REC trade result – November 2018

This month trading session saw a good price discovery for both solar & non-solar RECs. The market saw a significant price hike in solar as compared to last month. The demand for both solar & non-solar remained consistent while the supply remained limited. As we approach the year-end, the obligated entities are in the process to comply with their obligations and hence the higher demand in order to not face any penalties for non-compliance. However, the highlight of this month’s trade was that solar crossed the floor price of INR 1,000.

Non-Solar: This session the RECs were traded at the price of INR 1260 at PXIL (26.0% above the floor price) and INR 1252 at IEX (25.2% above the floor price). A total of 4,46,861 RECs were traded in this session leaving an inventory of 20,43,871 Non-Solar RECs. (However, a significant portion of these do not participate in trading as they would either be owned by Discom’s or are for self-retention).

Solar: Total number of solar RECs traded in this session was 58,877 (368% decrease from the last months’ trade). The clearing ratio was 100% at PXIL & 100% at IEX respectively (w.r.t floor price). RECs traded at the floor price, i.e. INR 1051 at PXIL and at Rs 1101 at IEX.

The overall trade volume (5,05,738 RECs) decreased by almost 39.05% from the last months’ trade volume (7,03,256  RECs).

CERC extends expiry date for RECs due to expire

The CERC had issued an order extending the validity of Renewable Energy Certificates (REC) which were to expire between 15th May 2018 – 30th October 2018, up to 30th October 2018. There has now been an extension in the expiry of these RECs till 30th March 2019. A summary of the RECs likely to expire between 31st October 2018 to 31st October 2019.

Since the past year, the shelf life of the RECs has surpassed its expiry life of one year due to high supply but limited demand. Only post-November 2017 there has been a generous market realization of RECs (both solar and non-solar). Des[ite of this and the lack of enforcement there was a petition filed to extend the expiry of the RECs.

From the above inventory, it is evident that 1,83,999 RECs which have been issued prior to 01.04.2017 are due to expire within the next six months. This includes 38,651 Solar RECs and 1,45,348 Non Solar RECs. Hence the Commission is of the view that there is a need to extend the validity of RECs which are due to expire up to 31.03.2019.

The Commission in exercise of Power under Regulation 15 of REC Regulations has extended the validity of RECs which are due to expire between 31st October 2018 and 31st March 2019 up to 30th April 2019. Accordingly, RECs which are due to expire between 31st October 2018 and 31st March 2019 will remain valid up to 30th April 2019.

 

REC trade result – October 2018

This month’s trading saw good participation from the market due to good price realization in non-solar RECs and increased demand for solar REC in the last few months.

Non-Solar: The shortage of Non-solar RECs continues in the current session of October 2018. This session the RECs were traded at the price of INR 1201 at PXIL (16.73% above the base price) and INR 1251 at IEX (20.06% above the floor price). A total of 4,27,305 RECs were traded in this session leaving an inventory of 18,83,673 Non-Solar RECs. (However, a significant portion of these do not participate in trading as they are owned by Discom’s or are for self retention)

Solar: Total number of solar RECs traded in this session was 2,75,951 (82.28% decrease from the last months’ trade). The clearing ratio was 100% at PXIL & 100% at IEX respectively (w.r.t floor price). RECs traded at the floor price, i.e. INR 1000 at PXIL and at Rs 1,001 at IEX.

The overall trade volume (7,03,256 RECs) decreased by almost 170% from the last months’ trade volume (19,03,638  RECs). This was due to very high demand for solar RECs last month.

REC Trade Result – September 2018

Non-Solar: The shortage of Non-solar RECs continues in the current session of September 2018. This session the RECs were traded at the price of INR 1300 at PXIL (30% above the floor price) and INR 1100 at IEX (10% above the floor price). A total of 3,45,576 RECs were traded in this session leaving an inventory of 18,83,673 Non-Solar RECs.

