Solar Projects are the flavour of the season. The National Solar Mission (NSM) has laid out an ambitions goal to make India the global leader in solar energy, and plans to develop capacity of 20 GW by 2020.
This analysis focuses on the impact and feasibility of Solar RECs as a mechanism to finance and operate solar energy plants. As a significant number of companies and investor consider solar energy opportunities, we present an analysis of how workable solar energy plants are under the REC mechanism.
Solar RPO are included in most state regulations
RPO regulations in each state require fulfilling a separate Solar RPO. At present the solar RPO requirement ranges from 0% to 0.5% of total electricity consumed. It is expected to go upto 3% by 2022. At the same time, a separate Solar REC will be issued to generators who meet the eligibility criterion. These Solar RECs will have a floor price of Rs 12/kwh and a forbearance price of Rs 17/kwh.
Demand for Solar RECs
Our analysis suggests that Solar RECs demand will be robust. Majority of the upcoming capacity in solar energy is either through state feed-in tariffs, or though the NSM. In either case, that capacity will not access the REC market. At the same time, there will be robust demand as every obligated entity will also need to buy Solar RECs. REConnect’s analysis suggests that 2011-12 demand of Solar power for RPO requirements will be in excess of 1,300 million units* (roughly translating into 600MW of capacity). As a result, we expect Solar RECs to sell at a high price.
*Calculated from CEA data : For a detailed analysis please contact us.
Most state regulations provide that in the event for inadequate availability of Solar RECs, the Solar RPO requirement can be fulfilled through Non-Solar RECs. Since Non-solar RECs are significantly cheaper that Solar RECs, this can present issues in the Solar RECs markets – companies may wait for the Solar REC supply to be exhausted so that they can buy non-solar RECs for compliance, and it may result in a downward pressure on Solar REC prices. More clarity is needed on the implementation of this clause is the state RPO regulations. (more…)