OERC (Procurement of Energy Renewable Sources and its Compliance) Regulations, 2015

Orissa Electricity Regulatory Commission released the notification on Procurement of energy from Renewable Sources on 10th October, 2015. This regulation set the basic principle for promoting the sale of power from renewable sources to any person within the state of Orissa. Below mentioned are the key points of the regulation:

  • These regulation shall be applicable to all Obligated entities in the state of Orissa, the obligated entities include :
    • Distribution Licensee or any other entity procuring power on their behalf and;
    • Any person consuming electricity

a)      Generated from Conventional Captive Generating plant having capacity of 1MW and above for his own use and or

b)      Procured from conventional generation through open access and third party sale.

  • Every Obligated Entity shall meet its RPO target from its own Renewable Sources or by purchase of REC’s or procurement of power from other developer of Renewable Energy Sources.
  • The minimum quantity of energy to be procured from Renewable Sources by obligated entity is mentioned in the table below :

  • The Cross Subsidy Surcharge is exempted for procurement of power through third party sale from Renewable Energy Sources.
  • No Banking facility is provided for supply (Third Party sale) from Renewable Energy Sources through open access.
  • The energy generation from Third Party sale in each 15 min time block shall be set off against the captive/open access users’ consumption in the same 15 min time block.

In closure we would like to say that this regulation would help the state of Orissa to comply with its solar and non solar RPO targets and promote the procurement of renewable energy.

The detailed document can be accessed here.

REC Trade Results September 2015

Demand for both Solar and Non Solar REC’s remained lackluster in this trading session. A sum total of 1, 93,619 Solar and Non Solar RECs were sold in the current trading session. The total transaction value of REC’s was a paltry Rs.35.1 crores.

Analysis of Trading:-

Non Solar – Clearing ratio in exchange were at 1.68% and 0.77% on IEX and PXIL respectively for Non Solar RECs. A total of 1, 83,599Non Solar RECs were redeemed in this trading session. However the demand improved by 72% with respect to the August trading session.

Solar – Clearing ratio stood at 0.45% and 0.18% on IEX and PXIL respectively. Demand for Solar REC’s dipped to a low figure of 10,020 REC’s, 75% lower thanthe trade during August trading session.

The responses seen in the Solar REC’s segment were lower than expected. In August, total 41,928 RECs were sold.

Over the longer term, increasing focus on RPO both from the courts and from regulators is expected to increase demand. For instance OERC in its recent order on 11th August, 2015 stated that the reasons quoted by the obligated entities for non-compliance were found inappropriate and it is expected that in line with the order, the obligated entities will comply with the RPO targets, and thus we expect a surge in demand for Solar RECs in the coming months. More about the order can be read here.


OERC Order on RPO Compliance

The Green Energy Association and Orissa Renewable Energy Development Agency had filed a petition in the matter of non-compliance of RPO by obligated entities in OERC. The respondents GRIDCO and NALCO quoted the same reason of non-availability of RECs in the market for failure in meeting the obligation, even though the RECs were available at floor prices.

Green Energy Association submitted that imposition of RPO should not be relaxed in any manner for any of the obligated entities. It has submitted that the provision in the Regulation like power to relax and power to remove difficulties should be exercised judiciously only on exceptional circumstances as per the law and should not be used routinely which would otherwise defeat the object and purpose of the Regulation. Non-availability of REC should be a pre-condition to carry forward the RPO of the OERC (Renewable Purchase Obligation and its compliance) Regulations, 2010. They requested the Commission, not to consider fossil fuel based Co-generation plant under the category of renewable energy and to consider non-fossil fuel based topping up cycle Co-gen plants under renewable energy category.

