HIMACHAL PRADESH ELECTRICITY REGULATORY COMMISSION (RENEWABLE POWER PURCHASE OBLIGATION AND ITS COMPLIANCE) REGULATION

HPERC has notified Renewable Purchase Obligation and its compliance, 3rd amendment 2017 on 24th March 2017.

 

Quantum of Renewable Power Purchase Obligation (RPPO)

 

Since Himachal Pradesh mostly thrives on the energy produced through Hydropower, the state will be a beneficiary since RPO is excluded from RPO obligation as per the regulation.

The graph below shows the total and type of energy consumption by the state of Himachal Pradesh. The data has been derived from CEA Report.

 

Almost 3/4th energy of the total consumption comes from the Hydro Power. Its an added advantage for the state that RPO is exempted from the power consumed through Hydro sources, thus this in turn will reduce the cost of power from the state.

The graph below gives a comparison between the MoP recent RPO Trajectory and HPERC’s earlier RPO Trajectory:

HPERC for computing Renewable purchase obligation for a year of obligated has included  the transmission and distribution losses within the state in the following manner:

  • In case the electricity is purchased by such obligated entity from sources outside state , the electricity at state periphery shall be considered as the consumption of obligated entity

  • In case the electricity is purchased or generated from generating sources located within the state the electricity injected at the generating bus bar shall be considered as its consumption

The above given clauses are against the law of Electricity Act 2003 as for computing renewable purchase obligation total consumption has to taken under consideration excluding the transmission and distribution losses.

The Supreme Court order on RPO dated 13th May 2015 has taken into consideration the word “ Total Consumption” which also has been used in Electricity Act 2003. One can find below the reference from the act Section 86 (e):

promote cogeneration and generation of electricity from renewable sources of energy by providing suitable measures for connectivity with the grid and sale of electricity to any person, and also specify, for purchase of electricity from such sources, a percentage of the total consumption of electricity in the area of a distribution licence;

 The regulation can be accessed here.

MPERC RELEASES TARIFF ORDER FOR LV, HV AND EHV CONSUMERS:

Madhya Pradesh Electricity Regulatory Commission (MPERC) in its order dated 1st April 2016 has determined the tariff for Low Voltage (LV), High Voltage (HV) and Extra High Voltage (EHV). A summary of the tariff for HV3 consumers which includes Industrial, Non-industrial and Shopping Malls has been given in the table below:

The order can be accessed here

REC TRADE RESULTS MARCH 2017:

March trading results were far better than anticipated considering the recent CERC order on revised floor and forbearance prices. The March trade session remained a robust one. Total Non-solar demand was 8.88 lakhs (vs 10.4 L demand in February), and clearing ratios on IEX and PXIL were 6.11% and 9.6% respectively. For the full year FY 16-17, total RECs sold were 59.3 lakh as compared to 43 lakhs last year – an increase of almost 37.7%. This was the last trading session of FY 16-17.

 

Total solar demand was 1.43 lakhs, and the clearing ratio in IEX and PXIL were 2.90% and 2.74% respectively (Feb 2017 demand was 49,544). For the full year FY 16-17, total RECs sold were 5.5 lakh as compared to 6.4 lakhs last year – a decrease of almost 14.06%.

Non Solar – The clearing ratio stood at 6.11% and 9.6% in both IEX and PXIL respectively.

Solar – Clearing ratio stood at 2.90% and 2.74% in IEX and PXIL respectively.

 

NEW FORBEARANCE AND FLOOR PRICE FOR REC FRAMEWORK:

Summary:

  • The Honorable CERC published the final order on revised price bands for RECs which will be valid from April 1, 2017 onwards.

  • The new floor and forbearance prices are given below

 

  • This represents a drastic reduction of 71% for Solar RECs, and 33% for non-solar RECs

  • Existing inventory of RECs will not be given vintage multiplier

  • RECs that were at the verge of expiry have been given an extension
Impact on the market:

Immediate impact:

  • Overall, existing RECs projects will take a loss of Rs 1,866 crore due to reduction in the value of existing REC inventory. This represents roughly 50% of the total value of RECs. With such a significant loss, it is likely that several projects will become NPAs.

  • Reduced trading in March 31 trade session – generally, the March trading session sees high trading volumes as it is the last trading session of the compliance period. However, with the prospect of significant saving by trading in April, many obligated entities are likely to postpone trading to the next month.

Infact, this has been acknowledged and even allowed by a state regulator. See relevant order for allowing postponing of trading to an obligated entity here – http://www.mercindia.org.in/pdf/Order%2058%2042/DO-35%20of%202017-16032017.pdf

 

Long-term impact:

  • Potential (marginal) higher demand going forward – RECs prices have come down to such an extent that most captive and open access based consumers are likely to find buying RECs cheaper way of meeting RPO than buying green power. This may also apply in the case of several Discom’s, particularly in states that are power surplus. These low prices may therefore result in increase in demand of RECs.

