The REC Mechanism: Viability of solar projects in India
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The REC Mechanism: Viability of solar projects in India

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BRIDGE TO INDIA's first INDIA SOLAR DECISION BRIEF on the REC Mechanism: Viability of solar projects in India

BRIDGE TO INDIA's first INDIA SOLAR DECISION BRIEF on the REC Mechanism: Viability of solar projects in India

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    The REC Mechanism: Viability of solar projects in India The REC Mechanism: Viability of solar projects in India Document Transcript

    • The REC Mechanism The REC Mechanism of Viability solar projects in India Viability of solar projects in India LEAD SPONSOR ASSOCIATE SPONSORS © BRIDGE TO INDIA, 2012Original illustration by Dwarka Nath Sinha
    • Contents 1. Overview 01 2. The Renewable Energy Certificate 02 (REC) Mechanism 2.1. Background 02 2.2. Solar RECs 02 2.3. Lessons from the non-solar REC market 03 2.4. Procedures and timelines 06 3. Is the solar RECs market viable? 09 4. Solar REC business models 12 4.1. Business Model 1: APPC + REC 12 4.2. Business Model 2: RESCO + REC 13 4.3. Business Model 3: Captive + REC 15 5. Regulations under discussion 17 6. Conclusions and recommendations 18 7. Annexure 19 7.1. State-wise RPO Quotas (2012-2013) 19 7.2. Status of non-solar RPO compliance across different states 19 (2012-2013) 7.3. Glossary of terms 20 8. Guest Article 21 Setting up large scale PV: Lessons from new markets by Mr. Santosh KM, Managing Director, ENERPARC India 9. Interviews 24 Mr. Stefan Mueller, COO, Enerparc 24 Mr. Vinay Shetty, Country Manager – Indian Subcontinent, 26 Canadian Solar Mr. Jens Burgtorf, CSO, Director, Indo-German Energy Program, 28 GIZ Mr. Jan Marc-Raitz, Director, Commercial Department, PV 30 Projects, IBC Solar © BRIDGE TO INDIA, 2012
    • List ofFigures Figure 2-1 RPO requirements of selected states in India 02 Figure 2-2-1 Floor and forbearance prices 02 Figure 2-2-2 Projects registered under the REC mechanism 03 Figure 2-3-1 Registered REC projects by renewable energy resource 03 Figure 2-3-2 Historical non-solar REC demand by consumer category 04 Figure 2-3-3 History of demand-supply of non-solar RECs 04 Figure 2-3-4 Historical price discovery of non-solar REC prices 05 Figure 2-4-1 Process for the issuance of solar RECs 06 Figure 2-4-2 Solar REC eligibility 06 Figure 2-4-3 Details of the accreditation fees payable to the SLDC 08 Figure 2-4-4 Details of the registration fees payable to the NLDC 08 Figure 2-4-5 Details of the issuance fees payable to the NLDC 08 Figure 3-1 Expected solar PV capacity based on the REC mechanism 09 Figure 3-2 Derivation of expected solar PV capacity based on the REC 10 mechanism (year-on-year) Figure 3-3 India solar and grid price projections 11 Figure 3-4 Assumptions for the projection of solar and grid prices 11 Figure 3-5 Solar REC price projections 11 Figure 4-1-1 State-wise APPC prices (2012) 12 Figure 4-1-2 Assumptions for determining EIRR – APPC + REC 12 Figure 4-1-3 Financial viability of APPC+REC projects 13 Figure 4-2-1 Assumptions for determining EIRR – RESCO + REC 14 Figure 4-2-2 Financial viability of RESCO+REC projects 14 Figure 4-3-1 Assumptions for determining EIRR – Captive + REC 16 Figure 4-3-2 Financial viability of Captive + REC projects 16 © BRIDGE TO INDIA, 2012 3
    • 1. Overview The Indian government has decided to the grid, generate these certificates. to incentivize the installation of solar This offers a new type of project to PV in order to increase the energy solar project developers. They can supply of India, provide more energy find an off-take for their power under security, offer de-central power market conditions and simultaneously Indian solar policies solutions and create a future industry. generate RECs. initially focussed on The policy initially focused on supplysupply side measures. side measures. It started with capital The REC mechanism comes with the subsidies. Then, with the National risk of uncertainty of REC pricing. Solar Mission (NSM) and the Gujarat While there is a fixed REC floor price solar policy, solar PV was supported of `9,300 (€143)* per REC (equivalent through preferential feed-in-tariffs to 1MWh), there is some uncertainty (FiTs). Now, solar Renewable Purchase on the pricing post 2017. BRIDGE TO Obligations (RPOs) for utilities as well INDIA estimates that REC prices will as direct power customers (through be in the band of `2,200 (€34) per REC “Open Access”) and large captive to `4,000 (€62) per REC