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Renewable Energy Certificates in India

RENEWABLE ENERGY CERTIFICATES

REC PRICING REC Type

Floor Price

Forbearance Price

INTRODUCTION Renewable Energy Certificates(RECs) are tradable financial instruments that represent generation of 1 MWh electricity from renewable energy sources. RECs is one of the tools of achieving the Renewable Purchase Obligation (RPO) specified by the Central Electricity Regulatory Commission (CERC).

NEED FOR REC

Solar Projects

It is the government’s mandate to promote use of renewable energy resources to generate electricity and reduce the gap between supply and demand in the power sector. •

Uneven Distribution of Resources

Some states are blessed with more renewable energy resources than other. Tamil Nadu, for example, has already achieved the minimum required obligation while Delhi lags behind. Transaction of RECs would help the states with less resources achieve their stipulated targets. •

Non-Solar Projects

Market-driven Growth of Renewable Energy

Government funding and subsidies for the promotion of renewable energy sources is unsustainable given the high costs associated with them. Hence, a marketbased system, based on the fundamentals of supply and demand, is required for the sustained growth of renewable energy-based power generation.

2011-12: Rs 1,500 (≈US $33)

2011-12: Rs 3,900 (≈US $87)

2012-17: Rs 1,500 (≈US $33)

2012-17: Rs 3,300 (≈US $73)

2011-12: 2011-12: Rs 12,000 (≈US $266) Rs 17,000 (≈US $377) 2012-17: Rs 9,300 (≈US $207)

2012-17: Rs 13,400 (≈US $298)

Upon the issuance of the RECs, it must be traded within 365 days between a price range prescribed by the CERC. The RECs would be traded only once after which its value would be extinguished.

RPO TARGETS FOR STATES It is up to the state governments to specify their progressive targets over the years. The state governments can distribute the RPO targets among the respective distribution licensees or with respect to the various renewable energy sources available in that particular state. For example, Delhi has distributed its RPO targets among the distribution licensees while Himachal Pradesh has set high targets for obtaining power from hydro power plants.

AGENCIES INVOLVED A coordinated network of regulatory agencies, obligated and eligible entities form the complete system of the REC scheme. • Regulatory Bodies — Central Agency, State

Agency, State Load Dispatch Center

• Obligated Entities — Distribution Licensees,

Captive Consumers, Open Access Users

• Renewable Generators — Power plants with no

incentives, PPAs or preferential tariff deals

Eligibility Criteria for Power Plants

TRADE ANALYSIS

Power plant must not have a Power Purchase Agreement selling electricity at preferential tariff OR Power plant sells electricity to the distribution licensee at a price not exceeding the pooled cost of power purchase OR Power plant sells electricity to captive consumers or open access users at a mutually agreed price or through power exchange at market determined price.

© Climate Connect Limited, 2011

The REC trading started in March 2011. While the first session saw RECs being traded at forbearance price, the following sessions witnessed RECs clearing at or close to the floor price. The demand for RECs is expected to be seasonal and high at the end of the financial year. The projects developers have opted to consolidate their RECs and wait for demand to pick up.

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Renewable Energy Certificates in India

OPERATIONAL STRUCTURE

LOOKING AHEAD

The operational mechanism of the REC scheme includes repeated interactions with state and central agencies.

No solar power projects have so far been accredited by any state nodal agency. Solar projects are expected to enter the REC scheme in one to two years. The CERC is said to be considering implementation of quarterly or half-yearly RPO targets to ensure consistent demand for RECs throughout the year.

• Accreditation of RE generator from state nodal agency

• Injection of electricity into the grid • Metering & accounting by SLDC of electricity • • • • • •

injected in the grid and reporting to central agency (NLDC) RE generator’s application for issuance of RECs to REC registry REC registry verifies quantum of electricity injected by RE generator with state agency/SLDC Upon verification, REC registry issues RECs to the RE generator REC sale at power exchange & verification with REC registry Obligated entity buys RECs from exchange Compliance auditor from CERC verifies compliance Sample supply-demand curves. Similar curves are expected for the REC scheme. * Data as on 25 August 2011

Disclaimer:

Climate Connect Ltd has taken due care and caution in compilation and reporting of data as has been obtained from various sources including which it considers reliable and first hand. However, Climate Connect Ltd does not guarantee the accuracy, adequacy or completeness of any information and it not responsible for errors or omissions or for the results obtained from the use of such information and especially states that it has no financial liability whatsoever to the users of this report. This research and information does not constitute recommendation/advise for trading or investment purposes and therefore Climate Connect Ltd will not be liable for any loss accrued as a result of a trading/investment activity that is undertaken on the basis of information contained in this report. Climate Connect Ltd does not consider itself to undertake Regulated Activities as defined in Section 22 of the Financial Services and Markets Act 2000 and it is not registered with the Financial Services Authority of the UK. © Climate Connect Limited, 2011

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Rnewable Energy Certificate Scheme