VALIDITY OF RECS WHICH WERE ABOUT TO GET EXPIRED BETWEEN OCTOBER ’17 AND MARCH ’18 GETS EXTENDED BY SIX MONTHS

The Central Electricity Regulatory Commission (CERC) has in its order dated 29/08/2017, declared that those Renewable Energy Certificates (RECs) which were expiring between 1st October 2017 and 31st March 2018 are now going to remain valid till 31st March 2018. In its order dated 30th March 2017, the commission had extended the validity of RECs which were going to expire between 1st April 2017 to 30th September 2017 till 31st March 2018.

 

The order  can be accessed here.

REC Market demand & supply forecast for FY 16-17

Every year, around the mid-year mark we forecast the demand and supply in the RECs markets for the remain-der of the financial year. The second half of the FY is the busy period for the RECs markets as most transactions take place in this period. As an example, of the 43 lakh non-solar RECs sold last year, 9 lakh were sold between Apr – Sept 2015 and 34 lakh were sold from Oct 15 – March 2016 (21% and 79% split between the two halves of the year).
FY 16-17 is characterized by several changes in the RECs markets :-

  • Significantly higher demand compared to same pe-riod last year for Non-solar RECs (non-solar RECs de-mand is up by 51% compared to the same period last year, ie April to November)
  • Drastic reduction in RECs issuances due to impact of CERC’s 4th amendment to RECs regulations
  • Impeding price change in the short term (April 2017) particularly for solar RECs
  • Changing regulations in light of the national tariff policy (NTP). This will result in much higher RPO and removal of exemption for co-gen. However, due to inconsistencies in the NTP with the Electricity Act 2003 we expect the impact of these changes to be visible only in the next FY.

Overall, we expect demand to remain robust for Non-solar RECs (but not for Solar RECs). Increased demand, combined with significantly lower issuances of RECs will result in much improved clearing ratio for projects that are holding RECs.
Demand Comparison
As mentioned above, demand for non-solar RECs has been robust compared to the same period last year. As of Novem-ber, demand is up by 51% compared to the same period last year.
We expect this trend to continue, driven by several factors –

  • Several regulatory commissions have given out orders for RPO compliance during the year – this is likely to result in significant demand in the coming months. Notable examples are Maharashtra and Kerala.
  • Private Discom’s, which are large buyers, have so far re-mained marginal participants in the market. This is expected to change in the coming months.
  • CPP and open access consumers will continue to be ma-jor buyers, with several new participants coming into the market in the coming months.

Demand for Solar RECs this year compared to the same pe-riod last year has been down by 1%, or essentially the same. However, we believe that by end of FY 16-17, there is a pos-sibility that the total demand totals less than that of the pre-vious year.

This is because the current floor prices are valid only till March 31, 2017. The general expectation is of a small correction in the price of Non-solar RECs and a signifi-cant correction in the price of solar RECs. Besides this, the vintage multiplier (of 2.66x) currently in place will also expire. This may result in

(a) Significant price reduc-tion of Solar RECs,

(b) a major jump in S-RECs inventory as existing S-RECs are adjusted to the new price, and

(c) drastic reduction in S-RECs issuance from April 2017 on-wards.
These changes in the near future make market forecast-ing for solar RECs a perilous task. Our approach assess demand in the same basis as mentioned above, but moderates it by a significant factor as closer to March obligated entities are expected to hold off purchases till new prices take effect.

RECs Supply
Two factors have resulted in reduced supply of RECs :-

 

  • Several projects have existed the RECs mechanism in favor of green power sale/ state tariff PPA or captives as RECs are no longer a viable mechanism
  • Impact of the 4th amendment to RECs regulations by CERC

As a result, Non-solar RECs issuance is down by 38%  compared to the same period last year, and Solar RECs issu-ances down by 41%. Going forward, we expect the non-solar RECs issuance to remain subdued compared to last year (as a big impact of the 4th amendment has been on sugar co-gen project which see issuances starting from November to April or May). For the full year FY16-17 we forecast Non-solar RECs issuance to be 35% below the last year number. The reduction in Solar RECs issuance is due to higher issu-ance last year as a result of solar vintage multipliers, and time-lag this year as the documentation related to 4th amendment is completed. Overall, we expect the year to end with roughly 30% lower issuance compared to last year.

Demand and supply
We have forecast demand under three scenarios –

(1) Base case – demand from states that have enforced RPO in the past or have current orders for RPO enforcement are in-cluded. Even for such states, a probably of demand material-izing is applied to the total RPO gap;

(2) Medium enforce-ment – expected demand from states that have on-going RPO assessment are added to the demand in scenario 1;

(3) High enforcement – this scenario envisages that most states will take some action towards RPO enforcement. Under this scenario, even those states that have not enforced RPO regulations till date are expected to initiate action, albeit the expected demand from such states is moderated by assign-ing a low probability (20-30%).