However, it must be kept in mind that REC price reduction is always beneficial to the Obligated entities which are non-compliant as they will have an option to purchase RECs and fulfill their RPO compliance at lower prices whereas Obligated Entities who have been regularly meeting their RPO compliance will have incurred significantly higher cost. Therefore, a regularly reducing floor price actually incentivises postponing purchase of RECs, rather than meeting RPO.

Without strict enforcement and any risk of penalty, Obligated entities still have no incentive to comply. We believe that RECs demand will increase, but only to a very limited extent, as most obligated entities still don’t face any reason to comply with RPO at all.

The previous order can be accessed here and our analysis of the same can be found here.

CEA’S DRAFT NATIONAL ELECTRICITY PLAN

Central Electricity Authority  (CEA) published the Draft National Electricity Plan (NEP). Following are some of the main features of the report:

  • For the 12th plan (2013-2018), target capacity addition from renewable energy was set at 30,000 MW. However, in view of the revised target of adding 1,75,000 MW capacity of renewable energy sources by the year 2022, the capacity addition for every year has been revised. A target of 16,825 MW has been set for capacity addition in 2016-2017. As per the review, capacity addition from conventional sources is going to exceed its target by 115% and private players will play a big role in capacity addition. Coal based plants are likely to contribute around 39% of capacity addition.

  • Projections for peak demand and energy requirement has been done for utilities for which two scenarios have been considered in the report for the years 2021-22 and 2026-27. One is with the consideration of DSM, energy efficiency and conservation measures. As per calculations, both peak demand and energy requirement values reduce significantly in the scenario where DSM, energy efficiency and conservation measures are being considered.

 

  • The installed capacity from renewable energy sources was 42,849 MW as on 31.03.2016. The share of renewable energy sources in the same is about 13%. However, the share of renewables is estimated to increase as the government is giving a major thrust to renewable energy. India, as a country has vast solar and wind potential. It also has potential for biomass and small hydro projects.

 

  • The CEA carried out EGEAS studies to assess the kind of capacity addition that will be required to meet the projected demand for the year 2021-22. Hydro, gas and nuclear are given maximum priority. CEA has developed three scenarios which consider the different combinations of installed capacity from renewable sources so as to determine the capacity addition from 2017-22. From the study it can be concluded that no additional coal based capacity is required to fulfill the energy demands during the year 2017-22 if the capacity of hydro, gas and nuclear are 15,330 MW, 4,340 MW and 2,800 MW and additional renewable energy sources. However, coal based capacity of 50,025 is under construction in will probably be commissioned during 2017-22.

 

  • As per the report, Electric Power Survey Committee’s 19th report will come out in some time and on the basis of that, changes will be made to the final Electricity Plan. Due to shortage of natural gas in the country, except for the already existing plants, no new natural gas plants have been planned during 2017-22. Also, the coal based capacity of 50,025 MW that is under construction currently will be able to fulfill the capacity requirement for the years 2022-2027. As estimated, in the year 2021-22, generation from RES will be 20.3%. Imports from neighbouring countries is also estimated to increase from 5,100 MW in the years 2021-22 to 21,600 MW in the year 2026-27.

  • The compound annual growth rate of energy demand will grow from 4.42% between the years 2012-13 to 2015-16 to 6.34% from the years 2015-16 to 2021-22. This increase is significantly higher than that in the past considering the increase in demand and the increase due to implementation of PFA and other projects from the government of India between 2017-22. Therefore, as per the report, energy demand of 1611 BU and peak demand of 235 GW in March 2022 under CAGR= 6.34% look realistic and is likely to occur.

 

  • The CEA report has mentioned ambitious targets of achieving an installed capacity of 175 GW by 2022. The breakup of the energy derived by various sources has also been given in the report. The report also mentions the percentage of energy that will be derived from various sources and from different states. As per the report, 9 states will contribute almost 77% of installed capacity by 2022. The report also gives year-wise targets for achieving the desired target.

  • The targets set by the CEA will require strong indigenous manufacturing facility for equipments related to RES. Policy frameworks may be developed to encourage the same and this will also fall in line with the ‘Make in India’ policy.

 

  • At the end of the year 2021-22, the projected peak demand and the energy requirement is 235 GW and 1,611 BU respectively. As per the 18th EPS report, this is around 17% and 16.4% lesser respectively. Similarly for the years 2026-27, these values are 20.7% and 21.3% lower.

 

  • As for the capacity addition predicted from 2017-22, development of hydro, nuclear and gas based project is being given priority. Capacity addition estimated from gas, hydro and nuclear is 4,340 MW, 15,330 MW and 2,800 MW. The capacity addition from RES is predicted to be 1,15,326 MW. For the years 2022-27, similar trends as the previous 5 years will be followed. It is estimated that non-fossil based capacity is bound to increase by 46.8% at the end of 2021-22 and will further increase by 56.5% by the end of 2026-27. For the year 2017-22 and 2022-27, low hydro capacity addition of 11,788 MW and 5,000 MW has been estimated.

