Gujarat bans sourcing power from other states

Gujarat government has recently banned its state distribution companies from buying power from other states. These discoms will now have to procure power from state power generators.

Power procurement from state power generators means industries will now have to shell out more money from their pockets. The increase of Rs. 2.75 per unit is expected, taking the net power cost per unit touching Rs. 7.

As per an article in Economic Times, industries in Gujarat route around 1000 MW from other states via power exchanges while 2500 MW of state power generation companies are sitting idle.

GETCO; state transmission company has written letters to 125 industries, quoting the following:

“Due to rise in the system load demand, leading to grid constraint in the upstream network, it shall not be feasible to permit short-term open access to consumers as per enclosed list with effect from March 20,”

The decision has also taken into consideration the intent to reduce solar power tariff in the state. The state is said to have tied up for 950 MW at a higher solar tariff as against the requirement of 350 MW under solar obligation.

Aggrieved by the move, which is seriously questioning the viability, the industries association of the state are going to give a presentation to the govt. in the coming days.

An article in Economic Times can be accessed here.

Changes to Electricity Act Proposed

The Ministry of Power (MOP) recently made public a document that proposes various changes to the Electricity Act, 2003 (EA). The below article provides a quick summary of the proposed changes:

  • The current role of the Distribution Licensee has been broken up into system business (Distribution) and supply (supply licensee).
    • In the new system, the Distribution Licensee will be responsible for “operate and maintain a distribution system to enable supply of electricity”
    • The role of supplying electricity will be that of a the “supply licensee”
    • This segregation of system operation and supply is a major step, and down the road will allow multiple licensees to operate in a single area.
    • The state government will devise a scheme to effect such a segregation

  • The supply licensee will have to take “Universal Service Obligation”. The proposed draft requires the licensee to be “supplier of last resort” and also that they will not resort to load shedding or power cuts.

  • Efforts for development of forward markets have been emphasized

  • The State Commission has been made responsible to specify a road-map for time bound reduction of cross-subsidies

  • Proceedings before a Commission will be disposed of within 120 days. In the event of delay, the Commission will record the reason for such a delay

  • Penalty under section 142 has been increased from Rs 1 lakh to Rs 50 lakh. Additional penalty for each continuing day of default increased from Rs 6,000/ day to Rs 50,000/ day

  • Definition of Renewable Energy has been introduced.

“”renewable energy sources” means renewable sources such as small hydro, wind, solar including its integration with combined cycle, biomass, bio fuel co-generation, urban or municipal waste and other such sources as approved by the Central Government in consultation with MNRE from time to time prescribed.”

The proposed amendment leaves out some very important changes from the renewable energy perspective.

  • The state RPO regulations have a weak penalty clause – penalty at the forbearance price of RECs needs to be set aside by the company and used for specified purposes and on the directions of the commission. However, incorporating this in Section 142 would have made it much stronger
  • There has been ongoing confusion (and various petitions) on the issue of jointly promoting cogeneration and renewable energy. The issue stems from the reading and interpretation of the EA. However, the current draft does not attempt to clarify this issue.
  • CERC, in Statutory Advise given to the Ministry of Power (dated 28 Dec 2011) had said that “we build in the Act itself the requirement for a long-term RPO trajectory and deterrent against non-compliance of RPO”. It further mentioned that a penalty for non-compliance of RPO can be in addition to that already under section 142.
  • The Statutory Advise also incorporated points on specific market instruments like REC,  on definition of co-generation and specific provision on RPO applicability on open access consumers and captive power producers
  • However, the draft does include a clause that makes the National Electricity Policy and Tariff Policy “binding on all including Appropriate Commissions, Appropriate Government, authorities, licensees, generating companies (and) consumers.”

At present RPO trajectory is defined in the National Action Plan for Climate Change. Solar RPO trajectory was also included in the National Tariff Policy by way of an amendment. If these policies indeed become ‘binding’ then it will pave the way for easier changes and implementation of RPO and development of REC markets. Nevertheless, in our opinion, a direct reference in the EA would have been stronger. And the need for the

Rs.1.5 lakh crore loan recast for Discoms

In a recent article covered by The Times of India , it mentioned that the centre has agreed to provide loan to power distribution companies as their status at present is very low financially . In this restructuring exercise the centre has planned that state governments and the utilities take over the entire burden of Rs 1.5 lakh crore, instead of banks taking over half the liability.

The decision to restructure the power sector liabilities was taken at a meeting at the Prime Minister’s Office.The state governments will issue bonds of about Rs 1.5 lakh crore along with the discoms.