After reviewing the submitted documents from both the petitioner and the respondents the Commission gave the following order:

  • The reasons advanced by parties for non-fulfillment of RPO obligation are unjustified and Commission is not inclined to grant any exception on this matter.
  • The obligated entities are allowed to carryover their renewable and co-generation purchase obligation upto 31.03.2015 till 31.08.2016. If they do not purchase the obligated quantity of power, they can purchase REC at least 5% of the obligation per month upto 31.03.2015 from August, 2015 on wards and must comply the arrear obligation in full by 31.08.2016. No further extension of time shall be granted to carry forward the renewable purchase obligation in any circumstance.
  • All the obligated entities shall submit compliance report quarterly to OREDA within the above time frame. OREDA shall also submit the quarterly compliance report to the Commission after due scrutiny.
  • All obligated entities mentioned in the RPO Regulations, 2010 shall comply with the said Regulations henceforth.

This order superseded all other previous orders issued by the Commission in this regard.

The reason for non- compliance of RPO by the respondents is found inappropriate by the commission, because as per the REC inventory there are 2598847 Solar RECs available in the market as of now.

The table below gives the solar RPO targets for Orissa from year 2012-13 to 2015-16

It is expected that in line with the order, GRIDCO and other obligated entities will comply with the RPO targets, and thus we expect a surge in demand for Solar RECs in the coming months.

The Commission’s order can be accessed here.

The Commission’s order can be accessed here.


August trading session saw a stagnant response from the Non-Solar demand side. However the Solar RECs saw a huge recovery from rise in demand during trading session. A sum total of 149,209 RECs were redeemed in this session, compared to 173,223 in July. Demand took a fall of approx. 14 % w.r.t July.

Analysis of Trading:-

Non Solar – Clearing ratio in exchange were at 0.92% and 0.75% in IEX and PXIL respectively for Non Solar RECs. A total of 107,281 RECs were redeemed in this trading session. There was a fall of approx. 30 % in the current trading session w.r.t to July.

 Solar – Clearing ratio stood at 1.52% and 1.86% in IEX and PXIL respectively. Solar RECs rose staggeringly from 17,952 in July to 41,928 this trading session, a rise of 133%. This was good signs for solar, as it has recovered again from major fall last MONTH,

Over the longer term, increasing focus on RPO both from the courts and from regulators is expected to increase demand. Over the last several months many developments have taken place, including the draft Electricity Act, orders from the ApTel and from the Supreme Court. The most recent development was the release of the draft of Renewable Energy Act 2015. An analysis of the Act can here

REC Trade Results July 2015

July’s trading session saw a stagnant response from the demand side. Though, the current demand while comparing it to previous year’s session of July was 3 times higher in Solar and 5 times in Non Solar segment, it indicated a lower compliance when comparing it to trading sessions of 2015. A sum total of 173,223 Lakh RECs were redeemed in this session. Demand took a fall of approx. 5 % w.r.t June.  The demand in last two trading sessions was due to the judgment by Supreme Court.

 Analysis of Trading:-

 Non Solar – Clearing ratio in exchange were at 1.33% and 1.15% in IEX and PXIL respectively for Non Solar RECs. A total of 155,271 RECs were redeemed in this trading session. There was seen a fall of approx. 4 % in the current trading session w.r.t to June in Non Solar RECs.

 Solar – Clearing ratio stood at 0.84% and 0.29% in IEX and PXIL respectively. Solar RECs remained at 17,952, which is a show towards a downfall in the demand in the solar RECs segment; it shows a fall of 5640 RECs from June trading session.

Over the longer term, increasing focus on RPO both from the courts and from regulators is expected to increase demand. Over the last many months several developments have taken place including the draft Electricity Act, orders from the ApTel and from the Supreme Court. The most recent development was the release of the draft of Renewable Energy Act 2015. An analysis can be read here.

Team REConnect

Analysis of the 5th Amendment to REC Regulations


Recently, CERC proposed the 5th amendment to REC regulations. The gist of proposed changes is:

  • Captive generators and portion of power for self-consumption will no longer be eligible for RECs
  • If an open access (OA) project avails concessional wheeling, banking or cross-subsidy benefits, it will not be eligible for RECs

These changes have been proposed in the context of an REC market that faces significant oversupply. As on June 30 2015, RECs worth 2,650 crore remain unsold, and clearing percentages in many months are well below 5%. In most months, more RECs have been issued than redeemed, further aggravating the problem of over-supply.

