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.

MERC asks BEST to meet shortfall in RPO by March 2014

Electricity Regulator of Maharashtra (MERC) on 6th March 2014 released 3 separate orders with regards to verification of RPO compliance of state discoms; namely Reliance Infrastructure Limited – Distribution (RIL-D), Tata Power Company – Distribution (TPC-D) and Brihan Mumbai Electric Supply and Transport (BEST).

Maharashtra currently has the following defined RPO targets in its relevant regulations.

Further, the Distribution Licensee(s) are also mandated to procure 0.1% per year of their Non-Solar (other RE) RPO obligation for the period from FY 2010-11 to FY 2012-13 and up to 0.2% of their Non-Solar (other RE) RPO obligation for the period from FY 2013-14 to FY 2015-16 by way of purchase from Mini Hydro or Micro Hydro power project.

Recently there were updates that Govt. is mulling to introduce hydro-tradable certificates. More on this can be read here

Order w.r.t RIL – D:

In an order dated 5th Dec 2012, MERC had waived/relaxed the shortfall in RPO compliance for FY11 & FY12 and had ordered cumulative compliance of this shortfall along with RPO targets of FY13. Subsequent to this, it was reported that RIL-D had complied with all RPO targets (Non-Solar + Solar) before the deadline of 31st March 2013, except that in case of Mini/Micro Hydel Power projects.

RIL-D fulfilled solar RPO targets with a surplus of 2.13 MUs and non-solar RPO targets with a surplus of 9.29 MUs.

In the present order (refer), MERC has relaxed RPO shortfall in terms of hydro power RPO to FY16, thereby declining the prayer of Reliance to completely waive off such targets. MERC was of strong view that such waive off will be against the intent of having a specific RPO targets from Mini/Micro hydel projects.

RIL-D has now been directed to fulfil shortfall in hydel RPO cumulatively by 31st March 2016.

Order w.r.t Tata Power – D:

Regarding solar RPO compliance, MERC had already directed TPC-D, through an order dated – 20th Dec 2013, waived/relaxed the shortfall in solar RPO till FY16.

Non-solar RPO has been complied by TPC-D with a surplus of 1,2 MUs, except hydro RPO targets.

Current Order waives/relaxes this hydel power purchase requirement by allowing TPC-D to meet the same by FY16.

Order can be read here.

Order w.r.t BEST:

In case of BEST, solar RPO targets were relaxed in an order in Case NO. 30 of 2013. Shortfall in solar RPO is to be met cumulatively by FY16.

MERC noted that BEST has fulfilled its RPO targets w.r.t hydro power cumulatively by FY13.

However, the shortfall in meeting non-solar RPO targets till FY13 is 4.23 MUs which is to be cumulatively met along with RPO target of FY14. This is to be positively complied before 31st March 2014 to repel any regulatory charges, meaning BEST may have to purchase equivalent amount of RECs from the Market in the last trading session of this fiscal.  In our analysis, the approximate requirement in terms of RECs comes down to  4,64,230 non-solar RECs (For gross consumption in FY14 – Refer Page No. 157 – T.O FY13-16 BEST).

Order in case of BEST can be read here.

Our past blog-posts on RPO in Maharashtra can be accessed here –

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CERC notifies changes to REC procedures

CERC recently notified revised procedures for REC mechanism through an order dated 17th Feb 2014. Following are the changes:

1. REC registration applications

a. Recommendation by SA for Registration of Project under REC Mechanism in the format prescribed to be furnished along with the application.

b.Claim for refund to be made within 15 days from the day of payment. Claim made later will not be entertained.

c. Format of the declaration has been modified (Refer to the Order).

2. REC Issuance applications :

This procedure shall be applicable to all Eligible Entities, who have received Certificate of Registration‟ from the Central Agency, and shall be eligible to avail Renewable Energy Certificates from the date of commercial operation or from the 00:00 hrs of next day of Registration date of such plant by the Central Agency whichever is later.

This deviates with the 2nd amendment of the REC regulations which says

“After registration, the renewable energy generation plant shall be eligible for issuance of Certificates under these Regulations from the date of commercial operation or from the date of registration of such plant by the Central Agency whichever is later”

a. Central Agency shall not issue RECs during the trading session at the Power Exchange.

b. The Eligible Entity shall apply for issuance of RECs within six (6) months from the month in which RE was generated and injected into the electricity grid. At least 6 clear working days are available to Central Agency for considering the application.

c.  The application for issuance of Renewable Energy Certificates may be made on 10th, 20th and last day of the month.

3. Retention of RECs:

a. SA to accept application for retention of RECs and shall issue ‘certificate of purchase’ of RECs to the buyer.

b. Eligible entity to apply it online from 1st to 5th of every month.

c. Hard copy of the application has to be submitted by 9th of every month to SA.

d. SA to check the proposed volume and application by 15th of every month.

e. SA to inform CA of list of RECs which will be by 22nd of every month.