The package was approved after the finance ministry agreed to a staggered restructuring under which state governments, which will bear 50% of the burden, will issue bonds to banks in line with the dues. These bonds will fetch banks interest of 9-10% and will have a maximum 10-year term, said sources. In the process, short-term loans extended to the discoms will become longer tenure loans.

The restructuring was necessary as the discoms were under financial crunch and they are finding it difficult to pay their dues to the lenders. The state governments are not allowing to increase the electricity prices whereas the cost on the other side has gone up resulting in stagnant revenues and losses.

Power trading prices shoot up 20-25%

In this scorching heat as the power demand across the country keeps on increasing the power trading prices have also gone up . In an article of the Business Standard the cause of rising trading prices was highlighted. Short-term power prices have seen an increase of 20-25 %. The highest price at which the power was traded rose to Rs 5 per unit.

In an article of the Business Standard , Rajesh Mendiratta, Indian Energy Exchange’s Senior VP for Business Development said that “Due to mismatch in demand and supply, the prices are expected to increase further but it will not reach too high a level,” . The average for power trading was Rs 3.5-4 per unit where last year the average rates were 2.9 per unit in the same period.

Due to inadequate coal supply the power industry is unable to meet the rising need of power in the country.Demand for coal in India has grown at an annual rate exceeding 8.4 per cent over the past five years.

With the increasing demand of power and shortage of coal supply it seems that the our electricity bills will keep going up. Lets hope that the monsoon comes soon which will bring some relief to our regular power cuts.

Contributed by Rahul Tyagi

First Solar RECs Issued to M&B Switchgear; Expected to Trade in May

M&B Switchgear Ltd, which owns and operates a 2 MW solar PV plant in MP was issued 249 Solar RECs today. This is the very first issuance of Solar RECs in India. These Solar RECs are expected to be traded in this month’s trading session on May 30.

M&B Switchgear is listed on NSE and BSE.

When traded, these Solar RECs will be the very first trades in India. Over the last year Non-solar RECs have traded in large volumes. Solar RECs are priced differently than Non-solar ones due to very different investment requirements. While the floor price of Non-solar RECs is Rs 1.5/kwh, that of Solar RECs is Rs 9.3/kwh.

Numeric Power’s solar power plant received REC accreditation

Chennai-based Numeric Power Systems has received REC accreditation for one of its two 1 MW solar PV plants in Tamil Nadu.The plant is likely to feed energy to the grid from next month.

This is the third solar power plant in the country (and the first in Tamil Nadu) to get REC accreditation. The other two are: Jain Irrigation (8.5 MW) in Maharashtra and M&B Switchgear (2 MW) in Madhya Pradesh.

The total solar capacity put under the REC scheme stands at 11.5 MW today. In an article of the Hindu Business Line Vishal Pandya said , “These plants will generate between 18,000 and 20,000 RECs in a full year. The ‘solar RECs’ will trade between Rs 9,300 and Rs 13,400 – the floor and ceiling prices fixed by the Central Electricity Regulatory Commission.”

The solar capacity under REC is very less for the obligated entities to fully meet their purchase obligations. It is estimated that the requirement would be in the upwards of 800 MW.

Try India’s First Online RPO Calculator here

Open Access Faces Hurdles from Discoms in Rajasthan

Recently, all the Discom’s in Rajasthan simultaneously came out with circulars with changes to the open access mechanism. The pretext of making these changes was the recent letter from the Law Ministry on Open Access. As an example, the key changes made by the circular of the Ajmer Discom (See Comml. AJ-484) are mentioned below:

  • Those consumers that draw power from the Discom’s only in an emergency will be levied temporary tariff (50% higher than the normal applicable tariff)
  • They will have to inform the Discom’s 48 hours in advance of the intent to draw such power
  • The Discom will have no obligation to supply power to them
  • Those consumers that draw power from both the Discom and other sources will also have the 48 hour prior intimation requirement. Also, once the decide to draw power from a source other than the discom, they will have to do so for the entire 24 hour period. They will also have additional surcharges during peak hours.
  • To top it all, the Ajmer Discom gave 4 days to the industry to choose which option they would like to go with

These changes will obviously make the open access proposition a non-starter. The 48 hour prior notice requirement is a big hindrance. At the same time the 24 hour block provision will make the purchase of power from power exchanges un-viable. The higher tariff’s will hurt too.

To be fair to the Discom’s, the need for prior intimation is well appreciated – it will enable them to plan their power procurement better. However, there are better way to achieve that. As in every other case, its the intent of the Discom’s that wrong here as well. As a detailed article in the Business Standard recently mentioned, the requirement to have the Discom the supplier of last resort will be critical in making open access a reality.

As for the circulars, RERC has put a stay on them for the time being, after several industries applied for relief.

