REC TRADE RESULTS OCTOBER 2017

Non-solar demand was significantly higher than in October 2016, and also higher than last month. In total 4.87 lakh RECs were traded (90.78% higher than October 2016, and 27.51% higher than in September 2017), and clearing ratios on IEX and PXIL were 4.5% and 3.3% respectively. Solar RECs did not trade due to a stay imposed by the Supreme Court.

 

VALIDITY OF RECS WHICH WERE ABOUT TO GET EXPIRED BETWEEN OCTOBER ’17 AND MARCH ’18 GETS EXTENDED BY SIX MONTHS

The Central Electricity Regulatory Commission (CERC) has in its order dated 29/08/2017, declared that those Renewable Energy Certificates (RECs) which were expiring between 1st October 2017 and 31st March 2018 are now going to remain valid till 31st March 2018. In its order dated 30th March 2017, the commission had extended the validity of RECs which were going to expire between 1st April 2017 to 30th September 2017 till 31st March 2018.

 

The order  can be accessed here.

REC TRADE RESULTS SEPTEMBER 2017

Non-solar demand was significantly higher than in September 2016, and also higher than last month. In total 3.82 lakh RECs were traded (47.56% higher than September 2016, and 32% higher than in August 2017), and clearing ratios on IEX and PXIL were 3.56% and 2.36% respectively.

Overall, for the six months ended September, Non-solar demand is up by 11% compared to the same period last year. Solar demand is up by 27% despite reading only in April this year. Since then, trading has been suspended due to the stay imposed by the Supreme Court.

 

REC TRADE RESULT AUGUST 2017

Supreme Court allowed conditional trading of Non-solar RECs in an order dated July 14, 2017 . Demand was expected to be low for two reasons – 1) obligated entities are required to pay at old RECs rate (Rs 1500/ REC); and 2) compliance is required to be done by March to obligated entities have enough time to comply even after the final order of Aptel is received.

This is the second month when trading has taken place after CERC allowed conditional trading of Non-Solar RECs but the demand was not as robust as last time .

Non-solar demand was marginally higher than in August 2016 , and significantly lower than last month. In total 2.89 lakh RECs were traded (11.83 % higher than August 2016), and clearing ratios on IEX and PXIL were 1.05% and 4.96% respectively.


Solar RECs were not traded as the stay imposed by the Supreme Court remains in force in the case of Solar RECs.

APERC DETERMINES WIND AND SOLAR FORECASTING AND SCHEDULING REGULATION

Andhra Pradesh Electricity Regulatory Commission (APERC) has released its forecasting, scheduling and Deviation settlement of solar and wind generation on 21/08/2017.

Executive Summary:

★ Applicability:

○ Regulation is effective from Aug 21st, 2017.

○ SLDC to issue detailed guidelines for QCA registration, scheduling procedures, communication protocols and formats etc., on or before Dec 1st, 2017.

○ Forecasting, Scheduling and Deviations Settlement shall commence from Jan 1st, 2018.

Further, generators commissioning on or after Jan 1st, 2018 shall not be allowed to be commissioned unless they start providing schedules as per this regulation.

○ Levy and collection of DSM Charges shall commence from Jul 1st, 2018

★ Regulation Applicable on: All the GRID Connected Wind and Solar Power Generators in AP.

★ Deviation Accounting:

★ Point of Forecasting: Pooling Station or STU/DISCOM Feeder where injection is made.

★ Virtual Pool: To enable benefits of larger geographical area and diversity, aggregation of forecast is permitted under “Virtual Pool” where Generators have an option to account for their deviations at an aggregated level through a Qualified Coordinating Agency (QCA).

○ A similar provision is also permitted in Karnataka by Hon. KERC in its final regulation which is already being implemented w.e.f 1st June 2017.

 

★ Role of a QCA:

○ Provide forecast, schedules and periodic revisions;

○ Coordination with DISCOM/STU/SLDC for metering, data collection, communication/issuance of dispatch/curtailment;

○ Commercial settlement of DSM charges and de-pooling of charges among generators;

○ All other ancillary and incidental matters.

