OPEN-ACCESS

Chhattisgarh State Electricity Regulatory Commission (CSERC) recently brought an amendment to their RPO –REC regulations . The amendment mainly highlights the issue raised by obligated entities where there is an excess purchase of renewable energy/renewable energy certificates. They have requested the commission as there is an uncertainty in consumption pattern of captive users as there has been lower consumption than the anticipated consumption. The commission has agreed to the varying nature of captive consumption. Keeping this in mind, the commission has asked that in case of excess purchase/ shortfall of renewable energy or renewable energy certificates the obligated entities can meet their RPO in the succeeding year. The last proviso of  Regulation 9.1 is proposed as :

 “Provided any excess purchase/ shortfall of renewable energy or the REC procured by obligated entities for meeting the RPO in the obligation period shall be considered for meeting the RPO for the succeeding year.”  

The commission has also proposed that the amended regulations will be called as “Chhattisgarh State Electricity Regulatory Commission (Renewable Purchase Obligation and REC framework Implementation) (First Amendment) Regulations, 2013” and shall be in force for the period of applicability of the principal regulations (CSERC RPO-REC Regulations 2011).

REConnect also participated in providing comments to the commission on the proposed amendment. In our opinion the ‘excess purchase/shortfall’ term will allow the obligated entity to carry forward  its shortfall to the next year. We have requested the commission to allow carry forward the obligation to some extent only else the obligated entities will enjoy a longer compliance period which will which will affect the REC market and the revenue of renewable energy generators in the state. The carry forward should be allowed to obligated entities only if they show genuine interest in purchasing RECs and there is non availability of RECs in the market.

The REC market itself is in a bad situation from the past few months where RE generators could sell only a few fraction of their RECs. This situation was also highlighted by the Honourable CERC in its recent suo-moto petition for extending the validity of RECs. In the petition, CERC noted:

“Needless to say, the main reason for lapsing of RECs is the reluctance and / or apathy on part of distribution licensees to come forward to buy the RECs to meet their RPO” 

We feel that the proposed amendment by CSERC is will affect the RPO compliance status of captive users in the state as it will allow them to easily carry forward their shortfall of RE power/ RECs.

The order can be found here.

Non-solar RECs

Demand decreased to 153,000 RECs (down 21% from Jan 2013) this trading session. The compliance period for this financial year will end in March 2013, leaving only one more trading session to go. Given that, the overall demand remains very disappointing. As we have mentioned earlier, till stronger enforcement kicks-in, demand is likely to remain lackluster.

Over 17,42,000 RECs were bid for sale (no change from last month). The significant oversupply situation continues to persist, despite the increase in demand.

3.5 lakh RECs were not bid for sale in the trading session. This represented 17% of the total available RECs.

Prices remain at the floor price (Rs 1,500/ REC) for the seventh consecutive month. Clearing ratio on IEX was 3.3% and on PXIL was 48.7%.

Solar RECs

The situation is more cheerful in the solar REC market.

Demand reduced to 6,777 from the high of 42,000+ last month. Last month saw a significant rise in demand as the compliance year comes to a close. However, given the small capacity in the solar REC market at present, demand remains significantly higher than supply.

Supply of solar RECs was at 2,700 (down 23% from January; possibly due to lower issuances in February – in January 3,300 RECs were issued while only 1,900 were issued in February).

Price remained constant at IEX at Rs 12,500 while it increased to Rs 13,000 on PXIL.

See these results in our dynamic market tracker (Beta version)

Non-solar RECs

Surprisingly volume decreased ( – 29% compared from last month) at beginning of the fourth quarter of compliance year ( in December volume went up by 108% increase). The total volume cleared was only 1,93,337 leaving an inventory of 17.8 lakh RECs.

Supply on the other side continued to increase. The total sell bids at both the power exchanges was 17.4 lakh RECs (up 20 % from last month).

Prices remained at the floor prices i.e at Rs.1,500/REC . Clearing ratios were approximately 15 % in IEX and 0.7 % on PXIL (last month was 22 % and 17.5% respectively).

