECs were issued, as compared to 136,000 last month (a decrease of 36%). This is due to low generation (this is a seasonal phenomenon) in wind and small hydro generation. Issuance volumes are expected to grow from next month, once RECs are issued to sugar mills (the crushing season started in early November). Seller participation remained high at 82% of the total RECs available for sale.

Flat demand is a likely indicator that early buyers have met a significant portion of their RPO requirement and are price sensitive (a barrier seems to exist at Rs 3,000/ REC price point). Short of strong enforcement signals, we can expect demand to only spurt in February and March now, when a lot of fence sitters today get into the market for purchases before the end of the compliance period.

High seller participation in the previous month and this, flat demand and expectation of higher issuances next month are pointers that demand and prices have peaked for the meantime.

No Solar RECs were traded this month.

The December trading session was a milestone one for REConnect – we became the largest REC trader in the country.

Press coverage:

Hindu Businessline quoted Vishal Pandya below:

“The price hike has been very marginal, which reflects that the prices are very near to their maturity,” says Mr Vishal Pandya, Director, REConnect Energy Solutions, a consultancy that specialises in facilitating REC trading.

“The future market movement will depend heavily upon how the new demand shapes up as next month onwards we can expect additional supply of RECs coming into the market,” Mr Pandya told Business Line today.

 

Try India’s First Online RPO Calculator here

Andhra Pradesh Publishes Draft RPO Regulation

Andhra Pradesh published its draft RPO regulations. This is significantly delayed (AP was the only major state remaining to publish RPO; Delhi has a draft order, and West Bengal is essentially a non-participant – more on this later in the article), and was much awaited.

Highlights of the draft regulation are:

  • Total RPO is fixed at 5% (4.75% Non-Solar and 0.25%). However, the devil is in the details – 1) this obligation does not start until 2014-15, and 2) remains constant till 2018-19. This is important due to several reasons – it is a deviation from the practice of other states where RPO% progressively increases, and also from the NAPCC target.
  • Till 2014 the earlier order on RPO remains in force (of 2009). The earlier order only placed the obligation on Discom’s. Further, it did not recognize RECs, or allowed purchase of RE power from outside the state. The current draft order places the obligation on Captive and Open Access users. However, it is unclear whether that obligation will apply immediately to captive and open access users (from a first reading of the draft order, it appears not so). Also, can Discom’s in AP use RECs to meet their current obligation?
  • The 2009 order does not specify the penalty in case of non-compliance
  • Another implication of the current regulation will be that eligible renewable energy generators in AP are likely to be allowed to register in the REC mechanism. This will lead to a situation where RE generators can participate in the national REC market, while consumers in AP face no obligation.

There are also other generic issues like no clarity on the definition of Average Pooled Purchased Cost (APPC). While this is also the case in regulations of other states, it appears AP has had no benefit of coming last!

As an interesting aside, APERC has decided to call its regulation RPPO (Renewable Power Purchase Obligation). We would have to like to see changes of a more progressive nature than this. Public hearing is set for January 12, 2012.

See our founder Vishal Pandya’s comments in the Hindu Businessline on this topic.

A quick note on the Delhi and WB regulations – Delhi came out with the draft regulation a while back, but has not yet fixed a date for hearing. WB has an RPO regulation, but does not recognize RECs.

 

Try India’s First Online RPO (RPPO!) Calculator here

Call for Reform of Discom’s Gathering Steam

Business Standard wrote on the topic of Power Discom reforms – the second time in two days. The important points raised by the Shunglu Committee are:

  • Huge Losses at the Discom’s:

During the five years (from 2006 to 2010), losses were Rs 1,79,000 crore before subsidy and Rs 82,000 crore after subsidy. These losses were primarily because of the gap of about 0.60/kwh between average cost and average revenue

creation of a Special Purpose Vehicle that would buy the bank loans of discoms, subject to various conditions

  • Creation of a new post of ‘Power Utilities Chief Executive’

power utility’s chief executive should be appointed through an all India selection process

Try India’s first RPO calculator here

Vibhav Nuwal, Director, REConnect Energy Solutions talks about strong enforcement of RPO regulations

In an interview with Electrical Monitor, Vibhav Nuwal, Director, REConnect Energy Solutions Pvt Ltd talks about the current scenario of Renewable Energy Certificates market in India. He said that the future of the REC market will grow only if there is a strong enforcement of RPO regulations .

You can read the full interview here.

Try India’s first RPO calculator here

Shunglu Committee Proposes An SPV to Buy Bad Debts of Discoms

A recent article in Business Standards mentioned that an SPV is being proposed to buy the bad debts of Discom’s. The fact that Discom’s are essentially bankrupt has been known for a long time. The good news that is there is increasing focus on this issue now. (See past articles – Pramod Deo, Chairman, CERC Talks About Open Access and the State of Electricity Markets; States Need to do More to Provide Open Access)

The REC market is also closely tied to the fate of Discom’s and how their financial problems are resolved. Eventually, Discom’s will be the biggest participants in the REC markets, and how do you ask a bankrupt company to pay more? This is also the reason why open access and other reforms are hardly implemented.

The article mentions that the SPV model will only be provided to those Discom’s that also undertake reforms:

However, buying out the loans of discoms from banks would depend on various conditions, including state governments’ agreements for a regular tariff increase, a plan to meet technical and operational performance parameters, an agreement between the state government and banks regarding interest rates, the period of repayment and the amount of repayment.

