The International Experience: REC Mechanism


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BRIDGE TO INDIA's presentation at the MNRE Workshop on 'Challenges and issues of solar RPO compliance/RECs' on behalf of GIZ.

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The International Experience: REC Mechanism

  1. 1. The International Experience:REC MechanismMohit AnandBRIDGE TO INDIANew Delhi, July 24th 01.08.2012 01.08.2012 Page 11 Seite
  2. 2. Japan, Australia and UK are countries with the most robust REC mechanisms globally Global Overview UK: Country Solar Capacity Additions till 2011 with a renewable Total number of Top 20 Countries Obligation Certificate countries with an 30000 since April 2002 RPS/Quota policies: 71 25000 Japan: Country has a New Total Number of Energy Certificate countries with a since April 2003 India: 20000 Country with tradable REC:: 6 a Renewable certificate since 2010, Apart from Ghana 15000 with a solar MW India is the only specific carve out developing country to have a 10000 Australia: Country with a tradable REC ; Renewable Ghana does not 5000 Energy Certificate have an RPS since 2000 Cumulative Capacity Addition India unlike Japan, 0 of Solar till 2011 Italy, UK and most (MW) American states Capacity addition has a solar carve of Solar in 2011 (MW) out Source: BRIDGE TO INDIA market analysis EPIA; “Global Market Outlook for Photovoltaics till 2016”; May 2012 01.08.2012 Page 22 Seite
  3. 3. UK has a two year validity of Renewable ObligationCertificates (ROCs) and a penalty re-cycling mechanism  Policy formulated in 2000 RPO obligation  15.4% RPO till 2015-16  20% renewable RPO till 2020 RPO  No solar specific targets in RPO enforcements Solar targets implementation  22GW of solar power by 2020  Implementing body: OFGEMS  Yearly penalties exist but are redistributed to Compliance compliant utilities in the proportion of their share of total ROCs bought in the country  Two ROCs for 1MWh solar produced Price  Buyout price INR3,200/ROC (£36.99/MWh)  (2010-11). REC trading Validity  2 years  Data specific to solar ROCs is unavailable Volumes  Overall 24,884,608 ROCs issued in 2010-11 Source: BRIDGE TO INDIA market analysis 01.08.2012 01.08.2012 Page 33 Seite
  4. 4. Japan has defined penalties for non-compliance, quarterlyaccounting for compliance and a carry over of obligations  Policy formulated in 2003 RPO obligation  Target to install 16TWh of renewable energy by 2016 RPO Solar targets  No solar specific targets in RPO enforcements implementation  Penalty of up to JPY1m (INR 0.7m) on interim and annual basis Compliance  There is also a quarterly compliance mechanism  20% carry over of obligation is permissible  Tradable New Energy Certificates (NEC) with a Price forbearance price of JPY11 (INR7.59) REC trading Validity  2 years Volumes  NA Source: BRIDGE TO INDIA market analysis 01.08.2012 01.08.2012 Page 44 Seite
  5. 5. Australia has a differentiated non-compliance penaltyenforcement and allows re-cycling of penalties  Policy formulated in 2000 RPO obligation  45,000GWh (or 20%) RPO till 2020 Solar targets  No solar specific targets in RPO enforcements RPO implementation  Monetary as well as civil penalties for severe non- compliance Compliance  Severity based on reasons for non-compliance  Re-cycling of penalties over three years  Carrying forward a part of penalty to the next year  Solar Credits REC multiplier of around 1.5 for Price small solar installations  INR1,378/STC1 and INR1,952/LGC2 REC trading Validity  1 Year Volumes  NA 1Small-scaletechnology certificate (STC) 2large-scale generation certificate; 1 LGC = 1MWh of renewable electricity generated above the power station baseline; Based on BRIDGE TO INDIA market analysis 01.08.2012 01.08.2012 Page 55 Seite
  6. 6. India has separate solar specific obligations and thestates are charged with on-ground implementation  Policy (NAPCC) formulated in 2008 RPO obligation  15% renewable RPO till 2020 RPO implementation Solar targets  3% solar RPO till 2020  Compliance at forbearance price Compliance  States may implement further penalties  Floor price – INR 9,300/MWh Price  Forbearance price – INR 13,400/MWh  Trading price (Recent) - INR13,000/MWh REC trading Validity  1 Year Volumes  336 bids cleared on IEX Source: BRIDGE TO INDIA market analysis 01.08.2012 01.08.2012 Page 66 Seite
  7. 7. Learnings: India needs to incorporate measures to improve RPOenforcement Examples Relevance for India  Australia segregates  Enforcement measures can Differential penalties for non-compliance reflect ground realities of penalties by measuring the reasons utilities for non compliance  Obligated entities are better  The higher the risk the more place to reach full stringent is the legal action compliance in stages taken  Regulators advise on regulations to ensure better compliance  Japan has a penalty of up to  Puts a value on potential Specific Penalties costs for non compliance JPY1m (INR690,000) for non compliance  Gives certainty on  Imposed on an interim and enforcement to project annual basis investors  Improves the bankability of projects Source: BRIDGE TO INDIA market analysis 01.08.2012 01.08.2012 Page 77 Seite
  8. 8. Learnings: India should incentivise RPO compliance throughREC and increase REC window Examples Relevance for India  UK has a buy out fund  Complying entities have a Recycling where non complying potential income stream penalties entities deposit a penalty  It provides partial off set to  Complying entities can claim REC costs for utilities it after they deposit the  Provides incentives for RPO proportionate number of compliance through RECs ROCs*  Australia has a pay back mechanism of penalties charged in case of compliance for 3 years  Indian RECs have a validity  Japan’s New Energy Long term of a year Certificates and UK’s issues validity  This two year validity ROCs have a validity of 2 increases the trading years. window for developers  Mitigates risks from potential demand and supply Source: BRIDGE TO INDIA market analysis *ROC: Renewable Obligation Certificate mismatches 01.08.2012 01.08.2012 Page 88 Seite
  9. 9. Learnings: India has to heighten the price stability andincrease bankability of RECs Examples Relevance for India  All other countries with an  Long term pricing increases Long term REC mechanism are the bankability of a project in pricing developed countries the absence of a strong  They have robust market market mechanism mechanisms in place .  Japan checks the  Balances the number of Quarterly compliance of its obligated REC purchases made compliance entities on a quarterly basis through out the year  Improves the price stability of the REC  Improves cash flow available to developers Source: BRIDGE TO INDIA market analysis 01.08.2012 01.08.2012 Page 99 Seite
  10. 10. Thank You 01.08.2012 01.08.2012 Seite 10 Page 10