Solar RECs

The cleared volume of Solar RECs was 2308 ( 1208 in December). The only consolation that today’s trade session provided was the rise in demand for Solar RECs. Compared to last month, the demand for Solar RECs increased by whopping 182 times.

Market clearing price at IEX and PXIL were discovered at Rs 12,500/REC.

Central Electricity Regulatory Commission(CERC) recently announced the new benchmark prices for the Solar Projects (PV & Thermal) for the year 2013-14. For Solar PV projects it will be Rs.8 crore/MW (-20% from 2012-13) and for Solar Thermal projects it will be Rs.12 crore/MW (-8% from 2012-13).

The new benchmark prices will have impact on the REC prices as the Solar REC price has already been discovered till 2017. Currently the Floor & Forbearance Prices per certificate are INR 9300 & 13400 respectively. With the new benchmark price the above prices will be slashed by 15 to 20 percent which will reduce the bankers as well as developer’s confidence in the REC mechanism and thus will hamper the growth of the market.

In order to protect the investors/ developers confidence, CERC has to come up with the vintage/ multipliers concept where the existing developers or developers setting up their project at certain point of time will be saved by the higher weightage given to them than the other projects coming at later point of time.

Non-solar RECs

The prices remained at floor price this month (Rs.1500/REC at IEX and PXIL; this is the same in September) as supply has remained far in excess of demand. The total RECs available this month was 15 lakh out of which only 2.22 lakh RECs were redeemed  leaving an inventory of 12.8 lakh RECs .

10 lakh RECs were bid for sale ( up by 42 % from last month) while demand was for only 2.22 lakh RECs (down 16 %).

Demand has remained low in the last couple of months. The major reason slow progress on enforcement by SERCs. Clearing ratios were approximately 30% on IEX and 70% on PXIL.

Solar RECs

Demand went up by 82%  from last month whereas the supply also went up by 15%. The market clearing price on IEX was Rs 12,680 and on PXIL was Rs 12,500 (last month it was Rs 12,900 on PXIL and Rs.12,500  on IEX). In total, 1,791 Solar RECs were sold (last month it was 1,160)

Coverage of October trading session in the Hindu can be accessed here, at Bloomberg here and in Business Standard here.

After Andhra Pradesh, Tamil Nadu also announced its Solar Policy last week . The policy aims to achieve an ambitious target of 3000 MW by 2015 in phased manner with capacity addition of

• 1500 MW from utility scale projects
•  350 MW from roof top installations
• 1150 MW under REC mechanism.

The utility scale projects are also expected to be developed through competitive bidding process.

1000 MW out of 1500 MW utility scale capacity to be funded by Solar Purchase Obligation (SPO) which is 3% till Dec’13 and scaled up to 6% from Jan’14 and balance 500 MW through Generation based incentive (GBI) by the government. SPO is applicable on all HT Consumers (HT Tariff I to V) & LT Commercial (LT Tariff V). Domestic consumers, huts, cottage & tiny industries, power looms, LT industrial consumers and Agricultural Consumers are exempted from SPO.

On the other hand TNERC also has specified 0.05% of Solar RPO. With state policy in effect, there will be dual RPO imposed on HT and LT Commercial consumers. The state commission might have to realign the Solar RPO to align the RPO structure to meet the policy objective.

The key difference from other states’s solar policy is the Net-Metering arrangements where power producers have to install a separate meter to measure their generation and feed excess power to grid for roof top projects. The current REC policy recognises only grid connected RE projects under REC. With Net Metering, even small scale roof-top solar projects can participate into REC. The GBI being offered is Rs. 2/kWh for first two years, Rs. 1/kWh for the next two years and Rs. 0.5/kWh for the subsequent two years. All new government/local buildings shall necessarily install solar rooftop.

Other initiatives and exemptions:

• Solar water heating systems mandatory for Public Buildings and Industries using hot water boiler/steam boiler using fossil fuels.
• Wheeling & Banking Charges applicable as per TNERC orders.
• Exemption of Electricity Duty for 5 years for using solar power from projects of self consumption/sale to utility.
• Tax Concessions as per TN Industrial policy.
• TEDA designated as single window clearance agency who would be coordinating power evacuation approval, approvals related with connectivity to substation, approvals from pollution control board etc.
• Empowered committee to accord project clearances.

