RE companies move to the high court requesting exemption from GST on RECs

Renewable Power companies have moved to the Delhi High Court requesting an exemption from Goods & Service Tax on the REC certificates. Currently, there is a GST rate of 12% applied to Renewable Energy Certificates. The Delhi Court had issued notices on Tuesday to the center, the GST council & the Central Board of Indirect Taxes and Customs in this regard.

According to the Counsel of the petitioner companies securities are defined neither as goods nor services under GST laws & hence are not taxable under the indirect tax regime.

As per the Securities Contracts Act regulations, under Clause 2 (h) Securities include “shares, scrips, stocks, bonds, debentures, debenture stock or other marketable securities of a like nature in or of any incorporated company or another body corporate;”

RECs fall under the definition of securities. “These scrips are traded on IEX (Indian Energy Exchange) and PXIL (Power Exchange India Limited) and are electricity derivatives,” the Counsel head believes.

Currently, since the GST is levied on the RECs, RE companies are unable to trade Renewable Energy Certificates if they have incomplete GST registration (KYC) in turn unable to reach their REC obligation. Further, apart from being a financial burden, GST is an operational burden. Also, since there are multiple parties involved in the trade process (Exchanges, sell&buyer, and trading members) it becomes an overwhelming task to understand the GST impact on each of them. This makes REC trading a tedious process.

Cabinet approves inclusion of Large Hydro Power as Renewable Energy

In a recent development, the union cabinet chaired by the Prime Minister approved to promote hydropower sector which includes large hydropower projects (HPO) as a part of the non-solar Renewable Purchase Obligation (RPO).  India is endowed with large hydropower potential of 1,45,320 MW of which only about 45,400 MW has been utilized so far. Only about 10,000 MW of hydropower has been added in the last 10 years. The hydropower sector is currently going through a challenging phase and the share of hydropower in the total capacity has declined from 50.36% in the 1960s to around 13% in 2018-19.

The details of the development are as below:

  • Large Hydropower Projects shall be declared as  Renewable Energy source (as per existing practice, only hydropower projects less than 25MW are categorized as Renewable Energy; this practice is also followed globally).
  • HPO will be a separate entity within non-solar Renewable Purchase Obligation in order to cover LHPs commissioned after notification of these measures (SHPs are already covered under Non-Solar Renewable Purchase Obligation). The trajectory of annual HPO targets will be notified by Ministry of Power based on the projected capacity addition plans in the hydropower sector. Necessary amendments will be introduced in the Tariff Policy and Tariff Regulations to operationalize HPO.

Analysis:

The immediate impact of the change is likely to be minimal for two reasons: (a) this change will be difficult and complex to implement (see below), and (b) large hydro capacity which sells power in open access or under APPC is likely to be very small, and new projects have a long gestation period.

Over the longer term, this can potentially have a significant impact on the RPO and REC mechanism, depending on the details of the implementation. Some of the impacted areas will be:

  • Non-solar RPO – It remains to be seen if additional HPO% will be incorporated in overall Non-solar RPO. Unless additional HPO is incorporated, existing projects under Non-solar REC mechanism and new capacities of wind projects will suffer as the demand for such power/ REC may reduce drastically.

Also, large hydro projects are very unevenly distributed across the country. If each state will be required to incorporate HPO in its overall RPO target, this may meet with stiff resistance from states that have very limited or no large hydro potential.

  • Non-solar REC – If large hydro projects are also awarded Non-solar RECs, this will likely bring a lot of new RECs in the market, potentially depressing the prices.

It is possible that on the lines of Solar RECs, Hydro-RECs are also created. However, this will bring its own challenge as many states are likely to resist HPO targets.

  • Implementation timelines – Having a new HPO target in state regulations will require amendments to several state regulations. At the same time, the REC mechanism will also have to be amended if Hydro-RECs are introduced. Overall, this change will take time to implement.

On the whole, this change will prove complex to implement and may meet with resistance from many states. One option available would be to just incorporate large hydro in the existing Non-solar RPO. However, this will have put a strong negative pressure of REC prices and future non-solar (primarily wind) capacity addition.

