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Non-solar RECs

Surprisingly volume decreased ( – 29% compared from last month) at beginning of the fourth quarter of compliance year ( in December volume went up by 108% increase). The total volume cleared was only 1,93,337 leaving an inventory of 17.8 lakh RECs.

Supply on the other side continued to increase. The total sell bids at both the power exchanges was 17.4 lakh RECs (up 20 % from last month).

Prices remained at the floor prices i.e at Rs.1,500/REC . Clearing ratios were approximately 15 % in IEX and 0.7 % on PXIL (last month was 22 % and 17.5% respectively).

Solar RECs

The cleared volume of Solar RECs was 2308 ( 1208 in December). The only consolation that today’s trade session provided was the rise in demand for Solar RECs. Compared to last month, the demand for Solar RECs increased by whopping 182 times.

Market clearing price at IEX and PXIL were discovered at Rs 12,500/REC.

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.

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.

Non-solar RECs

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%)

Solar RECs

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.

Solar RECs

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.

The market clearing price (MCP) at IEX was Rs. 2900 (February’s price was Rs.3066; a fall of 5%), whereas the MCP at PXIL the price increased to Rs 3,100 (February – Rs 3,051; increase of 1.6%).

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.

Overall the final trading session of this financial year was disappointing as demand fell significantly.
No Solar RECs were traded this month.

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,”

Mr Gireesh B. Pradhan, Secretary, Ministry of New and Renewable Energy (MNRE), was overheard saying that he found himself in the “right ministry” – a fact that indicates that the Maharashtra cadre, 1977 batch IAS officer, is passionate about the growth of the renewable energy industry in India.

The Hindu Business line interviewed Mr. Pradhan at Renergy 2012, a conference-cum-exhibition event organised by the Tamilnadu Energy Development Agency (TEDA).

Following are some excerpts:

What is going to be the Government of India’s stance on encouraging local manufacturing of solar power equipment?

Encouraging domestic manufacturing is one of the objectives of the National Solar Mission. It is there in the Mission document. The way we are looking at expanding solar power, we feel that solar is going to play a very vital role in the energy scenario in the country. No country of the size of India can afford to be dependent upon only imported equipment. We would like the Indian industry to come up and supply the requirements of such a large programme.

The question is how to make it happen?

The way to make it happen is by supporting domestic manufacture — insisting on a certain amount of procurement being made from local manufacturers, (especially when) the Government is procuring. But we do not rule out anybody. You see, today those manufacturers who want to sell into India have set up large manufacturing capacities outside their home countries. Why can’t they set up manufacturing units in India? Once they come here then they are same as anybody (for local procurement).

But they seem to want more visibility on the capacities that will be put up for bidding, the project pipeline, in order to make investment decisions.

We have already declared in the National Solar Mission that we want to have 20,000 MW by 2022. We have also divided the time period into three distinct phases. Beyond this, if anybody wants (visibility at a) more micro level, it will be very difficult.

We have provided enough project visibility. After all, the potential is very large and we are not talking in terms of the macro level. I can say that at a very, very conservative estimate, the solar potential in the country is 100,000 MW.

To realise this potential —

To realise this potential, a lot depends upon the extent to which the State electricity regulators enforce the renewable purchase obligations (RPO). If there are not very strict and use the stick and there are heavy penal provisions for not fulfilling the obligations it would not be easy for public utilities to fall in line.

The framework already exists. The question is that of enforcement.

What can the Government do to ensure that the RPO obligations are enforced?

We can only persuade them. We have been persuading them. There is a Forum of Regulators. In the last three meetings of the Forum, the MNRE has participated, at very senior levels, making presentations and impressing upon them that this programme cannot go forward unless the RPO part is vigorously enforced.

Is it true that the National Solar Corporation is planning to set up a 1,000-MW solar park, for the projects in which there will be local manufacturing requirements?

We are in the process… it will not be possible for me to get into specifics, but (generally) domestic content is something that we are very keen on. We need a local manufacturing industry to develop.

We are also in favour of reduction of import duties on raw materials (for cell manufacture). We are with the industry on that.

Will Accelerated Depreciation continue?

If the Direct Taxes Code comes, then Accelerated Depreciation will go on its own. We are also taking a relook at the generated-based incentive. At present, it is 50 paise a unit.

What is the update on the National Mission on Biomass?

We are in the process of doing the Mission documents. We just got a study completed. The document will be ready maybe in 2-3 months. Both the Minister and I are keen on biomass.