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.

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.

REC Trade Results February 2017

The Feb trade session remained a robust one, following the record setting session in January.  Total Non-solar demand was 10.4 lakhs (vs 15.2 L demand in January), and clearing ratios on IEX and PXIL were 8.7 and 6.2% respectively. On a year-to-date basis, this year Non-solar RECs demand has been significantly higher than last year. March 2017, which will be the last trading session of FY 16-17, is also expected to result in high trading volumes.

 

Solar RECs trading, on the other hand, has remained subdued. One reason is the significantly solar capacity coming online in states (with record low tariffs) – this result in Discom’s not buying solar RECs in large volumes. Also, the expected price drop in April 2017 may be resulting in potential buyers deferring purchases.

 

Non Solar – The clearing ratio stood at 8.72% and 6.2% in both IEX and PXIL respectively.

Solar – Clearing ratio stood at 1.26% and 0.34% in IEX and PXIL respectively.

 

 

 

REC Trade Results January 2017

This month’s trading saw a remarkable turnaround with respect to the overall Non solar REC clearance. The clearance ration stood at a shooting high of 10.8% for non solar. The demand for solar REC saw marginal improvement in respect to the month of December. The total transaction value stood at 244.7Crores in comparison to 74.4 Crores last month.

Analysis of Trading:

Non Solar – The clearing ratio stood at 13.5% and 5.7% in both IEX and PXIL, with a drastic increase of 260% in the no. of REC’s traded as compared to last month.

 

 

Solar – Clearing ratio stood at 1.2% and 0.7% in IEX and PXIL respectively, with a significant increase of 49% in total demand of Solar RECs as compared to December.

 

REC Trade result December 2016

This month trading saw good results with respect to the Non solar REC clearance overall. The demand for solar REC saw marginal improvement in respect to the last month. The total transaction value stood at 74.4 Crores in comparison to 53.6 Crores last month.

This month saw fall in the total issuance where the demand decreased by 4.60Lakhs in comparison to November. Though there had been significant increase in the total REC issuance due to the impact of CERC’s 4th amendment to RECs regulations.

Analysis of Trading:

Non Solar – The clearing ratio stood at 3.19% and 2.81% in both IEX and PXIL, with a significant increase of 61% in the no. of REC’s traded as compared to last month

Solar – Clearing ratio stood at 0.85% and 0.53% in IEX and PXIL respectively, with a dip of 23% in total demand of Solar RECs as compared to November.

 

 

 

REC Trade Result November 2016

This month trading saw stagnant results in respect to the demand for Non-Solar REC’s. The demand for solar REC saw marginal improvement in respect to the last month. The total transaction value stood at 53.6 Crores in comparison to 50.6 Crores last month.

 

Analysis of Trading:

 

Non Solar – The clearing ratio stood at 1.85% and 2% in both IEX and PXIL, with a significant increase of 2.25% in the no. of REC’s traded as compared to last month

Solar – Clearing ratio stood at 1.13 % and 0.96% in IEX and PXIL respectively, with an increase of 17.5% in total demand of Solar RECs as compared to last month.

 

This month also saw significant increase in total REC issuance, where the demand increased by 9 lakh in comparison to October. This could be attributed due to the impact of CERC’s 4th amendment to RECs regulations.

REC Trade Result October 2016

Analysis of Trading:

 

Non Solar – The clearing ratio stood at 1.9% and 2.06% in both IEX and PXIL, with a significant increase of 46% in the no. of REC’s traded as compared to last month

Solar – Clearing ratio stood at 0.86 % and 1.16% in IEX and PXIL respectively, with an increase of 13% in total demand of Solar RECs as compared to last month.

This month trading saw significant improvement in the demand for both Solar and Non-Solar RECs as compared to last month. The total transaction value stood at 50.66 Crores in comparison to 37.5 Crores last month.

In contradictory to the total demand, this month saw a dip in the total REC issuance, where the demand increased by 1 lakh in comparison to September. This could be attributed due to the impact of CERC’s 4th amendment to RECs regulations.

 

REC Trade Result September 2016

The month of September trading saw significant decrease in the demand for both Solar and Non-Solar RECs as compared to last month. The total transaction value stood at 37.5 Crores in comparison to 52 Crores last month.

Analysis of Trading:

Non Solar – The clearing ratio stood at 1.36% in both IEX and PXIL for Non Solar REC’s.  A total of 1, 75,525 RECs were traded this month as compared to 2, 58,891 RECs traded in last month, a decrease of 32%.

Solar – Clearing ratio stood at 0.8 % and 0.98% in IEX and PXIL respectively, with significant decrease of 20% in total demand of Solar RECs as compared to last month.

 

 

 

In contradictory to the total demand, this month also huge rise in the total REC issuance where the issuance increased by more than 5 lakhs as compared to the past month’s total issuance. This could be attributed due to the impact of CERC’s 4th amendment to RECs regulations.

REC Trade Result August 2016

This month trading saw marginal increase in the demand for both Solar and Non-Solar RECs as compared to last month. Compared to August 2015, demand was almost double this month.  The total transaction value stood at 52 Crores in comparison to 40 Crores last month.

This month also saw significant fall in the total REC issuance with 40% reduction as compared to the past month’s total issuance. However, this is likely to be a temporary blip as RECs issuances are yet to catch up after the impact of CERC’s 4th amendment to RECs regulations.

 

Analysis of Trading:

 

Non Solar – Clearing ratio in exchange stood at 1.86% and 2.27%in IEX and PXIL respectively for Non Solar REC’s.  A total of 2, 58,891 RECs were traded as compared to 2, 35,007 RECs traded in July, an increase of 10%.

 

 

Solar – Clearing ratio stood good at 0.99% and 1.4% in IEX and PXIL respectively, with a marginal increase of 5% in total demand of Solar RECs as compared to last month.

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