REC Trading Report – October 2012

Non-solar RECs

The prices remained at floor price this month (Rs.1500/REC at IEX and PXIL; this is the same in September) as supply has remained far in excess of demand. The total RECs available this month was 15 lakh out of which only 2.22 lakh RECs were redeemed leaving an inventory of 12.8 lakh RECs .

10 lakh RECs were bid for sale ( up by 42 % from last month) while demand was for only 2.22 lakh RECs (down 16 %).

Demand has remained low in the last couple of months. The major reason slow progress on enforcement by SERCs. Clearing ratios were approximately 30% on IEX and 70% on PXIL.

Solar RECs

Demand went up by 82% from last month whereas the supply also went up by 15%. The market clearing price on IEX was Rs 12,680 and on PXIL was Rs 12,500 (last month it was Rs 12,900 on PXIL and Rs.12,500 on IEX). In total, 1,791 Solar RECs were sold (last month it was 1,160)

Coverage of October trading session in the Hindu can be accessed here, at Bloomberg here and in Business Standard here.

 

Tamil Nadu announces it Solar Policy

After Andhra Pradesh, Tamil Nadu also announced its Solar Policy last week . The policy aims to achieve an ambitious target of 3000 MW by 2015 in phased manner with capacity addition of

  • 1500 MW from utility scale projects
  • 350 MW from roof top installations
  • 1150 MW under REC mechanism.

The utility scale projects are also expected to be developed through competitive bidding process.

1000 MW out of 1500 MW utility scale capacity to be funded by Solar Purchase Obligation (SPO) which is 3% till Dec’13 and scaled up to 6% from Jan’14 and balance 500 MW through Generation based incentive (GBI) by the government. SPO is applicable on all HT Consumers (HT Tariff I to V) & LT Commercial (LT Tariff V). Domestic consumers, huts, cottage & tiny industries, power looms, LT industrial consumers and Agricultural Consumers are exempted from SPO.

On the other hand TNERC also has specified 0.05% of Solar RPO. With state policy in effect, there will be dual RPO imposed on HT and LT Commercial consumers. The state commission might have to realign the Solar RPO to align the RPO structure to meet the policy objective.

The key difference from other states’s solar policy is the Net-Metering arrangements where power producers have to install a separate meter to measure their generation and feed excess power to grid for roof top projects. The current REC policy recognises only grid connected RE projects under REC. With Net Metering, even small scale roof-top solar projects can participate into REC. The GBI being offered is Rs. 2/kWh for first two years, Rs. 1/kWh for the next two years and Rs. 0.5/kWh for the subsequent two years. All new government/local buildings shall necessarily install solar rooftop.

Other initiatives and exemptions:

  • Solar water heating systems mandatory for Public Buildings and Industries using hot water boiler/steam boiler using fossil fuels.
  • Wheeling & Banking Charges applicable as per TNERC orders.
  • Exemption of Electricity Duty for 5 years for using solar power from projects of self consumption/sale to utility.
  • Tax Concessions as per TN Industrial policy.
  • TEDA designated as single window clearance agency who would be coordinating power evacuation approval, approvals related with connectivity to substation, approvals from pollution control board etc.
  • Empowered committee to accord project clearances.

Contributed by Nalin Deshpande

States fail in meeting their Renewable Purchase Obligation for 2011-12

Most discoms of different states have failed to meet their renewable purchase obligation for 2011-12. The reason being poor policy enforcement, lack of awareness and various questions raised by obligated entities on the applicability of RPO. This has affected the Renewable Energy Certificate (REC) market. According to The Economic Times , where Rajesh Mediratta, business development director at India Energy Exchange said ,” There is a contrasting trend in solar and non-solar RECs. There is huge demand for solar power but the projects have not come up, as developers are not getting bank loans on ground of RECs. On the other hand, in non-solar the demand is yet to pick up, hence hindering the returns of already established project.”

