- Recent steps taken by Tamil Nadu, Maharashtra & Delhi towards small scale solar projects.
- MERC order on solar RPO for Tata Power Company – Distribution.
- ApTel’s judgment on fossil fuel based co-gen plants..
- CERC’s order on REC issuance of UP’s co-gen plants.
- REC Trade Analysis – November 2013 & December 2013.
The second REC trade session of FY 2013-14 (May-13) continued to remain dry in terms of buy side participation. Clearance ratios for Non-Solar RECs remained in single digit and prices softened in Solar RECs. Following are the highlights:
Non Solar RECs
- Market clearing prices at both exchanges remained at Floor i.e. Rs. 1500 per REC.
- Total buy bids of 52968 (up by 19.1 % as compared to April’13 trade session) reflects small increment in buy side participation.
- However, it may be worth to mention that this is the beginning of the compliance year and many serious buyers would ideally want to meet their compliance at the closure of the compliance year (near Q4-FY13/14).
Fig 1 : REC Trading Stats – May 2013
- High number of participants at IEX but low buy side demand reflects absence of DISCOMs and large CPPs.
Fig 2: Non Solar Market clearing Price - May 2013
- Solar REC markets saw a dip in demand by 43.2 % as compared to last trading session and evidently solar REC prices came down to Rs. 10990 (PXIL) and Rs. 11490 (IEX).
- Supply of solar RECs increased by 57% from 3077 RECs in April 2013 to 4833 RECs this month
Fig 3: Solar REC Trade Stats – May 2013
- With about 150 MW Solar PV capacity already accredited, we may expect supply position to strengthen significantly going forward.
For previous months (April 2013) trade statistics click here and for relevant media articles follow the links :
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.
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.
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)
Prices remained at floor price this month as supply has remained far in excess of demand. The over-supply situation has persisted for the last few months – this month 7.11 lakh RECs were bid for sale (up 13% from August), while demand was for 2.64 lakh RECs (down 6.7%).
Demand has remained depressed due to enforcement concerns. As a result, the demand-supply is continuing to widen. RECs issuances have been robust but demand has been growing slowly.
Demand is a function of RPO enforcement expectations. Recent court rulings in this will help but we do not expect its effects to be visible in the market for a few months.
Cleared volume at IEX was 239,364 (Aug – 248,168; down 3.5%) and at PXIL was 25,082 (Aug – 25,725; down 2.5%)
Demand decreased from last month (from 2,331 to 1,852; down 21%). On the other hand, RECs bid for sale increased significantly as more solar capacity was commissioned (1621 vs 550; up 194%). The market clearing price on IEX was Rs 12,500 and on PXIL was Rs 12,900 (last month it was Rs 12,850 on both exchanges). In total, 1,160 Solar RECs were sold (last month it was 379).
Total market value exceeded Rs 41 crore, of which Rs 1.46 crore were from Solar RECs.
The Hindu Business Line’s coverage on the REC trading quoted Vishal Pandya , Director, REConnect Energy Solutions “Not many buyers turned up for the trade session this month. Two quarters are over and we are yet to see a larger level of participation from obligated entities,”
Prices crashed to Rs 1,500 on IEX and Rs 1,555 on PXIL; a fall of 25% and 29% respectively over last month. This price fall was driven by a significant over-supply situation – close to 6.27 lakh RECs (33% increase from July) were bid for sale while demand was 2.83 lakh (76% increase; but there’s more to the story – see below).
Demand increased this month compared to July 2012. July had witnessed a steep fall (July demand was 161,000 while in June it was 350,000). The increase this month can be attributed to renewed interest by buyers due to expectation of a price drop as the oversupply situation developed.
Despite a comeback by buyers, there as a large demand-supply gap. Supply has been robust due to multiple factors – increasing capacity in the REC mechanism (since March 2012, over 1,000 MW capacity has been added), high-wind season resulting in good generation and cumulative issuance of Maharashtra wind RECs.
At the same time, demand has remained weak due to enforcement concerns. Till date, no state has taken any concrete action towards enforcement.
Cleared volume at IEX was 248,168 (July – 147,369; up 68%) and at PXIL was 25,725 (July – 10,851; up 137%)
We expect this oversupply situation to persist, and worsen, till enforcement actions spur buyers to act.
Demand decreased from last month (from 8,754 to 2,331; down 73%). RECs bid for sale remained flat (550 vs 549). The market clearing price on both power exchanges was Rs. 12,850 (Its rose from Rs.12800 last month; up 0.4%). Only 379 Solar RECs were sold (last month it was 200).
Total market value exceeded Rs 43 crore, of which Rs 48 lakhs were from Solar RECs. This is up 34% in aggregate from previous month.