Solar: Total number of solar RECs traded in this session was 15,58,062 (220% increase from the last months’ trade). The clearing ratio was 37.10% at PXIL & 100% at IEX respectively (w.r.t floor price). RECs traded at the floor price, i.e. INR 1000 at PXIL and IEX both respectively. This was the highest ever Solar REC trade by volume, and the second time in the history of REC trading, where the solar REC trading volume surpassed 10 lakh, leaving behind an inventory of just 7,82,333 Solar RECs.

The overall trade volume (19,03,638 RECs) increased by almost 132% from the last months’ trade volume (8,19,608 RECs). In the last six months, this trading session has recorded the highest clearance to issuance ratio.

REC trade results – August 2018

Non-Solar: Non-solar RECs prices continue to rise with robust demand but the clearance volume is constrained due to limited supply availability. This session the RECs were traded at the price of INR 1101 at PXIL (10.1% above the floor price) and INR 1200 at IEX (20% above the floor price). The non-solar REC inventory completely exhausted in August 2018 with a clearing ratio of 100% at PXIL & IEX both respectively. A total of 3,33,479 RECs were traded in this session.

Solar: Total number of solar RECs traded in this session was 4,86,129 (184% decrease from the last trade). The clearing ratio was 29.06% at PXIL & 15.42% at IEX respectively. RECs traded at the floor price, i.e. INR 1000 at PXIL and IEX both respectively.

The overall trade volume of (8,19,608) decreased almost by 50% from the last trade (16,18,069).

REC trade results July 2018

Non-solar: Non-solar RECs prices continue to rise on the back of robust demand and limited availability. The RECs were traded at the price of INR 1050 at PXIL ( 5% above the floor price) and INR 1200 at IEX (20% above the floor price). The non-solar REC inventory was completely exhausted in July 2018 with a clearing ratio of 100% at PXIL & IEX both respectively. A total of 235,437 RECs were traded in this session.

Solar: Solar RECs registered the highest ever traded volume. Total 13,82,632 RECs were traded in the current trade session. The clearing ratio was 40.23% at PXIL & 36% at IEX respectively. RECs traded at the floor price, i.e. INR 1000 at PXIL and IEX both respectively. As compared to the available supply of Solar RECs on March 31, 2018, 77% of the RECs have already been sold.

 

REC Trade Results – May 2018

In both Solar and Non-solar RECs, demand was robust, considering that this was only the second trading session of the new financial year.

Analysis of Trading:

Non-Solar – Non-solar RECs inventory was not completely exhausted in the May 2018 trading session (15,51,691 RECs were retained of 43,44,976).  A total of 401214 RECs were traded, despite demand being at 629069 (as compared to 538,371 RECs traded April 2017; an increase of 16.84%). RECs traded at the floor price of Rs 1,000/ REC at PXIL but increased to Rs 1,010/ REC at IEX.

Solar – A total of 914412  RECs were traded this month (Increase of 4.4% over April 2017). Clearing ratio for both non-solar and solar stood well.

The below graph depicts the Clearing ratio trend of Non-solar and Solar. In case of Non-solar, the clearance was 86.25% at IEX and 94.23% at PXIL and for solar, the clearance was at 14.20% and 23.38% in IEX and PXIL respectively

 

CERC gives a positive nod to extend the validity on RECs

CERC recently announced in its order dated 15th May 2018 that the RECs will be valid till 30th October 2018, which were otherwise expired/likely to be expired between 1st April 2018 and 15th October 2018.

The commission declared this in accordance to its power under Regulation 15 of REC regulations.

The extension related dates are as below:

Duration

Status of RECs

Validity as per the order

1st April 2018 to 14th May 2018

Expired

Extended till 30th October 2018

15th May 2018 to 30th October 2018

Likely to be expired

Extended till 30th October 2018

The issues which were prevailing since early 2017 and saw petitions from various parties seems to have finally come to rest.

More than 10 lakh RECs (9,52,533 Solar RECs; 1,09,520 Non-Solar RECs) were being affected due to the pending petitions. Majority of these RECs were solar which saw a halt in trading for almost 11 months since 8th May 2017.

Since ApTel was in the reviewing process of the petitions, the commission could not take any action on the extension of REC validity before 31st March 2018.

