CERC gives a positive nod to extend the validity on RECs

CERC recently announced in its order dated 15th May 2018 that the RECs will be valid till 30th October 2018, which were otherwise expired/likely to be expired between 1st April 2018 and 15th October 2018.

The commission declared this in accordance to its power under Regulation 15 of REC regulations.

The extension related dates are as below:

Duration

Status of RECs

Validity as per the order

1st April 2018 to 14th May 2018

Expired

Extended till 30th October 2018

15th May 2018 to 30th October 2018

Likely to be expired

Extended till 30th October 2018

The issues which were prevailing since early 2017 and saw petitions from various parties seems to have finally come to rest.

More than 10 lakh RECs (9,52,533 Solar RECs; 1,09,520 Non-Solar RECs) were being affected due to the pending petitions. Majority of these RECs were solar which saw a halt in trading for almost 11 months since 8th May 2017.

Since ApTel was in the reviewing process of the petitions, the commission could not take any action on the extension of REC validity before 31st March 2018.

ApTel in its judgment as on 12th March 2018 has disposed all the petitions and upheld the commission’s order dated 30th March 2017 to continue the REC Floor and Forbearance Price applicable from 1st April 2017 onwards.

 The Commission was of the view that there was a requirement to extend the validity since the appeals were dismissed by the ApTel and there was no stay.

Earlier, the commission extended the validity up to 31 st March 2018 which was expired between 1st October 2017 and 31st March 2018 based on Supreme Court’s order dated 29.09.2017 on seeking necessary direction for extension of the validity of RECs.

Based on the recent order, the expired RECs will be added back to the seller’s account which was then removed by NLDC till 31.03.2018.

As per the recent trade dated 25th April 2018 on IEX and PXIL after a halt of a year, the clearance was as below:

Trading portal

Solar

Non-solar

IEX

6,44,151

1,36,979

PXIL

2,30,967

50,564

REC Trading Results – April 2018

 

April saw trading resume for Solar RECs after a gap of one year, after the ApTel pronounced judgment in the case of REC pricing. Also, after record sale of Non-solar RECs in the last 5 months, there was almost no inventory left of Non-solar RECs. In both Solar and Non-solar RECs, demand was robust, considering that this is the first month of the new financial year.

 

Analysis of Trading:

 

Non Solar – Clearing ratio in exchange stood at 72.6% and 77.2% in IEX and PXIL respectively for Non Solar REC’s.  A total of 187,543 RECswere traded, despite demand being at 1,099,426 (as compared to 538,371 RECs traded April 2017; an increase of 104%). RECs traded at the floor price of Rs 1,000/ REC at PXIL, but increased by a minuscule fraction to Rs 1,001/ REC at IEX. However, this increase in the traded price above the floor price has come after a gap of almost 6 years (last trading above the floor price was in August 2012).
Solar – Demand was robust at 8.75 lakh RECs (3.2X demand of April 2017). Clearing ratio stood good at 23.8% and 10.4% in IEX and PXIL respectively.

ANALYSIS OF APTEL ORDER ON REC PRICING AND MULTIPLIER

Order in the case of REC pricing and vintage multiplier has now been uploaded on the ApTel’s website. Following is a quick summary of the same:
ApTel has rejected all prayers of the RE generators. Specifically, it has held:
–       Pricing: ApTel found no issues with the change in methodology by CERC when they used bid-discovered prices as against CERC determined generic tariffs.
The order states: “
“In view of the growing competition and induction of latest technologies, more and more generators are participating in the auctions/bids with considerable reduced cost of generation. Thus, the Central Commission in specifying REC prices, has shifted to bid discovered prices in place of earlier generic tariff fixed by it when the RE sector specially solar was in infancy stage.”
 
And
“We have carefully considered the contentions of all the parties and note that under the prevailing market scenario, the prices of RECs cannot be kept artificially high to burden the end consumers. Further, if the prices of RECs are kept high without aligning them with the market reality and current cost of electricity, the obligated entities may not purchase the RECs and try to fulfil their RPOs by other means.”
–       Vintage Multiplier – The ApTel has said that providing vintage multiplier is the “discretion” of CERC, and said that the CERC has provided “cogent reasoning” in its order, and further that the ApTel found “no unjustness in specifying the floor and forbearance prices of REC and discontinuation of the Vintage Multiplier”

–       In our opinion, the justification of price reduction is also to some extent based on factually incorrect premise. For example, the order says:
 
It is also noteworthy that sufficient time has been given to RE generators to sell their RECs at the power exchange but perhaps in anticipation of selling them at better prices has resulted into unsold REC inventory.”
 
            And further,
 
“Another important fact is that among the three routes available for RE generators, the REC capacity is dominated by RE generators operating under CGP and OA route rendering APPC route as the last choice”
 
We believe that this order will have a significant adverse impact on projects and investors that have invested in REC projects. An immediate impact will be that such project will have to bear heavy losses on the existing inventory of RECs – the losses will be particularly heavy for solar projects.
It also does not bode well for future investment in the REC mechanism, as falling RE prices are an irreversible trend. Does this mean that REC projects will have to bear losses of such reduction every year?

UPDATE ON HEARING ON PRICE AND TRADING OF SOLAR RECS IN APTEL

We attended the hearing at ApTel today. The court has dismissed all the petitions – implying that the CERC order remains as is. More details will be available once the final order is uploaded on the ApTel’s website (generally by end of day or tomorrow).
Since the stay on trading for Solar RECs was till the order of ApTel, it stands automatically vacated, and trading will resume from this month (unless a fresh stay is obtained by the generators).
We will provide a very detailed analysis of the order once it becomes available.

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.

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.

 

REC Trade result December 2016

This month trading saw good results with respect to the Non solar REC clearance overall. The demand for solar REC saw marginal improvement in respect to the last month. The total transaction value stood at 74.4 Crores in comparison to 53.6 Crores last month.

This month saw fall in the total issuance where the demand decreased by 4.60Lakhs in comparison to November. Though there had been significant increase in the total REC issuance due to the impact of CERC’s 4th amendment to RECs regulations.

Analysis of Trading:

Non Solar – The clearing ratio stood at 3.19% and 2.81% in both IEX and PXIL, with a significant increase of 61% in the no. of REC’s traded as compared to last month

Solar – Clearing ratio stood at 0.85% and 0.53% in IEX and PXIL respectively, with a dip of 23% in total demand of Solar RECs as compared to November.

 

 

 

REC Trade Result November 2016

This month trading saw stagnant results in respect to the demand for Non-Solar REC’s. The demand for solar REC saw marginal improvement in respect to the last month. The total transaction value stood at 53.6 Crores in comparison to 50.6 Crores last month.

 

Analysis of Trading:

 

Non Solar – The clearing ratio stood at 1.85% and 2% in both IEX and PXIL, with a significant increase of 2.25% in the no. of REC’s traded as compared to last month

Solar – Clearing ratio stood at 1.13 % and 0.96% in IEX and PXIL respectively, with an increase of 17.5% in total demand of Solar RECs as compared to last month.

 

This month also saw significant increase in total REC issuance, where the demand increased by 9 lakh in comparison to October. This could be attributed due to the impact of CERC’s 4th amendment to RECs regulations.

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