For news coverage of August trading session, see here:
- Coverage in the Hindu Business Line states: “The biggest disappointment among the renewable energy producers (who are the sellers of RECs) is that no state owned electricity distribution company has come forward to buy the certificates, although they are all ‘obligated entities’. This is due to lack of enforcement of their obligations. “Lack of participation from public Discoms and large captive power plants is the main reason behind the price crash,” said Vishal Pandya, Director, REConnect”
Demand fell off the cliff this month, mainly driven by enforcement concerns and expectations of price fall in the future (due to increasing supply). Aggregate demand reduced to 161,000 RECs from 350,000 last month (-54%). On the other hand, supply of RECs increased from 360,000 to 467,000 (increase of 30%). Of these, 158,000 RECs were sold (last month – 236,000; down by 33%).
Detailed analysis of Non-solar REC trading:
The market clearing price on IEX and PXIL was Rs. 2,000 and Rs.2,202 respectively. (Last month it was Rs. 2,402 at IEX and Rs. 2,460 at PXIL; down 17% and 10% respectively).
The price fall is not surprising, given the steep fall in demand. The low demand and cleared volume leaves an overhang of close to 350,000 RECs this month. Next month this is likely to result in significant oversupply, putting further pressure on prices.
Detailed analysis of Solar REC trading:
In the third session of Solar REC trading demand fell marginally from last month (from 9,619 to 8,754; down 9%). RECs bid for sale also reduced marginally to 549 from 563 last month (-2%). The market clearing price on both power exchanges was Rs. 12,800 (Its rose from Rs.12750 on IEX and Rs.12506 on PXIL). Only 179 Solar RECs were sold (last month it was 342).
Total market value exceeded Rs 32 crore, of which Rs 22 lakhs were from Solar RECs. This is down 44% in aggregate.
The Hindu quoted Vishal Pandya of REConnect which covered the July trading news:
“With the market starting high during initial months of the financial year itself, we were actually expecting this. However, with prices declining in REC, we can expect new buyers emerging and, hence, prices getting stabilised after few months,” Mr Vishal Pandya, Director, REConnect
M&B Switchgear Ltd, which owns and operates a 2 MW solar PV plant in MP was issued 249 Solar RECs today. This is the very first issuance of Solar RECs in India. These Solar RECs are expected to be traded in this month’s trading session on May 30.
M&B Switchgear is listed on NSE and BSE.
When traded, these Solar RECs will be the very first trades in India. Over the last year Non-solar RECs have traded in large volumes. Solar RECs are priced differently than Non-solar ones due to very different investment requirements. While the floor price of Non-solar RECs is Rs 1.5/kwh, that of Solar RECs is Rs 9.3/kwh.
Today’s trading session was the first of the new compliance year (2012-13). Both volume and price expectations were low, given that there is no real pressure on the obligated entities to buy this early in the year. Considering that, both prices and volumes surprised – IEX and PXIL traded price was Rs 2,201/ REC (32% higher than the floor price of Rs 1,500; we believe that prices and volume this month are not comparable with March 2012 as the drivers for buyers and sellers were very different last month).
The total demand was for 263,913 RECs. This appears high compared to last month (demand last month was for 389,000 RECs; last April was 260) given that this is the first month of the compliance year.
Supply was impacted by low issuance of RECs (118,000 in April vs 204,000 in March) likely due to reduced urgency on part of generators to claim RECs. Total available RECs were 157,000, of which 133,000 were bid for sale (85% participation). At this stage in the market, the participation level was high. Of the total bid for sale, only 54% were sold indicating seller’s willingness to hold and expectation of even higher prices later in the year.
With the new floor and forbearance price from this financial year coming in picture, today’s price will bring some smile on the sellers. The relatively high demand and prices are an indication of expectation of enforcement.
No solar RECs were traded this month.
Today’s was the last trading session for the year before the end of the compliance period. The market expected significant demand and high prices as this was the last opportunity to comply. However, contrary to expectation demand fell sharply this month. Total demand fell by 17% over the previous month – from 389,000 to 323,700. From its peak in January demand was down 25%. Supply of RECs was down marginally (by 1%). Overall market value was Rs 58 Crores, down about 8% from February.
This month a total of 2, 01,064 Non-Solar RECs were issued. 98% of these participated in the trading session today.
The demand side deserves a deeper analysis. The significant fall this month was contrary to expectations, and indicates that perhaps the market is expecting weak enforcement of RPO regulations. The focus will now shift to the regulators, who will have to determine the best way to enforce the regulations.
Coverage: The Hindu Business Line covered March REC trading in the article that can be accessed here. The article quotes Mr Vishal Pandya of REConnect Energy:
“The results are certainly disappointing for all the sellers and reflects the need for stronger enforcement signals,”