The discoms would also be asked to undertake capital expenditure, since this would generate additional income, as a precondition to set up the SPV. In case of non-compliance of the terms of the SPV, state governments would have to give an undertaking to RBI that the amount defaulted would be debited to the state government accounts with RBI, the report added.

Very sensible suggestions. Lets hope we move to a point of implementing these soon, and start sorting out the mess.

 

Try India’s first RPO calculator here

REC market making green energy sector Go Green!

After successful completion of REC mechanism for one year several companies are planning to enter the green energy sector. In an article of DNA India, the success of emerging REC market is highlighted.

The volume of RECs traded and their prices have grown exponentially and and has brought lucrative opportunities for companies to enter into the renewable energy sector. Apart from wind, small hydro , biomass and solar power producers the sugar industry which makes power from baggase, a residue in sugar production is making huge profit from this mechanism. Cogeneration sugar mills companies such as Dalmia Sugars, DCM Shriram, Balrampur Chini and Shree Renuka Sugars are doing a profitable business by selling their renewable energy certificates.

The growing REC market has led to several private power companies sharpening their focus on renewable energy, which earlier was being pursued just as an opportunity to diversify.

CERC proposes norms to frame renewable energy tariff post 2012

Last month the Central Electricity Regulatory Commission (CERC) came out with a draft regulation proposing new norms for framing renewable energy tariff for next control period i.e from 2012 to 2017. CERC has assured long-term tariff visibility and alignment of financial norms with the prevailing market conditions.

The Tariff Period for Renewable Energy power projects except in case of Small hydro projects below 5 MW, Solar PV, Solar thermal, Biomass Gasifier and Biogas based power projects shall be 13 years. In case of Solar PV and Solar thermal power projects the Tariff Period shall be 25 years.

In an article on Business Standard , CERC chairman Pramod Deo said “CERC has reaffirmed its commitment to promote green energy. The existing norms for renewable energy sources are valid up to March 31 next year. It has initiated the exercise for framing renewable energy tariff norms for the next control period”.

CERC had addressed concerns to encourage harnessing of wind power in the low wind regime and tariff norms for new technologies like biomass gasifier and biogas-based power plants. They have also addressed concerns regarding biomass fuel price and alignment of tariff norms for solar power, keeping in view the technological advancement and corresponding cost reduction in solar PV modules.

Try India’s First Online RPO Calculator here

Proposal to charge RE generators for processing their applications in Chhattisgarh

Chhattisgarh Renewable Energy Development Authority ( CREDA ) and Chhattisgarh State Load Dispatch Centre have proposed the Chhattisgarh State Electricity Regulatory Commission ( CSERC ) for levy of fee for processing of applications for issuance of RECs.

They have proposed to levy Rs 10/ REC as charges from RE generators for their role.

Comments were invited up to 28.11.2011

Try India’s First Online RPO Calculator here

Solar developers in search of light under REC scheme

After one year of completion of REC mechanism solar developers are still looking for some ray of light to benefit from the scheme. Only one solar project got accredited till date. The project is of Jain Irrigation, has a capacity of 8.5 MW and is located in Maharashtra.

Even though the price of solar RECs is very high, solar developers are still looking for something which will drag them into it. Common concerns are like extension of control period and strict enforcement of obligations which would allow investors to finance solar projects.

In a recent article on the hindu business line Mr Pashupathy Gopalan, Managing Director, SunEdison says “Price risk emanates from the fact that floor and forbearance prices are fixed only for the next control period of five years, while the life of a solar plant can be 35-40 years,”.

Adding to it Mr Inderpreet Wadhwa, CEO, Azure Power says: “RECs for solar carry a lot of additionality , almost over 80 per cent of the revenue to come from REC. Currently, there is limited visibility in the tenure for the floor price of RECs – limited to just about five years.

SunEdison also wants allotment of higher number of RECs to old projects in order to compensate for the higher capital cost, (against the backdrop of falling solar plant equipment prices) .

Also, “allowing banking of RECs for few years to mitigate the liquidity risk,” says Mr Gopalan.

Try India’s First Online RPO Calculator here

Open Access in All States May Finally Become a Reality

An article in Business Standard mentioned that the Ministry of Power has issued an order to all state governments, power regulators and distribution utilities to implement the open access provisions of the Electricity Act, 2003.

The article further states that “the power ministry had taken the law ministry’s advice before issuing the new instruction on Tuesday”.

Further:

The law and judiciary department said “The provisions of section 42 (3) of the Electricity Act provides that a person requiring supply for electricity has to give notice. If the consumer intends to use the network of the distribution companies, he has to give notice and upon such notice to a discom, it is duty-bound to provide non-discriminatory open access to its network. Section 42 (3) cannot be construed to mean that giving of a notice is a pre-condition for the implementation of open access.”

It said the requirement of a notice was only to communicate the open access consumer’s intention of using the discom’s network in line with the relevant regulations and not to seek its permission for doing so.

The coverage in DNA on the same topic also mentioned the below:

“All 1 megawatt (mw) and above consumers are deemed to be open access consumers and that the regulator has no jurisdiction over fixing the energy charges for them,” the Ministry of Law said in a note to the Ministry of Power.

 

This interpretation is welcome, and much needed. The current practice, which provides discretion to the state utilities to provide open access, or not is a major roadblock. It has done nothing more than give additional discretion in a system that already dosen’t work.

See previous coverage on the topic of Open Access:

 

Try India’s First Online RPO Calculator here

 

Go to top