Madhya Pradesh Cabinet clears Wind Energy Project Policy 2012

Madhya Pradesh cabinet recently endorsed State’s new Wind Energy Project Policy .The new policy will accelerate the pace of establishment of 1200 MWs wind energy projects. Provisions for allotment and development of projects have been simplified in the new policy .

Developers will be able to invest about Rs.7200 crores under the policy .The policy specially encourages medium-level wind energy projects.So far , power generation projects of non conventional sources of energy used to be set under the Energy Policy of 2006 which expired in October 2011.

The projects will be sanctioned for 25 years .A developer will have to execute wind energy power development MoU within 60 days of receiving the allotment letter.He will have to start commercial production from the plant in 36 months .Wind energy projects will be given Industry status.

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REC Trading Report – January 2012

As we approach the end of the compliance period i.e in March 2012, REC market reached its peak both in traded volume and prices. Total traded volume increased to over 170,000 ( an increase of 54% over previous month), while the prices at both the exchanges increased to Rs. 3,051/REC ( vs. Rs. 2,950/REC in the previous month; increase of 3%). Overall, the market crossed Rs 50 crore in value, a sharp increase from last month (December 2011 value was close to Rs 33 crore).

Total demand increased by about 50% over the previous month (from 285,000 to 432,500 ) whereas RECs offered for sale increased marginally by 7% (last month REC offered for sale decreased by 3%). The jump in demand was expected as we near the end of the first effective compliance period in March 2012.

The ratio of RECs traded to that available for sale has also increased. This shows clear willing to sell off available RECs at the current prices. Despite the sharp increase in demand and RECs offered for sale, price increased only marginally, signalling that prices have peaked. We can only expect another jump perhaps in March, when there will be a rush to meet compliance requirements.

Vishal Pandya was quoted in the Hindu Businessline in an article that reviewed the Jan 2012 trading session:

“RECs that are available for sale next month have reduced to about 26,000 only. Considering low number of issuance happening due to non-availability of wind generation, market may offer good opportunities for sellers for next few months as all the existing RECs have been exhausted now,”

No Solar RECs were traded this month.

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REC mechanism is the key for positive development of renewable energy sector in India : ICRA

In a recent article of ICRA says that the key development of Renewable Energy sector in India is the trading of RECs which going to complete one year this March. The new developing renewable projects especially the wind projects will prefer the REC route against the preferential tariff route as REC route is most remunerative option.

There are few issues which could affect the capacity addition in the REC route like implementation issues in complying with Renewable energy Portfolio Obligation (RPO) norms due to lack of consistency and a wide divergence in RPO norms across states, risk of any amendment in RPO norms by SERC (as observed in few states), no precedence of any enforcement of penalty on obligated entities for shortfall in RPO and absence of regular monitoring of RPO compliance by state agencies.

Past REC trading data since its commencement in March 2011 have proved that the growing demand to meet RPO requirements from obligated entities and quarterly compliance requirements as stated in RPO regulations by SERCs in some states.Further, long term certainity over the price range as per the order issued by CERC is a positive development.

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Accelerated Depreciation Benefits to End by March This Year

Accelerated depreciation – the tax break available when setting up a wind or other renewable energy project – is likely to end by March 2012, according to a report in Bloomberg.

This change was widely anticipated when the new Direct Tax Code was announced. However, that now appears to be delayed. The government had announced that they will make some important changes from April 2012, even if the new code is not fully implemented. Tax benefits to RE projects seems to one such change, and certainly seem to be on the way out:

The government has said it will end the incentive either on March 31 or with the introduction of a new taxation framework “whichever comes first,” Nigam [Dilip Nigam, director of wind policy at the Ministry of New and Renewable Energy] said. “In either case, it will end in April unless the government takes a special decision to surpass” the previous decision.

This is likely to affect new capacity additions in the near term, and will also change the nature of the investor. The current investor base largely comprises of small size investments (ranging from a single wind turbine of 200kw to a few megawatts of capacity) made primarily with the intent of availing tax breaks. The focus will now shift the the IPP model, where large windfarms are set-up, often with capacities of 50Mw of higher. The structure of the industry will also change from how WTG’s are priced, how wind farms are managed and how power is sold. We also expect the industry to consolidate in the future as managing small capacities becomes un-viable.

An earlier report by Bloomberg had mentioned that demand in the near term is likely to fall by 15% as a result of the tax break withdrawal.


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REC market expected to be worth Rs 100 crore by year end

The Indian REC market worth Rs.30 crore at present, which is less than a year old is expected to touch Rs. 100 crore by the end of this financial year.

In an article of The Hindu Business line a top official at the Ministry of New and Renewable Energy (MNRE) said “The market for RECs is growing and is anticipated to see trades worth Rs 100 crore on a monthly basis by the end of this year”.

Recently the Ministry of Heavy Industries and Public Enterprises directed all Central Public Sector Enterprises to set up renewable energy projects or voluntarily purchase RECs as part of sustainable development for the year 2012-13. These kind of initiatives will bring more buyers of RECs into the market.

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