In the explanatory memorandum, CERC has elaborated on the thinking behind the proposed amendment. The memo states:

Lack of RPO enforcement has been one of the major reasons for the high level of unsold REC inventory. However, it is also important to analyze the supply side aspects and understand whether the right beneficiaries (as was envisaged while introducing REC framework) are participating and able to compete in the REC market. It remains a fact that a major portion of the REC inventory is contributed by the CGPs. Also, developers under third party model are able to leverage the concessional benefits while participating under 
REC framework.” (Emphasis added)


“Around 51% of the projects under the CGP route were commissioned before the first notification (14 January 2010) of the REC Regulation. These projects must have computed their financial viability without the REC benefit.” 

The proposed changes will have far-reaching implications on the REC market structure. As per data provided in the Explanatory Memo approximately 41% of the capacity (under captive generation) will be completely excluded from RECs markets, and a significant portion of OA capacity (19% of total) will be impacted.

Analysis by REConnect Energy suggests that annual RECs generation may fall from 96.25 lakhs in FY 14-15 to 54.30 lakhs per year after the amendment.

Table: Annual RECs Issuance

 Sources: REC registry website; REConnect analysis

Note: Annualized redemption is assumed to be 2X times redemption is FY 14-15. Increase is expected due to SC order and Electricity Act amendment.

Impact on Open Access (OA) projects:

The proposed amendment is contrary to the provision in the draft Electricity Amendment bill (EA Bill) in the Parliament, and of many state policies.

The EA Bill says:

Sec 42(4):

“The open access consumers procuring electricity from renewable energy sources shall not be required to pay the surcharge for open access for such period as may be prescribed by the Central Government”

 Surcharge in the above context means cross-subsidy surcharge (CSS).

 If the EA Bill is to be passed by the Parliament, the impact of the 5th Amendment will be to make all RE projects in OA ineligible for RECs. This will discourage OA in renewable energy – something that goes against one of the principle objectives of the EA and of CERC (to encourage market development in the electricity sector).

Further, many states allow concessional cross-subsidy or exemption from cross-subsidy as a way to promote open access in RE projects. For example, Rajasthan’s solar policy exempts solar projects under open access from CSS. Similar provisions exist in many state policies.

Renewable Energy projects will not be viable under open access without concessional CSS provided by the states. States realize this – and therefore the concession exists in the first place. If RECs benefits were to be denied to such projects, it’s the equivalent of giving from one hand and taking from another. The net result of the amendment will be to completely finish-off the OA market for RE power – this is something that will be contrary to one of the fundamental pillars of the Electricity Act.

Further, in many existing OA transactions, prices are likely to have been negotiated knowing the fact that the RE project will get revenue from RECs. Such projects may suddenly become unviable. In many states with low tariffs, such projects will not remain competitive without RECs and therefore risk becoming NPAs.

Impact on Captive Generating (CGP) projects:

As mentioned above, the impact on CGPs of the amendment will be drastic. All CGP’s will be considered ineligible for RECs benefits. However, in proposing the amendment, CERC has failed to consider the case of two categories of projects–

(1)   CGPs set up specifically to meet RPO requirements, and

(2)   CGPs under the group captive mechanism

Since CERC amended the RECs regulation to allow self-retention of RECs by obligated entities, many companies have set up CGPs in one state and meet their obligation in other states through retention of RECs. This approach has multiple benefits – it has encouraged setting up of new RE capacity, and also helps the obligated entity manage its compliance costs.

The proposed amendment will take away this benefit to obligated entities. This is erroneous on three counts – (a) the CGP is likely to have been setup by the obligated entity to meet RPO across units. Such an investment, made in good faith keeping in mind existing regulations, may become redundant after the regulation, (b) it will discourage setting up of large new RE capacities as obligated entities will not be able to meet RPO in states that have low RE resources, and (c) it will take away a valid means for obligated entities to comply with RPO, leaving them with very limited options – buying of RECs.