REC Trade Result – February 2019

February’s trade session saw an increase in the price trend similar to the previous sessions.  The demand for both solar & non-solar remained consistent and the supply also increased. The highlight of this month’s trade was that solar crossed the price of INR 1,750 in the last session and reached at INR 1908 at PXIL (however, PXIL accounted for only 6.1% of the total cleared solar RECs volume).

Non-Solar: This session the RECs were traded at the price of INR 1555 at PXIL (55.5% above the floor price) and INR 1395 at IEX (39.5% above the floor price). A total of 8,32,085 RECs were traded in this session leaving an inventory of 24,50,796 Non-Solar RECs.

Solar: Total number of solar RECs traded in this session was 4,08,764. RECs traded at Rs 1908 at PXIL (90.8% above the floor price) and at Rs 1500 at IEX (50% above the floor price).

The overall trade volume (12,40,849 RECs) increased by almost 54.08 % from the last months’ trade volume (8,05,318 RECs).

RERC announces draft REC regulations (third amendment) 2019

RERC announces draft REC regulations (third amendment) 2019

Rajasthan Electricity Regulatory Commission recently announced the draft Renewable Energy Certificate (REC) & Renewable Purchase Obligation (RPO) regulations 2019 (third amendment). The amendments are stated as below:

Original regulation Amendments
10. Pricing and purchase under REC mechanism

(2) The effective electricity component price during the operating period would be as under (a) For distribution licensee(s), shall be equal to the Pooled Cost of Power Purchase. For determination of Pooled Cost of Power Purchase for a particular year, Discoms shall submit a petition for computation of Pooled Cost of Power Purchase to the Commission latest by 30th June of the following year. The Commission shall issue an order relating to the Pooled Cost of Power Purchase within one month of acceptance of the petition. Till the issue of order regarding the Pooled Cost of Power Purchase, the Pooled Cost of Power Purchase of the previous year shall continue to be valid as Provisional Pooled Cost of Power Purchase. After the issue of an order for the Pooled Cost of Power Purchase by the Commission, the difference with the Provisional Pooled Cost of Power Purchase shall be adjusted equally in the bills of the next four months or as decided by the Commission in the order determining the Pooled Cost of Power Purchase for that year. (b) For sale to Open Access Consumers or a Captive User, it shall be at a mutually agreed price

“(2) The effective electricity component price applicable w.e.f. 1.04.2019 to the projects commissioned up to 31.03.2019 shall be as under The electricity component price of energy supplied by a RE project to distribution Licensee(s) shall be Rs 2.67/unit. This rate shall remain applicable for its remaining useful life, for which PPA shall be extended accordingly. Provided that such projects may also use such electricity for self-consumption or sell electricity at a mutually agreed price to other entities.”
10.  Pricing and purchase under REC mechanism

(4) Purchase of electricity component from the Renewable Energy having been issued REC would not be counted in fulfillment of RPO and would not be mandatory. Provided that with the tor, the pricing methodologies for electricity component and REC shall be reviewed at periodic intervals as may be considered appropriate by the Commission

(4) “Purchase of electricity component from the Renewable Energy having been issued REC would not be counted in fulfillment of RPO.”
12. Pricing options for new renewable energy projects to be commissioned during the Operating Period

(1) All the new renewable energy projects commissioned during the Multiyear Control Period, after coming into force of these Regulations and which do not have PPA prior to coming into effect of these Regulations for purchase of Renewable Energy shall have the option of either following the tariff structure and other conditions as stipulated in the RERC (Terms and Conditions for Determination of Tariff) Regulations, 2009 as amended from time to time, subject to agreement of licensee or adopt pricing of the REC mechanism.

“ In case RE generator under REC mechanism wishes to opt out for REC mechanism and if the Discoms agree to purchase the renewable energy they may extend the PPA at the tariff not exceeding Rs 3.17/unit for remaining useful life of the plant and in such case the electricity purchased would be counted towards fulfillment of RPO and RE Generator would not be entitled to REC Certificate. Provided that above provision of the regulation shall not be applicable to an entity whose accreditation/registration has been a progressive development of the electricity revoked by the State / Central Agency.”