★ Important differences between wind and solar power scheduling:

○ 16 revisions (excluding collective transactions) are permitted starting from 00:00 Hrs of the     day for Wind Generators

○ 9 revisions (excluding collective transactions) are permitted starting from 05:30 Hrs upto 19:00 Hrs of the day for Solar Generators

○ All the revisions are effective from the 4th time-block

○ Aggregation “seems” to be allowed between wind and solar generation as the concept of virtual pool aims to capture not only the larger geographical area but also the diversity (among different asset class).

 

★ Important differences between intrastate and interstate transactions:

○ Wind and Solar generators having common interface meter at a pooling station but carrying out both – interstate and intrastate transactions at the same pooling station, the scheduling for the same shall to be carried out separately.

○ Approved open-access capacity (in MW) in such cases alone shall be considered as AvC for the purpose of DSM charges calculations.

■ Observation: Since the regulation permits common interface meter for such transactions and AvC determination is also clarified, the DSM charges may be computed in pro-rata basis for such pooling station as the common interface meter would only provide Pooling Station level actual generation.

 

○ Further, aggregation is permitted only for similar type of transactions i.e., interstate transactions are not allowed to be aggregated with intrastate transactions for the purpose of DSM charges determination.

○ QCA shall separately settle DSM charges for intrastate and interstate transactions.

★ Determination of DSM Charges for INTRASTATE transactions:

Note: DX is the absolute error in kWh for a given error band starting from X% as outlined in column 2.

 ★ Determination of DSM Charges for INTERSTATE transactions: 

Note: DX is the absolute error in kWh for a given error band starting from X% as outlined in column 2.

REC TRADE RESULT JULY 2017

Supreme Court allowed conditional trading of Non-solar RECs on July 14, 2017 (our blog on the same can be accessed here). Demand was expected to be low for two reasons – 1) obligated entities are required to pay at old RECs rate (Rs 1500/ REC); and 2) compliance is required to be done by March to obligated entities have enough time to comply even after the final order of Aptel is received.

However, demand for Non-solar RECs was robust. In total 4.95 lakh RECs were bought (110.76 % higher than July 2016), and clearing ratios on IEX and PXIL were 4.31% and 3.52% respectively. Higher demand was primarily driven by demand for some utilities where state regulators had given RPO enforcement orders in recent months.

Solar RECs were not traded as the stay imposed by the Supreme Court remains in force in the case of Solar RECs.

SUPREME COURT ORDERS STAY ON REC TRADING

After the Central Electricity Regulatory Commission’s (CERC) order dated 30th March 2017 on reduction of prices for RECs, many REC-generating companies had filed petitions stating that they had incurred a loss as vintage multiplier was not provided. They had first gone to Appellate Tribunal of Electricity (APTEL) to suggest a way to clear the existing REC stock. While the APTEL agreed to introduce a vintage multiplier, it refused to put a stay on the trading.  When the petition was taken to the supreme court, it not only put a stay on the trading, it has also stayed the new price regime which was introduced by the CERC.

 

The Business Standard article covering the same can be accessed here.

Our blog covering the reduction in the REC prices and our analysis of the same can be accessed here.

REC TRADE RESULTS APRIL 2017

Being the first trade session of the financial year 2017-18, the April trade session was a robust one. Total Non-solar demand was 5.37 lakhs (vs 8.8 L demand in March), and clearing ratios on IEX and PXIL were 4.56% and 4.4% respectively.

Total solar demand was 2.08 lakhs, and the clearing ratio in IEX and PXIL were 2.53% and 8.76% respectively (March 2017 demand was 1.43 lakhs).

 

Non Solar – The clearing ratio stood at 4.56% and 4.4% in both IEX and PXIL respectively.

 

Solar – Clearing ratio stood at 2.53% and 8.76% in IEX and PXIL respectively.

 

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.

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