Group captive projects, on the other hand, also face difficulties due to the amendment. In many group captive projects, the primary investment is made by an investor, and power prices are determined through negotiations. Further, such projects tend to be long term in nature as they involve an element of equity investment by the consumer. A sudden change in RECs eligibility is likely to make such projects unviable, and result in severe losses to investors who set up projects assuming a stable RECs regime.

Overall, we believe that while CERC’s intent to correct the supply imbalance in the RECs market is needed, the unintended consequence of the 5th amendment on open access and captive projects will be harmful to the growth of the renewable energy industry.

REC Trade Results – June 2015

The June trade session remained below expectations compared to May’15 month performance. However, if we compare the performance with Jun’14, the response was still far better. After the announcement of an important judgment by Supreme Court, the market looks upbeat and we can expect better demand in upcoming trade sessions.

Analysis of Trading:

Non-Solar – Total 161,845 RECs were cleared in this trading session. IEX and PXIL had a clearing ratio of 1.6% and 0.84% respectively. Total RECs redeemed this month was approx. 1 Lakh RECs lower w.r.t May’15.

Solar - RECs redeemed this month remained at 23,648 RECs. The clearing ratio was 1.4% and 0.17% in IEX and PXIL respectively. Solar REC traded this month were approximately 60 (sixty) thousand lower w.r.t to May trading session.

The REC trade results in the FY 2015-16 are summarized below for your reference.

ApTel directs SERCs to comply with RPO regulations

The Appelate Tribunal (ApTel) gave its judgment in a petition filed by various association asking the Aptel to give directions to the State Electricity Regulatory Commissions (SERCs) to comply with RPO regulations.

The order is likely to make the routine carry forward and waiver of RPO that has been observed in the last few years much more difficult.

The ApTel has observed that several SERCs are not complying with the RPO regulations. The order states:

“While we accept that a number of State Commissions have been monitoring the compliance of the RPO Regulations by the obligated entities as per their Regulations, in some States it is not being done regularly. We find that some State Commissions do not have compliance status even for FY 2012-13. Some State Commissions have not responded to the notice and have not filed any response. It is also borne out by submissions made by Ministry of New and Renewable Energy and the Central Commission that many obligated entities have not been fulfilling their RPOs and are also not resorting to purchase of REC which has been provided for in the Regulations as a valid instrument for fulfilling the RPO. Some of the State Commissions have been allowing carry forward of the RPO even though RECs are available, in violation of their own Regulations.”

 In the order, the ApTel gave several directions to the SERCs:

  • Directions have been given regarding the setting up of RPO and regular review of the same
  • Carry forward and review shall be done as per the RPO regulations. The order further states:

“If the Regulations recognise REC mechanism as a valid instrument to fulfill the RPO, the carry forward/review should be allowed strictly as per the provisions of the Regulations keeping in view of availability of REC”


“In case of default in fulfilling of RPO by obligated entity, the penal provision as provided for in the Regulations should be exercised”

  • Power to relax and remove difficult should be used judiciously. The order states:

“The provisions in Regulations like power to relax and power to remove difficulty should be exercised judiciously under the exceptional circumstances, as per law and should not be used routinely to defeat the object and purpose of the Regulations”

The ApTel order can be read here.

ApTel order on waiver of RPO by GERC

In its order pertaining to FY 2012-13, GERC had waived or exempted obligated entities from RPO. In doing so, GERC has ignored the availability of RECs, and also reduced RPO differentially for each obligated entity, to the extent met by them. In earlier years, GERC had rolled-forward the RPO.