The only way out for REC market to survive is by penalising the obligated entities. Tarun Kapoor, Joint Secretary in the Ministry of New and Renewable Energy said,“RPO is not taken seriously and we want the state electricity regulators to penalise the discoms that have fallen short of target.” The distribution companies on the other hand say that they are low on funds and cannot purchase green power or RECs to meet their obligation.

On the above issue CERC secretary Rajeev Bansal said ,” RPO as a concept hasn’t stabilised. Most states haven’t declared their RPO trajectory for the coming years. Each state will look at it differently and that will impact the tariff regime in the long run.” A clear view of RPO percentages in the coming years is very necessary for the discoms across states to plan accordingly for fulfilling their obligation.

All the above factors if cleared will boost the REC mechanism which will help in promoting generation of power from renewable energy sources in India.

 

 

MPERC refuses expemtion of Solar RPO

Recently MPERC held in an order that there will not be any relaxation and revision in fulfillment of Renewable Purchase Obligation (RPO) targets from solar energy sources for FY 2011-12 and 2012-13. The order is in response to the petition filed by MP Power Management Co. Ltd. and supported by other discoms.

The petition was filed on grounds of non availability of solar power in the state and non existence of RECs in the market. Commission noted that there is substantial delay in issue of tenders after notification of the Regulations and it cannot be conceded that the efforts made by the petitioner to procure solar power were its best efforts. Also there are no efforts of purchasing solar power from other states.

This order will support of development of solar power in the state and will create a healthy environment for all the investors who are looking to invest in solar power generation.

Contributed by Mohit Tyagi

Rajasthan High Court judgment will strengthen RPO enforcement

Rajasthan High Court Rules in Favour of RPO Regulations

 

Rajasthan High Court dismissed an appeal by Hindustan Zinc Ltd. , Ambuja Cements Ltd., Grasim Industries Ltd. and 14 other companies that challenged RPO regulations enacted by the state regulator (Rajasthan Electricity Regulatory Commission; RERC).

The key points contested by captive (CPP) and open access (OA) users in the petition were:

  • RERC did not have the authority to pass the order of RPO and impose surcharge (penalty) as CPP and OA were completely de-licensed activities under the Electricity Act 2003 (EA 2003)
  • EA 2003 only allows RPO on the ‘total consumption in the area of the distribution licensee’ and therefore intends to apply RPO on distribution licensees only

The petitioners supported their statement by stating that

“the National Electricity Policy as well as Tariff Policy was framed to promote production of energy and utilization. Under the Policy neither any license nor any approval from any authority is required to install a captive power plant thus, the Regulatory Commission had no jurisdiction to impose any obligation. Penalty in the form of surcharge cannot be imposed unless there is a direct provision enabling the Regulatory Commission to do so and since there is no such provision in the Act of 2003, penalty cannot be said to be within the authority of the Regulatory Commission and thus, imposition of surcharge is bad in law.”

 

The High Court rejected the petition stating:

  • The word ‘total consumption’ has been used in the EA 2003, and should be considered as total consumption in the area of distribution licensee in all modes. Total consumption has to be seen by consumers of distribution licensee, captive power plants and on supply through distribution licensee. It cannot be inferred by mention of area of distribution licensee that only consumers of the distribution licensee are included.
  • The objective behind imposition of RE obligation is in the greater public interest. The constitution casts duty on the Regulatory Commission to protect and improve the natural environment. This duty can be imposed on CPP and OA as well.

Impact of the order

 

This order will have far reaching implications for the RPO/ REC markets:

  • It will strengthen the hand of the regulator to enforce RPOs in Rajasthan and in other states
  • It will act as a precedent for similar court cases in other states – notably Gujarat and Tamil Nadu
  • It will result in demand from CPP and OA for RECs

RE obligation on CPP and OA in Rajasthan:

S.NO. Year RPO (%)
1 2011-12 6.00
2 2012-13 7.10
3 2013-14 8.20


Financial Year Total Consumption in Rajasthan* Captive and OA consumption* Obligation as per the regulation
2011-12

49,491 (MU)

1530.65 (MU)

91.84 (MU)

2012-13 expected

50,659 (MU)

1566.77 (MU)

111.24 (MU)

*Assuming CEA data does not include captive and OA consumption

**Assumed to be 3% of total as per data provided in the High Court Order

Source: CEA data; REConnect Energy projections

 

Based on the above, the requirement of RE for meeting CPP and OA RPO is likely to be 200 MUs. A significant portion of this is likely to access the RECs market at least in the short to medium term. An important point to note is that the petitioners are likely to have options to pursue this case further in higher court.