Will Open Access system remain open ?

Open access system allows generating companies to sell power directly to distribution companies and bulk consumers of 1MW and above is going to be implemented soon. The ministry of power has instructed states to implement the open-access system of Electricity Act, 2003.

The question is whether it will remain open or not. There are lots of issues that need to be considered before open access system creates an open market in the power sector. Issues like availability of power on demand and negotiation of prices are major concerns for the system to be implemented smoothly.It took eight years to actually get started when the ministry of power sent its November 30 letter titled “Opinion from M/o. Law and Justice on the operationalisation of open access in power sector”, to all electricity regulatory commissions, state governments and the state power utilities.

The two major points mentioned in the letter is :

  1. That consumers with demand exceeding one megawatt (Mw) are perforce required to draw supplies from sources other than their local distribution company.
  2. Even if these consumers do continue to draw electricity from the local distribution company (discom), the rates must be negotiated between the two and, therefore, the state electricity regulatory commissions must cease to determine the retail energy tariffs by restricting themselves to determining only the wheeling charges and cross-subsidy surcharge.

In an article on the Business Standard the current scenario of the open access system in the Indian Power market is highlighted.

If the open access market opens it will reform the Indian power market where the generators could take investment decisions based on demand, without relying on power utilities or the State Government.

Try India’s First Online RPO Calculator here

Accelerated Depreciation Benefits to End by March This Year

Accelerated depreciation – the tax break available when setting up a wind or other renewable energy project – is likely to end by March 2012, according to a report in Bloomberg.

This change was widely anticipated when the new Direct Tax Code was announced. However, that now appears to be delayed. The government had announced that they will make some important changes from April 2012, even if the new code is not fully implemented. Tax benefits to RE projects seems to one such change, and certainly seem to be on the way out:

The government has said it will end the incentive either on March 31 or with the introduction of a new taxation framework “whichever comes first,” Nigam [Dilip Nigam, director of wind policy at the Ministry of New and Renewable Energy] said. “In either case, it will end in April unless the government takes a special decision to surpass” the previous decision.

This is likely to affect new capacity additions in the near term, and will also change the nature of the investor. The current investor base largely comprises of small size investments (ranging from a single wind turbine of 200kw to a few megawatts of capacity) made primarily with the intent of availing tax breaks. The focus will now shift the the IPP model, where large windfarms are set-up, often with capacities of 50Mw of higher. The structure of the industry will also change from how WTG’s are priced, how wind farms are managed and how power is sold. We also expect the industry to consolidate in the future as managing small capacities becomes un-viable.

An earlier report by Bloomberg had mentioned that demand in the near term is likely to fall by 15% as a result of the tax break withdrawal.

 

Try India’s First Online RPO Calculator here

REC Trading Report – December 2011

REC markets continue to grow, albeit more slowly than in the earlier months. Total treaded volume increased to approximately 120,000 (an increase of 14%), while price increased marginally to Rs 2,950/ REC (vs. Rs 2,900 last month; IEX prices). Prices at PXIL increased to Rs 2,950 from Rs 2,800 last month.

Total demand volume grew marginally from 278,000 to 285,000 (an increase of 2.5%), while RECs bid for sale decreased by 3% to 180,000. This was on the back of significantly lower level of issuance this month – only 87,000 RECs were issued, as compared to 136,000 last month (a decrease of 36%). This is due to low generation (this is a seasonal phenomenon) in wind and small hydro generation. Issuance volumes are expected to grow from next month, once RECs are issued to sugar mills (the crushing season started in early November). Seller participation remained high at 82% of the total RECs available for sale.

Flat demand is a likely indicator that early buyers have met a significant portion of their RPO requirement and are price sensitive (a barrier seems to exist at Rs 3,000/ REC price point). Short of strong enforcement signals, we can expect demand to only spurt in February and March now, when a lot of fence sitters today get into the market for purchases before the end of the compliance period.

High seller participation in the previous month and this, flat demand and expectation of higher issuances next month are pointers that demand and prices have peaked for the meantime.

No Solar RECs were traded this month.

The December trading session was a milestone one for REConnect – we became the largest REC trader in the country.

Press coverage:

Hindu Businessline quoted Vishal Pandya below:

“The price hike has been very marginal, which reflects that the prices are very near to their maturity,” says Mr Vishal Pandya, Director, REConnect Energy Solutions, a consultancy that specialises in facilitating REC trading.

“The future market movement will depend heavily upon how the new demand shapes up as next month onwards we can expect additional supply of RECs coming into the market,” Mr Pandya told Business Line today.

 

Try India’s First Online RPO Calculator here

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