ApTel in its judgment as on 12th March 2018 has disposed all the petitions and upheld the commission’s order dated 30th March 2017 to continue the REC Floor and Forbearance Price applicable from 1st April 2017 onwards.

 The Commission was of the view that there was a requirement to extend the validity since the appeals were dismissed by the ApTel and there was no stay.

Earlier, the commission extended the validity up to 31 st March 2018 which was expired between 1st October 2017 and 31st March 2018 based on Supreme Court’s order dated 29.09.2017 on seeking necessary direction for extension of the validity of RECs.

Based on the recent order, the expired RECs will be added back to the seller’s account which was then removed by NLDC till 31.03.2018.

As per the recent trade dated 25th April 2018 on IEX and PXIL after a halt of a year, the clearance was as below:

Trading portal

Solar

Non-solar

IEX

6,44,151

1,36,979

PXIL

2,30,967

50,564

REC Trading Results – April 2018

 

April saw trading resume for Solar RECs after a gap of one year, after the ApTel pronounced judgment in the case of REC pricing. Also, after record sale of Non-solar RECs in the last 5 months, there was almost no inventory left of Non-solar RECs. In both Solar and Non-solar RECs, demand was robust, considering that this is the first month of the new financial year.

 

Analysis of Trading:

 

Non Solar – Clearing ratio in exchange stood at 72.6% and 77.2% in IEX and PXIL respectively for Non Solar REC’s.  A total of 187,543 RECswere traded, despite demand being at 1,099,426 (as compared to 538,371 RECs traded April 2017; an increase of 104%). RECs traded at the floor price of Rs 1,000/ REC at PXIL, but increased by a minuscule fraction to Rs 1,001/ REC at IEX. However, this increase in the traded price above the floor price has come after a gap of almost 6 years (last trading above the floor price was in August 2012).
Solar – Demand was robust at 8.75 lakh RECs (3.2X demand of April 2017). Clearing ratio stood good at 23.8% and 10.4% in IEX and PXIL respectively.

ANALYSIS OF APTEL ORDER ON REC PRICING AND MULTIPLIER

Order in the case of REC pricing and vintage multiplier has now been uploaded on the ApTel’s website. Following is a quick summary of the same:
ApTel has rejected all prayers of the RE generators. Specifically, it has held:
–       Pricing: ApTel found no issues with the change in methodology by CERC when they used bid-discovered prices as against CERC determined generic tariffs.
The order states: “
“In view of the growing competition and induction of latest technologies, more and more generators are participating in the auctions/bids with considerable reduced cost of generation. Thus, the Central Commission in specifying REC prices, has shifted to bid discovered prices in place of earlier generic tariff fixed by it when the RE sector specially solar was in infancy stage.”
 
And
“We have carefully considered the contentions of all the parties and note that under the prevailing market scenario, the prices of RECs cannot be kept artificially high to burden the end consumers. Further, if the prices of RECs are kept high without aligning them with the market reality and current cost of electricity, the obligated entities may not purchase the RECs and try to fulfil their RPOs by other means.”
–       Vintage Multiplier – The ApTel has said that providing vintage multiplier is the “discretion” of CERC, and said that the CERC has provided “cogent reasoning” in its order, and further that the ApTel found “no unjustness in specifying the floor and forbearance prices of REC and discontinuation of the Vintage Multiplier”

–       In our opinion, the justification of price reduction is also to some extent based on factually incorrect premise. For example, the order says:
 
It is also noteworthy that sufficient time has been given to RE generators to sell their RECs at the power exchange but perhaps in anticipation of selling them at better prices has resulted into unsold REC inventory.”
 
            And further,
 
“Another important fact is that among the three routes available for RE generators, the REC capacity is dominated by RE generators operating under CGP and OA route rendering APPC route as the last choice”
 
We believe that this order will have a significant adverse impact on projects and investors that have invested in REC projects. An immediate impact will be that such project will have to bear heavy losses on the existing inventory of RECs – the losses will be particularly heavy for solar projects.
It also does not bode well for future investment in the REC mechanism, as falling RE prices are an irreversible trend. Does this mean that REC projects will have to bear losses of such reduction every year?
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