Conclusion:

Looking at the overall picture after the demand-supply forecasting exercise shows the following:

  • Non-solar RECs markets are showing a significant improvement. Demand is up by 51% compared to last year, and this year may become the first one in which demand exceeds issuance during the year. This is a major development towards the revival of the RECs markets.
  • Solar RECs market however is lagging behind. Demand has failed to increase this year, and may actually be lower than last year. This is driven primarily by expectation of drastic price decrease in April 2017. Only possibility of this scenario changing is if a large demand comes Discom’s.

 

CAG highlights gaps in RPO compliance of states; Penalties of Rs 4,234 crore not levied

In a recent audit report covering the functioning of MNRE, the Comptroller and Auditor General (CAG) has highlighted various issues on RPO compliance by states.

The main issues highlighted by the CAG are:

  • Setting RPO well below the NAPPC target

  • States have been lax in discharging their obligations under RPO regulations in every aspect. Many states have not prescribed any penalties (Rajasthan, Karnataka, UP are mentioned in the report), most do not collect data on compliance

  • Further, no states (except Uttarakhand, which has imposed a ‘token’ penalty) have imposed penalties. The CAG has estimated that a penalty of Rs 4,234.8 crore was leviable by states, but has not been done

  • CAG further mentions that “RPO was further diluted by frequent deferring of RPO targets as seen in the cases of Gujarat, Madhya Pradesh, Maharashtra and Uttarakhand”

 

REConnect Analysis:

It is good to see the CAG stepping into an area which has seen very little enforcement of rules by state regulators, despite the Supreme Court and ApTel giving clear judgements for enforcement.

It is also good to see the extent of penalties not collected being quantified for the first time. By any account, Rs 4,234 crore is a huge number. However, we believe that is is a significant understatement as the assessment by CAG covered Discom’s only – not CPPs and open access consumers who constitute a significant portion of obligated entities in the country.

 

News coverage of the CAG report can be accessed here.

REConnect Newsletter Volume 52 (June 2015) – OPEN ACCESS

Dear Reader,

 We are please to present OPEN ACCESS – our monthly newsletter that covers important developments in the renewable energy markets. This month’s newsletter covers:

  • Detailed analysis of the 5th Amendment to REC regulations proposed by CERC. This amendment will have significant impact on renewable energy based CPPs and OA projects, and also on the market demand-supply situation down the road
  • Updates on regulatory changes from Gujarat, Telangana, MP, Mahasrashtra, JERC and Rajasthan
  • Analysis of the REC trading sessions in June. Demand was well below May trading volumes. However, the broad trend remains positive due to the SC order on RPO.

 The newsletter can also be downloaded by clicking here - or past newsletters from here.

We hope you enjoy reading the newsletter. Please send us comments and feedback.

 Regards,

 Team REConnect

REC Trading Report – June 2014

REC trade session for June 2014 was conducted on 25th June 2014. The following is a summary of results -

The total transactional value of non-solar RECs was INR 208.8 million and for solar RECs it was INR 15.4 million. The closing balance of REC inventory for non solar RECs breached the 7 million mark this  month whereas solar RECs crossed 0.23 million mark.

 

 

Non Solar RECs -

In case of non- solar RECs demand almost quadrupled (up by 376%) as compared to last trade session (refer  - May 2014 trade report) and Supply grew by 5.23 %. Non Solar price continued to remain at floor (INR 1,500 per REC). More insights provided in graphical charts below :

Solar RECs -

Total solar RECs issued this month was 27,787 and redeemed were 1654 only. In contrast to non-solar RECs, the demand for solar RECs took a beating as it went down by 22%. Supply rose by 11% w.r.t May 2014.  More details can be found in the graphs below -

Solar RECs finished trading at floor for consecutive 12 months.

Relevant media article can be read here.

Andhra Pradesh declares APPC for FY15

Hon’ble Andhra Pradesh Electricity Regulatory Commission (APERC) in an order (DATED – 31 MAY 2014) has determined the APPC for FY 14-15.

The definition of the APPC being followed by APERC can be read as –

‘Pooled Cost of Power Purchase (PCPP)’ means the weighted average pooled price at which the distribution licensee has purchased electricity in the previous year from all the long-term energy suppliers excluding the purchases based on liquid fuel. Provided that the purchases from traders, short-term purchases and purchases from renewable sources shall not be taken into account while determining Pooled Cost of Power Purchase.

AP’s APPC definition is not in sync with that of CERC as it excludes power purchases from suppliers based on liquid fuel, Purchases from Traders, short term purchases and purchases from Renewable sources.

The APPC for FY 14-15 has been calculated as Rs. 3.38 per unit.

The APPC is AP has been growing steadily with a CAGR of 7.91%.

The order by APERC can be found here.

Our previous Blog posts on APPC of other states can be Read here.

