REC TRADE RESULT AUGUST 2017

Supreme Court allowed conditional trading of Non-solar RECs in an order dated July 14, 2017 . Demand was expected to be low for two reasons – 1) obligated entities are required to pay at old RECs rate (Rs 1500/ REC); and 2) compliance is required to be done by March to obligated entities have enough time to comply even after the final order of Aptel is received.

This is the second month when trading has taken place after CERC allowed conditional trading of Non-Solar RECs but the demand was not as robust as last time .

Non-solar demand was marginally higher than in August 2016 , and significantly lower than last month. In total 2.89 lakh RECs were traded (11.83 % higher than August 2016), and clearing ratios on IEX and PXIL were 1.05% and 4.96% respectively.


Solar RECs were not traded as the stay imposed by the Supreme Court remains in force in the case of Solar RECs.

CERC REJECTS IEX’S PROPOSAL FOR GDAM

The Indian Energy Exchange (IEX), so as to provide the obligated entities more number of ways to fulfill their RPO compliance, had proposed to the CERC to allow the existing renewable energy generators to trade RE on IEX.

 

For the same, it had proposed that the following contracts including Green Day Ahead Market (G-DAM) which includes Solar and non-solar day ahead market be introduced. If the bid made in the G-DAM is not cleared or cleared partially, they can bid in DAM. Also, in lieu of the bid cleared in DAM, the seller will get equal number of RECs.

This order was rejected by the CERC and the following reasons were given for the same:

  • As per CERC, the status regarding the availability of surplus power is not clear. Also, based on the experiences in the past, it can be established that such trade will not lead to addition of new RE capacity.

  • The IEX has supposed that there are no discrepancies in the forecasting and scheduling for RE generators which is not the case. Therefore, their suggestions of remove the need for revision flexibility during the day is not valid.

  • Based on the suggestions of IEX which mentioned that in case if the bid made in the G-DAM is not cleared or cleared partially, they can bid in DAM, it can be assumed that the situation will lead to registration of RE sellers for FIT route as well as REC mechanism. This will demand that a system be established where there is proper accreditation, registration, accounting of RE generation and settlement mechanism.

  • The G-DAM market may dissuade the buyers from entering into long term contracts which provide comfort to RE investors.

  • The guidelines related to the timelines for scheduling of power traded will have to be amended as per IEX which the commission felt will be an unnecessary step right now.

  • IEXs recommendations assume that the the green power traded in G-DAM will follow the same scheduling procedure as that followed by conventional power. Therefore, the commission feels that there is no need to introduce a separate segment for trading.

The order can be accessed here.

REC TRADE RESULT JULY 2017

Supreme Court allowed conditional trading of Non-solar RECs on July 14, 2017 (our blog on the same can be accessed here). Demand was expected to be low for two reasons – 1) obligated entities are required to pay at old RECs rate (Rs 1500/ REC); and 2) compliance is required to be done by March to obligated entities have enough time to comply even after the final order of Aptel is received.

However, demand for Non-solar RECs was robust. In total 4.95 lakh RECs were bought (110.76 % higher than July 2016), and clearing ratios on IEX and PXIL were 4.31% and 3.52% respectively. Higher demand was primarily driven by demand for some utilities where state regulators had given RPO enforcement orders in recent months.

Solar RECs were not traded as the stay imposed by the Supreme Court remains in force in the case of Solar RECs.

SUPREME COURT ALLOWS CONDITIONAL TRADING FOR NON SOLAR RECs

The matter of CERC’s order on new RECs pricing and the stay granted by the SC on trading, another  hearing was held in Supreme Court on 14th July 2017.

 

Main highlights of the Order:

 

  • An Intervention appeal was filed  requesting  obligated entities to purchase RECs at previous prices i.e. Rs 1500/ REC (MWH) with the additional amount deposited with the CERC

 

  • The Supreme Court allowed this, and directed that the differential price (Rs 500/REC) i.e. between the earlier floor price (Rs 1500/REC) and the present Floor Price(Rs 1000/REC) to be held by CERC during the pendency of the matter with Appellate Tribunal

 

  • Therefore, stay on the REC Trading (only for Non Solar RECs) have been withdrawn by Supreme Court and trade is likely to start. However, we believe that it will be some time before trading can start as CERC will have to develop modalities to accept such a deposit.

