REC trading report- November 2012

Non-solar RECs

Volumes reduced sharply and prices remained at floor price for the third month.(Rs.1500/REC at IEX and PXIL; from September). Only 1.32 lakh RECs were redeemed this month (down by 41% from last month). The total supply was more than 12.3 lakhs (up by 21% from last month).

The demand has been falling drastically due to lack of enforcement of RPO regulations by state electricity regulatory commissions. Clearing ratios were approximately 8.7 % on IEX and 25 % on PXIL.


Solar RECs

Demand reduced by 23.3% from last month (3,363 in October) as well as the supply (down by 10% from last month).


The market clearing price on IEX was Rs 12,720 and on PXIL was Rs 12,100 (last month it was Rs 12,500 on PXIL and Rs.12,680 on IEX). The total Solar RECs cleared was 1,219 ( last month it was 1,791). Supply was unusually high last month as some projects were issued RECs for several months at a time.

Private Equity investment in cleantech reduces sharply

According to The Business Standard, private equity (PE) investments in clean technology projects have almost halved this year. This year the RE sector had 12 PE investments worth around $396 million whereas last year there were 36 PE deals worth $793 million. After removal of Accelerated depreciation the investment in wind sector has gone down. Investment has also been low in Solar, Biomass and Hydel energy as there is not a clear vision on its future power prices.The regulations and policies of different states is not very attractive enough to pull investors into their state.

With other benefits also being withdrawn, REC mechanism is only there to pull investors into RE sector. But REC market is also not in a good condition now because the enforcement of RPO is very weak and there is an oversupply of RECs in the market with very few buyers.

Abhay Anand, business director (infrastructure, energy) of Cipher Capital Advisors said,” More than the uncertainty over the Kyoto Protocol, it is the uncertainty over the renewal energy certificate (REC) programme that is denting the sentiments. The government had started the REC regime under which power distribution companies were mandated to buy the certificates. But there are no buyers for REC now. Lack of strict imposition of the regime is another reason for the lack of interest.”

The regulatory and policy makers have to come up with strong and attractive schemes to pull the PE investors in RE sector else they will slowly move out of the country.


Proposal for benchmark capital cost of Solar PV projects for FY13-14

Central Electricity Regulatory Commission(CERC) recently announced the new benchmark prices for the Solar Projects (PV & Thermal) for the year 2013-14. For Solar PV projects it will be Rs.8 crore/MW (-20% from 2012-13) and for Solar Thermal projects it will be Rs.12 crore/MW (-8% from 2012-13).

The new benchmark prices will have impact on the REC prices as the Solar REC price has already been discovered till 2017. Currently the Floor & Forbearance Prices per certificate are INR 9300 & 13400 respectively. With the new benchmark price the above prices will be slashed by 15 to 20 percent which will reduce the bankers as well as developer’s confidence in the REC mechanism and thus will hamper the growth of the market.

In order to protect the investors/ developers confidence, CERC has to come up with the vintage/ multipliers concept where the existing developers or developers setting up their project at certain point of time will be saved by the higher weightage given to them than the other projects coming at later point of time.

REC market may crash if state distribution companies don’t meet their RPO

According to and article in the Economic Times, REC markets have crashed in the recent months (see trade results of Oct 2012 and Sept 2012 here) as the state power distribution companies have not yet met their obligation by purchasing RECs. Due to lack of enforcement by SERCs on the obligated entities, RECs are not being purchased. As a result the demand supply gap is has widened, resulting in the crash in prices to the floor price and large inventory buildup in the market. The article suggests that quick and strict enforcement action is the only way for the market to survive.

Rajesh K Mediratta, senior VP (Business Development), Indian Energy Exchange said ,”If energy certificates are not sold, their incentive for generating power declines” .He also said that,” “Prices of certificates are falling due to lack of demand although supplies are on the higher side, pushing prices downwards. Distribution utilities are not buying enough certificates to fulfil their obligations”.

Also see:

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

Rajasthan High Court judgment will strengthen RPO enforcement



MNRE proposes amendment in Electricity Act to strengthen RPO

According to a report in the Business Standard, at a Solar Energy summit in Mumbai, Mr. Tarun Kapoor, Joint Secretary, Ministry of New and Renewable Energy said,” We have realised that some private companies and state discoms are not complying with the RPO. To make it mandatory, we have proposed an amendment to the Electricity Act.” It will be a push to strengthen the REC market as the only driver to it is the enforcement of RPO.

At present there is very weak enforcement action by electricity regulators of different states which has widened the demand supply gap of RECs. He also said ,” At times, state regulators tend to postpone enforcement of these obligations. But if the law is amended, SERCs will have to strictly enforce it and a penalty could be imposed for non-compliance, which in turn would put pressure on discoms to meet their quota” .

If the amendment comes soon it will help the government to meet its aim of 15% of its energy from renewable energy sources by 2020, and also help RE generators by increasing offtake of RECs, which at present suffer from significant oversupply and trade at floor prices.



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