ANDHRA PRADESH RELEASES RPO REGULATIONS FOR FY 2017:

The Andhra Pradesh Electricity Regulatory Commission (APERC) has release RPO percentages for the years 2017-22. The RPO percentages have increased significantly since last year. In the year 2016-17, the RPO percentages were 2% for non-solar and 1% for solar. For the year 2017-18, the percentage has been increased to 6% and 3% for non-solar and solar respectively.

This percentage is applicable on total consumption of electricity including hydro and mini-hydel. The RPO percentages given in the regulation are as follows:

 

A comparison between the MoP trajectory and the percentages for this FY is given as follows:

 

The regulation can be accessed here.

REC TRADE RESULTS APRIL 2017

Being the first trade session of the financial year 2017-18, the April trade session was a robust one. Total Non-solar demand was 5.37 lakhs (vs 8.8 L demand in March), and clearing ratios on IEX and PXIL were 4.56% and 4.4% respectively.

Total solar demand was 2.08 lakhs, and the clearing ratio in IEX and PXIL were 2.53% and 8.76% respectively (March 2017 demand was 1.43 lakhs).

 

Non Solar – The clearing ratio stood at 4.56% and 4.4% in both IEX and PXIL respectively.

 

Solar – Clearing ratio stood at 2.53% and 8.76% in IEX and PXIL respectively.

 

HIMACHAL PRADESH ELECTRICITY REGULATORY COMMISSION (RENEWABLE POWER PURCHASE OBLIGATION AND ITS COMPLIANCE) REGULATION

HPERC has notified Renewable Purchase Obligation and its compliance, 3rd amendment 2017 on 24th March 2017.

 

Quantum of Renewable Power Purchase Obligation (RPPO)

 

Since Himachal Pradesh mostly thrives on the energy produced through Hydropower, the state will be a beneficiary since RPO is excluded from RPO obligation as per the regulation.

The graph below shows the total and type of energy consumption by the state of Himachal Pradesh. The data has been derived from CEA Report.

 

Almost 3/4th energy of the total consumption comes from the Hydro Power. Its an added advantage for the state that RPO is exempted from the power consumed through Hydro sources, thus this in turn will reduce the cost of power from the state.

The graph below gives a comparison between the MoP recent RPO Trajectory and HPERC’s earlier RPO Trajectory:

HPERC for computing Renewable purchase obligation for a year of obligated has included  the transmission and distribution losses within the state in the following manner:

  • In case the electricity is purchased by such obligated entity from sources outside state , the electricity at state periphery shall be considered as the consumption of obligated entity

  • In case the electricity is purchased or generated from generating sources located within the state the electricity injected at the generating bus bar shall be considered as its consumption

The above given clauses are against the law of Electricity Act 2003 as for computing renewable purchase obligation total consumption has to taken under consideration excluding the transmission and distribution losses.

The Supreme Court order on RPO dated 13th May 2015 has taken into consideration the word “ Total Consumption” which also has been used in Electricity Act 2003. One can find below the reference from the act Section 86 (e):

promote cogeneration and generation of electricity from renewable sources of energy by providing suitable measures for connectivity with the grid and sale of electricity to any person, and also specify, for purchase of electricity from such sources, a percentage of the total consumption of electricity in the area of a distribution licence;

 The regulation can be accessed here.

REC TRADE RESULTS MARCH 2017:

March trading results were far better than anticipated considering the recent CERC order on revised floor and forbearance prices. The March trade session remained a robust one. Total Non-solar demand was 8.88 lakhs (vs 10.4 L demand in February), and clearing ratios on IEX and PXIL were 6.11% and 9.6% respectively. For the full year FY 16-17, total RECs sold were 59.3 lakh as compared to 43 lakhs last year – an increase of almost 37.7%. This was the last trading session of FY 16-17.

 

Total solar demand was 1.43 lakhs, and the clearing ratio in IEX and PXIL were 2.90% and 2.74% respectively (Feb 2017 demand was 49,544). For the full year FY 16-17, total RECs sold were 5.5 lakh as compared to 6.4 lakhs last year – a decrease of almost 14.06%.

Non Solar – The clearing ratio stood at 6.11% and 9.6% in both IEX and PXIL respectively.

Solar – Clearing ratio stood at 2.90% and 2.74% in IEX and PXIL respectively.

 

NEW FORBEARANCE AND FLOOR PRICE FOR REC FRAMEWORK:

Summary:

  • The Honorable CERC published the final order on revised price bands for RECs which will be valid from April 1, 2017 onwards.

  • The new floor and forbearance prices are given below

 

  • This represents a drastic reduction of 71% for Solar RECs, and 33% for non-solar RECs

  • Existing inventory of RECs will not be given vintage multiplier

  • RECs that were at the verge of expiry have been given an extension
Impact on the market:

Immediate impact:

  • Overall, existing RECs projects will take a loss of Rs 1,866 crore due to reduction in the value of existing REC inventory. This represents roughly 50% of the total value of RECs. With such a significant loss, it is likely that several projects will become NPAs.

  • Reduced trading in March 31 trade session – generally, the March trading session sees high trading volumes as it is the last trading session of the compliance period. However, with the prospect of significant saving by trading in April, many obligated entities are likely to postpone trading to the next month.

Infact, this has been acknowledged and even allowed by a state regulator. See relevant order for allowing postponing of trading to an obligated entity here – http://www.mercindia.org.in/pdf/Order%2058%2042/DO-35%20of%202017-16032017.pdf

 

Long-term impact:

  • Potential (marginal) higher demand going forward – RECs prices have come down to such an extent that most captive and open access based consumers are likely to find buying RECs cheaper way of meeting RPO than buying green power. This may also apply in the case of several Discom’s, particularly in states that are power surplus. These low prices may therefore result in increase in demand of RECs.