 

  • The stay on Solar RECs trading remains in place, and the hearing on that matter will be held  in due course

 

Today (17/July/17) the Appellate Tribunal was due to hear the above matter, but it has been postponed to a later date.

 

Implications of the SC order:

 

  • Trading will resume in the case of Non-solar RECs, but will remain suspended in the case of Solar RECs. However, we believe that it will be some time before trading can start as CERC will have to develop modalities to accept such a deposit.

 

  • Despite the start of trading, it is very unlikely that any meaningful demand for Non-solar RECs will materialise. Given the lack of any pressure to comply with RPOs, it is unlikely that any obligated entity will spend a higher amount while the matter is still sub-judice in the ApTel.

The SCs order can be accessed here

Our previous analysis of the order on stay of REC trading can be accessed here

 

An article, covering the order was published Business Standard. REConnect was quoted in the article suggesting that ““Trading will resume in the case of Non-solar RECs, but will remain suspended in the case of Solar RECs. However, we believe that it will be some time before trading can start as CERC will have to develop modalities to accept such a deposit”.

SUPREME COURT ORDERS STAY ON REC TRADING

After the Central Electricity Regulatory Commission’s (CERC) order dated 30th March 2017 on reduction of prices for RECs, many REC-generating companies had filed petitions stating that they had incurred a loss as vintage multiplier was not provided. They had first gone to Appellate Tribunal of Electricity (APTEL) to suggest a way to clear the existing REC stock. While the APTEL agreed to introduce a vintage multiplier, it refused to put a stay on the trading.  When the petition was taken to the supreme court, it not only put a stay on the trading, it has also stayed the new price regime which was introduced by the CERC.

 

The Business Standard article covering the same can be accessed here.

Our blog covering the reduction in the REC prices and our analysis of the same 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.

CERC DECLARES NEW REC FLOOR AND FORBEARANCE PRICE

CERC came up with draft regulations in which they have reduced the prices of their Renewable Energy Certificates to a historic low. The new floor and forbearance prices from the same have been covered in our previous blog which also contains a link of the draft regulation.

REConnect Energy’s co-founder and director, Vibhav Nuwal made the following observations about the scenario in Business Standard “This change rewards non-compliant companies, which can now comply at a much lower cost. It will exert further pressure on distressed projects”.

 

CERC DECLARES NEW REC FLOOR AND FORBEARANCE PRICE

Honorable Central Electricity Regulatory Commission has determined floor and forbearance prices for REC (solar and non-solar)  which will be valid from April 1, 2017 onwards. The prices have reduced significantly and the solar prices are set to reduce from Rs 3,500 to Rs 1,000 and the non-solar REC prices are set to reduce from Rs 1,500 to Rs 1,000.

 

No Vintage Multiplier has been proposed for any technology and existing vintage multiplier for Solar generating technologies registered in REC mechanism prior to 1st January 2015 and shall expire after 31st March 2017.

 

The proposed floor and forbearance prices are given below:

 

The following is the REC price trend:

 

The impact of this price reduction on different aspects is as follows:

Impact on existing REC projects:

  • Reduction in floor price will aggravate the financial duress of RECs based projects: Already the newly established REC projects are under distress. Reduction in the floor price will only aggravate the situation as the number of unsold RECs will increase.

  • No Vintage Multiplier: The draft does not clearly state the position on multiplier to be provided on existing inventory of RECs.

Impact on obligated entities:

  • Perverse gain for defaulting Obligated Entity: Obligated entities which are non-compliant will benefit from reduction in prices since they will have an option to purchase RECs and fulfill their RPO compliance at a lower rate. This has never been addressed by the CERC or the state ERC’s,

 

  • Potential higher demand going forward: Most captive and open access based customers will find it easier to buy RECs than to buy green power. Therefore, the low prices may lead to an increase in the REC demand.

 

Impact on the market:

  • Low Demand in March 2017: Since the new prices will be applicable from 1st April, 2017, March will see minimum demand as the Obligated entities will have an option to comply with RPO compliance in the next FY.

 

  • Higher Inventory and therefore lower clearing ratios: If the appropriate multiplier is provided to the existing inventory, the inventory of unsold RECs will jump to 3.6 crore RECS as compared to 1.7 crore RECs as present. Even lower clearing ratios will be experienced at exchanges if the demand does not increase in proportion.

Other issues:

  • Calculation of floor price

  • Validity of RECs

 

The previous analysis of CERCs floor and forbearance for financial year 2012 to 2017 can be found here.

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.

 

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