 Contributed by Nalin Deshpande

Most discoms of different states have failed to meet their renewable purchase obligation for 2011-12. The reason being poor policy enforcement, lack of awareness and various questions raised by obligated entities on the applicability of RPO. This has affected the Renewable Energy Certificate (REC) market.  According to The Economic Times , where Rajesh Mediratta, business development director at India Energy Exchange said ,” There is a contrasting trend in solar and non-solar RECs. There is huge demand for solar power but the projects have not come up, as developers are not getting bank loans on ground of RECs. On the other hand, in non-solar the demand is yet to pick up, hence hindering the returns of already established project.”

The only way out for REC market to survive is by penalising  the obligated entities. Tarun Kapoor, Joint Secretary in the Ministry of New and Renewable Energy said,“RPO is not taken seriously and we want the state electricity regulators to penalise the discoms that have fallen short of target.” The distribution companies on the other hand say that they are low on funds and cannot purchase green power or RECs to meet their obligation.

On the above issue CERC secretary Rajeev Bansal said ,” RPO as a concept hasn’t stabilised. Most states haven’t declared their RPO trajectory for the coming years. Each state will look at it differently and that will impact the tariff regime in the long run.” A clear view of RPO percentages in the coming years is very necessary for the discoms  across states to plan accordingly for fulfilling their obligation.

All the above factors if cleared will boost the REC mechanism which will help in promoting generation of power from renewable energy sources in India.

Recently MPERC held in an order that there will not be any relaxation and revision in fulfillment of Renewable Purchase Obligation (RPO) targets from solar energy sources for FY 2011-12 and 2012-13. The order is in response to the petition filed by MP Power Management Co. Ltd. and supported by other discoms.

The petition was filed on grounds of non availability of solar power in the state and non existence of RECs in the market. Commission noted that there is substantial delay in issue of tenders after notification of the Regulations and it cannot be conceded that the efforts made by the petitioner to procure solar power were its best efforts. Also there are no efforts of purchasing solar power from other states.

This order will support of development of solar power in the state and will create a healthy environment for all the investors who are looking to invest in solar power generation.

Contributed by Mohit Tyagi

We have highlighted the problem with enforcement regularly. A recent article in Businessworld brings the issue center-stage.

Jayant Deo, former MD and CEO of the Indian Energy Exchange (IEX) is quoted as saying:

” [obligated] entities are getting away with non-compliance because of poor enforcement of regulations and the lack of any penalties. With state discoms being allowed to renege on obligations, many expect private players to follow suit”

The recent demand-supply gap in the September 2012 trading session and the inventory that is building up is starting to worry project developers and potential investors in the renewable space. Vibhav Nuwal of REConnect Energy is also quoted in the article:

“70–80 per cent of the demand comes from the private discoms. The remaining come from captive and open-access consumers,” says Vibhav Nuwal, director at REConnect Energy, the largest trader in this market. Although, Nuwal says, the solar REC market, which began trading in May 2012, is too small and volatile to draw inferences from; he acknowledges the widening demand-supply gap in the non-solar segment.

The most awaited RPO regulations was finally announced by Delhi Electricity Regulatory Commission (DERC) for the capital region.

Like RPO regulations of other states, DERC also came out with a similar one. The RPO regulation is applicable to:

• Distribution Licensee(s) operating in the National Capital Territory of Delhi
• Any Captive user, using other than renewable energy sources exceeding 1 MW
• Any Open Access Consumer with a contract Demand exceeding 1 MW from sources other than renewable sources of energy.

The obligation till FY 2016-17 is shown in the table below:

Obligated entities have to submit necessary details regarding total consumption of electricity and purchase of energy from renewable sources before 30th April to the State Agency every year .

Open access consumer receiving electricity from renewable energy sources shall be exempted from the cross-subsidy surcharge determined by the Commission from time to time to the extent of RPO. However, no banking facility shall be provided for supply of electricity from renewable energy sources through open access.

The REC market will strengthen if the enforcement in Delhi has a good start as the consumption here is very high.

 Contributed by Rahul Tyagi