Contributed by – Dheeraj Babariya

REC Trading Report – May 2014

Demand and clearing ratios touched one of the lowest points in three years.

Non-solar RECs:

Demand in May was 29,255, compared to 79,354 in April (down 63% over April) and down 45% from May of last year. The last time demand was this low was in August 2011. Clearing ratios at both exchanges were approximately 0.45%. Closing inventory of RECs is in excess of 69.5 lakh.

Solar RECs: Demand improved marginally from 989 RECs last month to 2,120 RECs. As a result, clearing ratios improved as well – 0.26% in IEX and 4.8% on PXIL, albeit on very low demand compared to existing inventory. Inventory currently stands at over 2.1 lakh RECs.

The low demand is continuing despite penalty orders in Uttarakhand and Union Territories. It will be interesting to watch the approach that the regulators take in the next few months if the non-compliance continues despite orders from them.

To get details about previous months trading session – Click Here.

Our online market tracker tool can be accessed here.

REConnect Newsletter Volume 41 – OPEN ACCESS

Dear Reader,

We are pleased to present Open Access Vol. 41 – our monthly newsletter covering RECs and regulatory – market developments in the renewable energy space.

Key points covered in this newsletter are:

1) Our analysis on the likelihood of RPO enforcement in FY 2014-15.

2) Regulatory updates including KERC’s final APPC for FY14 & FY15 (interim) & JSERC order on declaration of Bokaro Steel Plant’s CPP as Cogeneration unit.

3) Analysis of the most recent trading session of RECs and capacities in the REC mechanism.

The newsletter is attached with this email and also can be found on our webpage - http://www.reconnectenergy.com/newsletter/past-newsletters/

We hope that you find the newsletter a useful read. Do provide us feedback.

Regards,

- Team REConnect

Delhi discoms request to waive RPO of FY13

Delhi discoms have requested to DERC, to waive RPO targets of FY13. This request was put forward by discoms in their respective ARR petitions for FY15. The discoms contend that RPO regulations were introduced in Delhi only in October 2012 and as such there was little time in that year to meet the targets. The request can be read as (Petitioner – Delhi discom)-

“In this regard the Petitioner would like to submit that since the Regulations were issued in the mid of FY 2012-13 and the Renewable Energy Generation in Delhi was not fully developed, it was not possible to meet the RPO Targets during FY 2012-13. The Petitioner appreciates the fact that the energy generation through Renewable Energy Sources is required to be promoted by achieving the RPO Targets but at the same time the Renewable Energy Sector is also required to be developed in Delhi for fulfilment of RPO. The Petitioner has invited competitive bids for procurement of Renewable Power for both Solar and Non-Solar plants. The details about the bidding process and shortlisted bidders have already been submitted to the Hon’ble Commission. The Hon’ble Commission would appreciate the fact that RE Generation in Delhi is at nascent stage and will gradually develop in the coming years. The Petitioner in the meeting with the Hon’ble Commission held on October 9, 2012 also highlighted the difficulty in mobilising resources to meet the RPO announced by the Hon’ble Commission.”

Delhi discoms BYPL and BRPL mde reference to MERC’s order dated 7th August 2009, where the RPO targets from FY08 to FY10 were exempted due to shortfall in projected RE capacity addition.

While it is left on DERC to decide on this matter, any decision in favour of the request would further dent the ongoing positive enforcement efforts in other states.

The ARR petitions are available on DERC’s website.

Our recent blog-post highlighting projections by discoms for meeting RPO of Fy15 can be read here.

Relevant media article – Times of India.

REC Trade Report – April 2014

We are pleased to bring the REC trade results and our analysis on REC trade session conducted on 30th April 2014.

Following is a brief of the analysis:

April 2014 was the first month of compliance year FY 2014-15. As expected, the volumes in non-solar and solar REC markets nosedived as compared to last months trading session (Refer - Blog – post on  March 2014 REC Trade).  The REC inventory’s closing balance stood at a mammoth 6.6 million RECs. The total RECs redeemed in April 14 were 80,343 RECs only. The RECs issued this month was again a 7digit number – about 1.1 million RECs. Cumulatively, March’14  and April’14 alone added over 3 million RECs, which is 23% of the total RECs issued till date.  This escalation in supply side and almost no demand side participation sums the state of current Indian REC market place.

Non-Solar RECs

Demand dropped by 88% and supply was up by 3.2% w.r.t March’ 14. Price of non-solar RECs remained at floor price – INR 1,500 per REC. Total non-solar redeemed were 79,354 (as per REC registry).

Solar RECs –

Price of solar REC continued to trade at floor (INR 9,300 per REC) for a consecutive 11th month. Demand fell to less than 1,000 and supply rose by 22%. Clearing ratios at both exchanges were close to half percent (0.5%) only. As per registry, solar RECs redeemed in April14 was 989.

For more details please refer table below – Our online market tracker tool can be accessed here.

 

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