4. REC Accreditation application:

The RE generator shall obtain a certificate from the concerned distribution Licensee for the connected load in case of co-generation plants. The Distribution Licensee shall issue such certificate within 15 days from the date of application by the RE Generator and the RE Generator shall submit it to State Agency along with application for accreditation.

 

Gujarat DISCOMs approach CERC to seek REC benefits

Gujarat Urja Vikas Nigam Limited (GUVNL) on behalf of DISCOMs , had approached Hon’ble CERC for certain amendments to REC regulations, enabling the former to claim solar RECs as “Eligible Entity” for excess procurement over & above the stipulated RPO targets. GUVNL had submitted (in Petition no. 128/MP/2013) that dis-allowance of RECs for excess solar power procurement after meeting RPO targets, is a disincentive  for DISCOMs who have been buying solar power at promotional tariffs with an aim to promote solar power generation in the state.

The matter is unprecedented because an obligated entity (usually a buyer of RECs) wants to claim RECs for excess power procurement and not excess power generation.

In the order dated 2nd Dec 2013 (refer), GUVNL brought forward that DISCOMs had to tie up solar capacity of 380 MW to comply with RPO targets (of 1% in FY13). DISCOMs in-fact have signed PPAs of 971.5 MW solar capacity, that too at promotional tariffs.

GUVNL has also argued that buying costly solar power from developers is going to financially impact the consumers in the state as the higher cost of power procurement is passed on to them. To abrogate such a case, it proposes to claim RECs which will reward DISCOMs as well as take care of consumer interests.  GUVNL also requested for a provision where RPO surplus DISCOMs are allowed to exchange RECs with RPO deficit ones by bypassing prevailing exchange based transactions. In our view, this particular demand questions the very purpose of having a double side closed fair market-based mechanism for RECs.

GUVNL had also prayed the apex commission puts in place a uniform solar RPO target for all states in India.

CERC, in the order, is of the view that current regulations stipulating generators only for claiming RECs is adequate for a healthy REC market. Hon’ble commissions decision can be read as –

“The Commission is of the view that the existing provisions of eligibility in the  REC Regulations which is limited to generating companies is adequate at this stage of development of REC market. Without going into the merit of the issues raised, we intend to clarify that filing of the petition is not the proper process for initiating the amendment to the existing regulations. The Commission under Section 178 of the Act has been vested with the power to make, amend and repeal the regulations on the subjects which have been authorized under various provisions of the Act. Action to make or amend the regulations is initiated when the Commission is satisfied that there is need for such regulations or amendment to the existing regulations.”

However, the commission directed its staff to analyse the issue and come up with an appropriate proposal for consideration.

According to Press Information Bureau (Release ID :103402) the matter was brought to light by Hon’ble Minister of New & Renewable Energy in the Lok Sabha (on 7th Feb 2014). In a written reply Hon’ble Minister quoted that obligated entities were free to procure power over and above RPO targets and that any changes to existing regulations is a quasi-judicial process and the CERC takes a view after following due process of law including public hearing. 

Center takes a stricter route on RPO compliance

As per an article in Economic Times, the center has asked the appellate tribunal to allow MNRE to be a party in a petition jointly filed by wind associations IWEA and IWTMA. This petition filed by the wind associations in January submits that all state commissions have failed to enforce RPO regulations in their respective states. The center while filing the request to APTEL, has highlighted that despite writing repeatedly to all SERCs and distribution companies, none have complied with their envisioned RPO targets. Owing to these delinquencies on the part of SERCs, the ministry is forced to take a stricter route.

The move comes in the backdrop of poorly performing REC markets which are struggling with lower demand. The REC inventory is already flooded with more than 30 lac RECs. Off late, both solar and non-solar RECs have remained at floor. Already majority SERCs have started coming up with stricter compliance regime which mostly, mandate all obligated entities of the state to comply with all backlogs by the end of FY14.  Nevertheless, the demand of RECs in subsequent trading sessions left in FY14 is expected to rise.

Punjab pushes PSPCL for RPO compliance by December’13

Punjab state power corporation limited (PSPCL) has been asked to comply with its stipulated RPO target for FY12, FY13 and FY14 cumulatively. In an order dated 12 August 2013, Punjab regulator allowed PSPCL to carry forward 114.80 non solar MUs and 25.8 solar MUs to FY14, which is the cumulative shortfall for FY12 and FY13.

For the current fiscal (FY14), the Punjab Discom has to purchase around 400,000 RECs and the shortfall of 114800 will eventually entail over 500,000 RECs to be purchased by end of December 2013.

PSPCL/PEDA FY13
in MUs Shortfall (+/-) in MWh RECs required
Non Solar Obligation 114.8 114800 114800
Solar Obligation 25.8 25800 25800
  140.6 140600 140600

With Maharashtra and Delhi also pushing for RPO on similar lines, it is expected that the buy side participation  will improve in the  poorly performing REC market.

For the copy of the order – Click Here

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