Analysis of CERC’s 4th Amendment to REC Regulations
CERC published the 4th Amendment to REC regulations in end-March. These regulations will have a significant impact on the RECs markets going forward, as a large portion of the existing capacity under the mechanism will become in-eligible for RECs.
In summary, the following projects will no longer be eligible for RECs:
- Open access projects that avail concessional wheeling or banking benefit
- Captive or self-consumption projects commissioned before 29 Sept 2010 or after 31 March 2016 (ie, before the RECs regulations first amendment when captive projects were made eligible and after this amendment)
- Captive or self-consumption projects commissioned between 29 Sept 2010 or after 31 March 2016 but avail concessional wheeling or banking benefit
Our analysis suggests that several projects will become ineligible for RECs. The largest impact will on bio-fuel co-gen projects and biomass projects, as a large portion of these projects are captive or self-consumption projects commissioned prior to 29 Sept 2010. Older wind projects under group-captive mechanism (predominantly in TN and Maharashtra), and captive small hydro projects will also be impacted.
Solar projects are likely to have minimal impact as most projects are commissioned after 2010.
Source: REC Registry website; REConnect Analysis
This will lead to significant reduction in RECs issued. Our estimate suggests that the reduction could be as high as 40-50% of existing RECs issuance (in FY 15-16, total non-solar RECs issued were 73.6 lakh).
As a result, it is likely that demand for RECs will outstrip supply on an annualized basis during FY 16-17. However, large existing inventory of RECs will ensure that for FY 16-17 trading prices remain at floor-price and clearance remains low.
Note: The above issuance and demand are cumulative for the year (it does not include existing inventory of RECs)
Source: REC Registry website; REConnect Analysis
The regulation can be accessed here.