The Aptel found several inconsistencies with the approach of GERC. In the order it stated:

  • RPO can be revised, but effort to comply has to be demonstrated. The order states:

“The State Commission can revise the RPO before or during a year or after passing of year under Regulation 4.2 of RE Regulation 2010 as explained under paragraphs 47 to 51 above. If the distribution licensee has not made efforts to procure requisite renewable energy to fulfill the RPO and also has not procured REC, the State Commission should not revise RPO under Regulation 4.2. However, while revising the RPO targets, the State commission has to ensure that such revision should not defeat the object of the Electricity Act and the Regulations.”

  • If RPO are revised due to inadequate capacity addition in the state, such revision has to be uniform for all obligated entities.
  • RPO cannot be carried forward when RECs are available. The order states:

“…before exercising power order Regulation 9, the State Commission has to satisfy itself that there was difficulty in meeting the RPO from purchase of REC. Therefore, non-availability of REC is a pre-conditition for carry forward under Regulation 9.”

The detailed order can be read here

Analysis of Amendments Proposed in the National Tariff Policy

The Ministry of Power has proposed several changes to the National Tariff Policy. Some changes are significant, like the proposal to substantially increase solar RPO (from 3% by 2022 to 8% by 2019), to remove inter-state transmission charges on RE power and curtailing cross-subsidy to 15% of applicable tariff.

Key points in the amendments to the National Tariff Policy:

  • The SERCs and CERC shall necessarily be guided by the National Tariff Policy
  • Promotion of renewable energy has been added as an objective of the policy
  • In the tariff policy, the word ‘Non-conventional’ is sought to be replaced with Renewable energy
  • For RPO, long term trajectory to be provided by Ministry of Power (MoP), in consultation with MNRE and keeping in view the objectives of NAPCC
  • Solar RPO targets to be ramped up more aggressively – the exisiting policy provids for reaching 3% by 2022, the proposals to increase this to 8% by 2022.
  • The policy envisages a REC multiplier to differentiate between technologies, and to accommodate changes in price (through a ‘vintage multiplier’)
  • The tariff policy envisages that procurement of renewable energy, as far as possible, will be done on a competitive bidding basis. Further, “an appropriate bid-based tariff framework for renewable energy, allowing the tariff to be increased progressively in a back-loaded manner over the life cycle of such a generating plant” is planned. The back-loaded manner could imply costs are kept low at present so as to minimize cost burden on the Discom’s, to be increased over the life of the project.
  • For a new coal/ lignite based plant, RE capacity to the extent of 10% of thermal generation capacity will have to build. This will be allowed to be bundled with the conventional power.
  • No inter-state transmission charges for RE power
  • Time differentiated tariff to be implemented for large consumers (>1MW) within one year, and for all consumers within 5 years
  • In calculating the cross-subsidy surcharge (CSS) a change in the methodology is proposed. At present, cross subsidy is calculated by using the cost of marginal power (top 5% power at the margin). Instead the weighted average cost of power including transmission and wheeling losses and charges, and the cost of carrying regulatory assets is proposed to be used.
  • Further, the provision requiring gradual reduction of cross-subsidy to a maximum of 20% of its opening level is proposed to be deleted.
  • A new provision limited the CSS to 15% of the applicable tariff category has been proposed.

Conclusion –

The changes proposed in the Tariff Policy are welcome, and in line with the government’s objective to promote RE power. However, the effectiveness of the same remains a question mark. Several provisions in the existing policy (of January 2006) remain only on paper. A good example of this is the requirement that “Availability Based Tariff (ABT) is to be introduced at State level by April 2006”. In several states this still remains a distant dream 9 years after the deadline.

Similarly, the ability of reaching 8% solar RPO remains doubtful when several states did not even follow the minimum requirement of 0.25% as per the existing policy. Also, the intent and conduct of SERCs in enforcing RPO regulations has been a big question mark.

It is noteworthy that the Electricity Act 2003 says that the Appropriate Commissions ‘shall be guided’ by the Tariff Policy in tariff determination. The proposed amendment to the EA says the provisions of Tariff Policy shall be followed by the Appropriate Commission for the purpose of Tariff determination.”

The link to the main document is here.


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