 

Contributed by Rahul Tyagi

RECs markets face uncertaininty due to lack of enforcement: Businessworld

We have highlighted the problem with enforcement regularly. A recent article in Businessworld brings the issue center-stage.

Jayant Deo, former MD and CEO of the Indian Energy Exchange (IEX) is quoted as saying:

” [obligated] entities are getting away with non-compliance because of poor enforcement of regulations and the lack of any penalties. With state discoms being allowed to renege on obligations, many expect private players to follow suit”

The recent demand-supply gap in the September 2012 trading session and the inventory that is building up is starting to worry project developers and potential investors in the renewable space. Vibhav Nuwal of REConnect Energy is also quoted in the article:

“70–80 per cent of the demand comes from the private discoms. The remaining come from captive and open-access consumers,” says Vibhav Nuwal, director at REConnect Energy, the largest trader in this market. Although, Nuwal says, the solar REC market, which began trading in May 2012, is too small and volatile to draw inferences from; he acknowledges the widening demand-supply gap in the non-solar segment.

 

Delhi announces its final RPO regulation

The most awaited RPO regulations was finally announced by Delhi Electricity Regulatory Commission (DERC) for the capital region.

Like RPO regulations of other states, DERC also came out with a similar one. The RPO regulation is applicable to:

  • Distribution Licensee(s) operating in the National Capital Territory of Delhi
  • Any Captive user, using other than renewable energy sources exceeding 1 MW
  • Any Open Access Consumer with a contract Demand exceeding 1 MW from sources other than renewable sources of energy.

The obligation till FY 2016-17 is shown in the table below:

Obligated entities have to submit necessary details regarding total consumption of electricity and purchase of energy from renewable sources before 30th April to the State Agency every year .

Open access consumer receiving electricity from renewable energy sources shall be exempted from the cross-subsidy surcharge determined by the Commission from time to time to the extent of RPO. However, no banking facility shall be provided for supply of electricity from renewable energy sources through open access.

The REC market will strengthen if the enforcement in Delhi has a good start as the consumption here is very high.

Contributed by Rahul Tyagi

Andhra Pradesh announces its Solar Policy

The government of Andhra Pradesh recently announced its State Solar Policy. The policy seems to be very attractive and will bring more solar developers into the state. The policy does not announce any feed in tariff or competitive bidding scheme like other state’s solar policies. It aims to develop the capacity through the REC mechanism.

The following incentives is the main attraction:

  • Banking: 100% banking is permitted from January to December of the year. However, banked units can not be adjusted during February to June and during evening peak hours 6.30 PM to 10.30 PM. The banked energy will attract banking charge of 2%.
  • Exemption of Wheeling and Transmission Charges: For all the intra-state open access transactions (through 33kV sys-tem), wheeling and transmission charges are exempted.
  • Exemption of Cross Subsidy Surcharge (CSS): Consumers purchasing power from solar projects are exempted from CSS. This will be a great relief for consumers as CSS remains the major cause of worry for consumers as well as develop-ers opting for third-party sale / open access.
  • Exemption of Electricity Duty: E-Duty is also exempted for all the solar power projects opting for third party sale and/or captive usage.
  • Refund of VAT, Stamp Duty and Registration Charges: Solar developers will be able to get the refund of the said charges.

The above incentives are applicable only if the project is commissioned by June 2014. The incentives are extended for the period of 7 years.

The major concern is for the CPPs in the state as they cannot claim RECs on availing the above benefits. It will raise conflict regarding the state and central regulation on REC mechanism.

Few news coverage on the above announcement:

 

 

 

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