REC trade result – January 2019

The price increase trends of the last few months continued in January as well.  The demand for both solar & non-solar remained consistent while the supply remained limited. The highlight of this month’s trade was that solar crossed the price of INR 1,500 in the last session and reached at INR 1750 at IEX.

Non-Solar: This session the RECs were traded at the price of INR 1501at PXIL (50.1% above the floor price) and INR 1500 at IEX (50% above the floor price). A total of 4,91,890 RECs were traded in this session leaving an inventory of 19,39,720 Non-Solar RECs.

Solar: Total number of solar RECs traded in this session was 1,18,526 (33.12% decrease from the last months’ trade). RECs traded at Rs 1500 at PXIL (50% above the floor price) and at Rs 1750 at IEX (75% above the floor price).

REC trade result – December 2018

The december trading session saw a good price discovery for both solar & non-solar RECs. The market saw a significant price hike in solar as compared to last month. The demand for both solar & non-solar remained consistent while the supply remained limited. As we approach the year-end, the obligated entities are in the process to comply with their obligations and hence the higher demand in order to not face any penalties for non-compliance. However, the highlight of this month’s trade was that solar crossed the floor price of INR 1,000 and reached at INR 1500 at PXIL and INR 1450 at IEX.

Non-Solar: This session the RECs were traded at the price of INR 1255 at PXIL (25.5% above the floor price) and INR 1320 at IEX (32% above the floor price). A total of 3,82,400 RECs were traded in this session leaving an inventory of 21,52,097 Non-Solar RECs. (However, a significant portion of these do not participate in trading as they would either be owned by Discom’s or are for self-retention).

Solar: Total number of solar RECs traded in this session was 1,77,247 (201% increase from the last months’ trade). The clearing ratio was 100% at PXIL & 100% at IEX respectively (w.r.t floor price). RECs traded at the floor price, i.e. INR 1500 at PXIL (50% above the floor price) and at Rs 1450 at IEX (45% above the floor price).

The overall trade volume (5,59,647 RECs) increased by almost 10.65% from the last months’ trade volume (5,05,738 RECs).

REC trade results July 2018

Non-solar: Non-solar RECs prices continue to rise on the back of robust demand and limited availability. The RECs were traded at the price of INR 1050 at PXIL ( 5% above the floor price) and INR 1200 at IEX (20% above the floor price). The non-solar REC inventory was completely exhausted in July 2018 with a clearing ratio of 100% at PXIL & IEX both respectively. A total of 235,437 RECs were traded in this session.

Solar: Solar RECs registered the highest ever traded volume. Total 13,82,632 RECs were traded in the current trade session. The clearing ratio was 40.23% at PXIL & 36% at IEX respectively. RECs traded at the floor price, i.e. INR 1000 at PXIL and IEX both respectively. As compared to the available supply of Solar RECs on March 31, 2018, 77% of the RECs have already been sold.

 

Ministry of Power announces renewed RPO trajectory for long-term

Ministry of Power (MoP) recently announced an order for long-term growth trajectory of Renewable Purchase Obligation (RPO) for solar and Non-solar for a period of three years i.e. 2019-20 to 2021-2022. In order to achieve the target of 175 GW of RE by March 2022, the MoP in consultation with MNRE notified the long-term trajectory for RPO as below:

The obligations described are on total consumption of electricity by an obligated entity excluding consumption from the hydro source of power. It is necessary that the achievements of solar RPO compliance are up to 85% and above. If so, the remaining shortfall if any can be met by excess non-solar purchased beyond Non-solar RPO for that particular year. The same goes in case of Non-solar compliance which will be met by solar, beyond the solar RPO for that year.

RPO mechanism has been in the frame for a long time but have its own share of ups and down. Since last year, the process is getting back on trade and REC trading is also working consistently. MNRE recently announced about building an RPO compliance cell providing aid to SERCs for better implementation.

An article by Quartz India has also talked about how the Indian government is now pursuing major energy consumers to take the renewable energy route and has quoted entrepreneurs in the industry expressing their views on the current developments.