 

RPO COMPLIANCE TO DRIVE THE COUNTRY TOWARDS RENEWABLE ENERGY GROWTH:

In an article in the Economic Times, the importance of RPOs has been highlighted by saying that RPOs are the most important instruments towards achieving the lofty goal of installing 175 GW of renewable energy by 2022. Last year, the Ministry of Power had declared the National RPO Trajectory but not much was complied with. As per the CEO of Mercam Capital Group, a number of issues need to be addressed in order to make sure that RPOs are complied with such as evacuation issues, DISCOM financials, etc. The government needs to provide a conducive environment for renewable installations to thrive. In some cases, it has so happened that the state electricity regulatory commissions have allowed a carry forward of the shortfall of DISCOMS which one of the reasons for non-compliance.

On the other hand, it can also be said that a number of changes are being made from the government’s side as well to make sure that RPOs are complied with. A new policy has been introduced in which it is estimated that solar RPO will be 8% by 2022. Also, it also mandates the DISCOMS to procure 100% power from waste to energy projects. The World Bank as well as some other banks are providing financial support so as to increase the number of renewable energy installation in India.

In the last trading session, a huge gap was seen in the number of solar and non-solar RECs traded. Now, with the reduction in floor and forbearance prices of RECs by Central Electricity Regulatory Commission, compliance towards RPOs may get further delayed.

SOLAR CAPACITY SET TO CROSS 20 GW IN THE NEXT 15 MONTHS, SAYS PIYUSH GOYAL:

As per Mr Piyush Goyal, India’s installed solar capacity is going to cross the 20 GW mark from the current 19 GW capacity by 2020. The reason for this estimated increase has been attributed to the fact that Make in India is no more in its nascent stage. Now, India can support majority of its financial and technological needs for increasing its renewable energy capacity. The proof of the same is the drastic reduction in the cost of solar power to an extent that it is comparable to the cost of thermal power. India’s capacity increased four times since the past 3 years when it reached the 10 GW mark in March this year. In May 2014, the capacity was 2,650 MW. The same has been covered in our previous blog.

The Deccan Chronicle article can be accessed here.

INDIA’S SOLAR CAPACITY CROSSES 10 GW:

As per the article in DNA India, the New and Renewable Energy Minister, Piyush Goyal, declared that India has crossed 10,000 MW of solar energy on the 12th of this month and has increased more than three times in the last three years. This milestone coincided with the commissioning of 45 MW solar power project in Rajasthan by National Thermal Power Corporation (NTPC).

This is in concurrence with the proposed goal that India has of installing 100 GW of solar capacity 2022 and its renewable energy capacity to 175 GW.

CERC DECLARES NEW REC FLOOR AND FORBEARANCE PRICE

CERC came up with draft regulations in which they have reduced the prices of their Renewable Energy Certificates to a historic low. The new floor and forbearance prices from the same have been covered in our previous blog which also contains a link of the draft regulation.

REConnect Energy’s co-founder and director, Vibhav Nuwal made the following observations about the scenario in Business Standard “This change rewards non-compliant companies, which can now comply at a much lower cost. It will exert further pressure on distressed projects”.

 

CERC DECLARES NEW REC FLOOR AND FORBEARANCE PRICE

Honorable Central Electricity Regulatory Commission has determined floor and forbearance prices for REC (solar and non-solar)  which will be valid from April 1, 2017 onwards. The prices have reduced significantly and the solar prices are set to reduce from Rs 3,500 to Rs 1,000 and the non-solar REC prices are set to reduce from Rs 1,500 to Rs 1,000.

 

No Vintage Multiplier has been proposed for any technology and existing vintage multiplier for Solar generating technologies registered in REC mechanism prior to 1st January 2015 and shall expire after 31st March 2017.

 

The proposed floor and forbearance prices are given below:

 

The following is the REC price trend:

 

The impact of this price reduction on different aspects is as follows:

Impact on existing REC projects:

  • Reduction in floor price will aggravate the financial duress of RECs based projects: Already the newly established REC projects are under distress. Reduction in the floor price will only aggravate the situation as the number of unsold RECs will increase.

  • No Vintage Multiplier: The draft does not clearly state the position on multiplier to be provided on existing inventory of RECs.

Impact on obligated entities:

  • Perverse gain for defaulting Obligated Entity: Obligated entities which are non-compliant will benefit from reduction in prices since they will have an option to purchase RECs and fulfill their RPO compliance at a lower rate. This has never been addressed by the CERC or the state ERC’s,

 

  • Potential higher demand going forward: Most captive and open access based customers will find it easier to buy RECs than to buy green power. Therefore, the low prices may lead to an increase in the REC demand.

 

Impact on the market:

  • Low Demand in March 2017: Since the new prices will be applicable from 1st April, 2017, March will see minimum demand as the Obligated entities will have an option to comply with RPO compliance in the next FY.

 

  • Higher Inventory and therefore lower clearing ratios: If the appropriate multiplier is provided to the existing inventory, the inventory of unsold RECs will jump to 3.6 crore RECS as compared to 1.7 crore RECs as present. Even lower clearing ratios will be experienced at exchanges if the demand does not increase in proportion.

Other issues:

  • Calculation of floor price

  • Validity of RECs

 

The previous analysis of CERCs floor and forbearance for financial year 2012 to 2017 can be found here.

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