However, it must be kept in mind that REC price reduction is always beneficial to the Obligated entities which are non-compliant as they will have an option to purchase RECs and fulfill their RPO compliance at lower prices whereas Obligated Entities who have been regularly meeting their RPO compliance will have incurred significantly higher cost. Therefore, a regularly reducing floor price actually incentivises postponing purchase of RECs, rather than meeting RPO.

Without strict enforcement and any risk of penalty, Obligated entities still have no incentive to comply. We believe that RECs demand will increase, but only to a very limited extent, as most obligated entities still don’t face any reason to comply with RPO at all.

The previous order can be accessed here and our analysis of the same can be found here.

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.

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 Market demand & supply forecast for FY 16-17

Every year, around the mid-year mark we forecast the demand and supply in the RECs markets for the remain-der of the financial year. The second half of the FY is the busy period for the RECs markets as most transactions take place in this period. As an example, of the 43 lakh non-solar RECs sold last year, 9 lakh were sold between Apr – Sept 2015 and 34 lakh were sold from Oct 15 – March 2016 (21% and 79% split between the two halves of the year).
FY 16-17 is characterized by several changes in the RECs markets :-

  • Significantly higher demand compared to same pe-riod last year for Non-solar RECs (non-solar RECs de-mand is up by 51% compared to the same period last year, ie April to November)
  • Drastic reduction in RECs issuances due to impact of CERC’s 4th amendment to RECs regulations
  • Impeding price change in the short term (April 2017) particularly for solar RECs
  • Changing regulations in light of the national tariff policy (NTP). This will result in much higher RPO and removal of exemption for co-gen. However, due to inconsistencies in the NTP with the Electricity Act 2003 we expect the impact of these changes to be visible only in the next FY.

Overall, we expect demand to remain robust for Non-solar RECs (but not for Solar RECs). Increased demand, combined with significantly lower issuances of RECs will result in much improved clearing ratio for projects that are holding RECs.
Demand Comparison
As mentioned above, demand for non-solar RECs has been robust compared to the same period last year. As of Novem-ber, demand is up by 51% compared to the same period last year.
We expect this trend to continue, driven by several factors –

  • Several regulatory commissions have given out orders for RPO compliance during the year – this is likely to result in significant demand in the coming months. Notable examples are Maharashtra and Kerala.
  • Private Discom’s, which are large buyers, have so far re-mained marginal participants in the market. This is expected to change in the coming months.
  • CPP and open access consumers will continue to be ma-jor buyers, with several new participants coming into the market in the coming months.

Demand for Solar RECs this year compared to the same pe-riod last year has been down by 1%, or essentially the same. However, we believe that by end of FY 16-17, there is a pos-sibility that the total demand totals less than that of the pre-vious year.

This is because the current floor prices are valid only till March 31, 2017. The general expectation is of a small correction in the price of Non-solar RECs and a signifi-cant correction in the price of solar RECs. Besides this, the vintage multiplier (of 2.66x) currently in place will also expire. This may result in

(a) Significant price reduc-tion of Solar RECs,

(b) a major jump in S-RECs inventory as existing S-RECs are adjusted to the new price, and

(c) drastic reduction in S-RECs issuance from April 2017 on-wards.
These changes in the near future make market forecast-ing for solar RECs a perilous task. Our approach assess demand in the same basis as mentioned above, but moderates it by a significant factor as closer to March obligated entities are expected to hold off purchases till new prices take effect.

RECs Supply
Two factors have resulted in reduced supply of RECs :-

 

  • Several projects have existed the RECs mechanism in favor of green power sale/ state tariff PPA or captives as RECs are no longer a viable mechanism
  • Impact of the 4th amendment to RECs regulations by CERC

As a result, Non-solar RECs issuance is down by 38%  compared to the same period last year, and Solar RECs issu-ances down by 41%. Going forward, we expect the non-solar RECs issuance to remain subdued compared to last year (as a big impact of the 4th amendment has been on sugar co-gen project which see issuances starting from November to April or May). For the full year FY16-17 we forecast Non-solar RECs issuance to be 35% below the last year number. The reduction in Solar RECs issuance is due to higher issu-ance last year as a result of solar vintage multipliers, and time-lag this year as the documentation related to 4th amendment is completed. Overall, we expect the year to end with roughly 30% lower issuance compared to last year.

Demand and supply
We have forecast demand under three scenarios –

(1) Base case – demand from states that have enforced RPO in the past or have current orders for RPO enforcement are in-cluded. Even for such states, a probably of demand material-izing is applied to the total RPO gap;

(2) Medium enforce-ment – expected demand from states that have on-going RPO assessment are added to the demand in scenario 1;

(3) High enforcement – this scenario envisages that most states will take some action towards RPO enforcement. Under this scenario, even those states that have not enforced RPO regulations till date are expected to initiate action, albeit the expected demand from such states is moderated by assign-ing a low probability (20-30%).

Conclusion:

Looking at the overall picture after the demand-supply forecasting exercise shows the following:

  • Non-solar RECs markets are showing a significant improvement. Demand is up by 51% compared to last year, and this year may become the first one in which demand exceeds issuance during the year. This is a major development towards the revival of the RECs markets.
  • Solar RECs market however is lagging behind. Demand has failed to increase this year, and may actually be lower than last year. This is driven primarily by expectation of drastic price decrease in April 2017. Only possibility of this scenario changing is if a large demand comes Discom’s.

 

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