The trend till now has seen states not following their RPO obligations religiously. It is known by all the states that RPO is very important and abiding by it is mandatory. The order also falls under the National Tariff Policy 2016, which in itself is a recommendatory document in nature.

The updated RPO targets also come into the picture after the country’s  Power Minister R.K.Singh announced in an interview about the increased capacity target to 227 GW from 175 GW earlier.

REC Trade Results – May 2018

In both Solar and Non-solar RECs, demand was robust, considering that this was only the second trading session of the new financial year.

Analysis of Trading:

Non-Solar – Non-solar RECs inventory was not completely exhausted in the May 2018 trading session (15,51,691 RECs were retained of 43,44,976).  A total of 401214 RECs were traded, despite demand being at 629069 (as compared to 538,371 RECs traded April 2017; an increase of 16.84%). RECs traded at the floor price of Rs 1,000/ REC at PXIL but increased to Rs 1,010/ REC at IEX.

Solar – A total of 914412  RECs were traded this month (Increase of 4.4% over April 2017). Clearing ratio for both non-solar and solar stood well.

The below graph depicts the Clearing ratio trend of Non-solar and Solar. In case of Non-solar, the clearance was 86.25% at IEX and 94.23% at PXIL and for solar, the clearance was at 14.20% and 23.38% in IEX and PXIL respectively

 

BESCOM proposes incentive scheme to bring back HT consumers in the new tariff order 2018-’19

BESCOM announced its new tariff order for FY 2018-2019. New points introduced in the order include providing incentives to the HT consumers, for them to return back to state DISCOMs and not purchase power via Open Access.

Since HT consumers have been purchasing power via Open Access, the DISCOMs are deprived of the sales to the paying consumers, in turn impacting the finances of the distribution licensees.

Base consumption:

The monthly average consumption out of energy supplied by BESCOM during the non-peak hours’ period between 10.00 Hours and 18.00 Hours of the day, during the period from 01-04-2017 to 31-03-2018 as recorded in Time of Day (ToD) meter will be reckoned as base consumption.

Incentive scheme:

  • Any excess energy consumed by the eligible consumers during the non- peak period between 10.00 Hours and 18.00 Hours, over and above the average base consumption as stated, will be allowed a discount of Rs.1.00/- per unit in the bill, to the eligible consumers.

  • Further, the eligible consumers will be allowed an incentive of Rs.2.00 per unit in the bill for the energy consumed during the period between 22.00 Hours and 06.00 Hours as against the normal ToD rebate of Re.1.00 per unit.

Consumer

Slabs

Exiting rates (Ps/Unit)

Proposed Incentive rates (Ps/Unit)

HT2a(i)

0-1 lakh units

665

665

above 1 lakh units

695

HT2a(ii)

0-1 lakh units

660

660

above 1 lakh units

680

HT2b(i)

0-2 lakh units

845

845

above 2 lakh units

855

HT2b(ii)

0-2 lakh units

825

825

above 2 lakh units

835

HT2c(ii)

0-1 lakh units

740

740

above 1 lakh units

780

There are also some amendments in the wheeling charges applicable to the renewable generators.

  • The RE generators will be liable to pay 25% of the normal transmission charges and/or wheeling charges.

  • They will be liable to bear the applicable lines losses as decided by the commission.

  • Also be liable to other applicable charges including 2% of banking charges.

RE projects

Time period

Transmission/wheeling charges

Banking

Line losses

Wind projects

10.10.2013 to 0.09.2017

25% normal transmission/wheeling charges

exempted

Solar projects

On or earlier than 31.03.2017

exempted

The RE projects commissioned on or after 1.04.2018 shall be liable to 25% of the normal transmission and/or wheeling charges, in cash, and the applicable line losses and banking charge, in kind, as determined by the Commission in its Tariff Orders, from time-to-time, in addition to the other applicable charges.

The Captive Generators, availing of the benefit of the Renewable Energy Certificate (REC) mechanism, shall be liable to pay the normal Transmission, Wheeling, and other charges, as specified in the Commission’s Order dated 09.10.2013.

The order is in effect since 1.04.2018 until 31.02.2020 unless any other order comes into effect.

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