between 2017 power consumers are supposed and 2022. The most significant risk, to create a demand side “pull” to is of the lack of enforcement of RPOs. complement the supply side “push”. This is allayed to a certain extent from the market data for non-solar RECs. So-called “obligated entities”, who Judging by the performance of the have to fulfill RPO quotas have four non-solar REC market and indications options. They can avoid fulfilling their from the regulatory bodies, BRIDGE Now, solar RPOs are obligations, in which case they could TO INDIA predicts that there will be a supposed to create a be penalized. Alternatively, they can strong move by states to fulfill their purchase solar power from the market RPOs. demand side pull. or generate their own solar power. The fourth option is to buy Renewable Energy Certificates (RECs) to meet the quota. Solar plant owners, who sell their power outside of preferential FiTs * All € values are at €1 = `65 (long-term average rate) © BRIDGE TO INDIA, 2012 01 1
    • 2. The Renewable 2.1 Background 2.2 Solar RECs Energy RECs are a market mechanism to In line with RPOs, there are two Certificate facilitate the compliance of RPOs. categories of RECs – solar and non- Mechanism of power consumers – distribution RPOs are enforced on three categories solar. Solar RECs include both PV and CSP technologies. Non-solar RECs licensees, Open Access consumers and include a basket of renewable energy captive consumers. The obligations are technologies such as wind, biomass, driven by the National Action Plan on biofuel cogeneration and small- Climate Change (NAPCC) that aims at hydro. RECs are traded on the Indian Every MWh of solar 15% renewable energy in the overall Energy Exchange (IEX) and the Power energy produced energy mix of India by 20201. There Exchange of India Ltd. (PXIL). The IEX are two categories of RPOs – solar currently has a leading market share generates one REC. and non-solar. States in India are free of 91%. to set their own RPOs in line with the recommendations from their State 1 REC = 1MWh Electricity Regulatory Commissions (SERCs). The table below lists the Every MWh of solar energy produced major states with solar-RPO quotas2. generates one REC. Solar RECs are traded once, on the last Wednesday Figure 2-1: RPO requirements of every month. The trade price is of selected states in India discovered based on their demand and supply. In addition, and in order State Solar RPO to provide a minimum of certainty on (2012-2013) REC prices, the Central Electricity Andhra Pradesh 0.25% Regulatory Commission (CERC) has Gujarat 1.00% fixed a floor and forbearance price for RECs are traded on Haryana 0.50% the period 2012 to 2017 between which the Indian Energy Himachal Pradesh 0.25% the RECs can be traded. Karnataka 0.25% Exchange (IEX) and Kerala 0.25% Figure 2-2-1: Floor andthe Power Exchange of Madhya Pradesh 0.60% forbearance prices3 India Ltd. (PXIL). Maharashtra 0.25% Punjab 0.07% Floor Price `9,300 (€155) Tamil Nadu 0.05% Forbearance Price `13,400 (€223) Uttar Pradesh 1.00% © BRIDGE TO INDIA, 2012 Uttarakhand 0.25% Source: BRIDGE TO INDIA © BRIDGE TO INDIA, 2012 Source: BRIDGE TO INDIA Although the REC market was Renewable energy resources are established on February 2011, the distributed differently across each solar REC market has been largely state in India. The RECs are aimed at inactive. The first trading of solar RECs addressing this mismatch between was in the session of May 2012. The the availability of renewable energy demand for solar RECs was 1,637, far resources in states and their RPO greater than a total of 149 available on requirements. Obligated entities have the supply side. the option of purchasing RECs to fulfil their RPOs. 1 Government of India, The Prime Minister’s Council on Climate Change, National Action Plan on Climate Change 2 State Electricity Regulatory Commission Orders. For a complete list, see Annexure 1 3 REC Registry © BRIDGE TO INDIA, 2012 02 2
    • None the less, there were only five RECs traded at a price of `13,000 2.3 Lessons from (€200), indicating that the selling the non-solar price bid was far too high. The lack of REC market activity on the solar REC market can The lack of activity on be attributed to the lack of solar REC While the solar REC market has just the solar REC market projects supplying the certificates. taken off, the non-solar REC market India’s first solar REC project to can be attributed to has been active since May 2011. On start trading is a 2MW project in the supply side, the non-solar REC the lack of solar REC Madhya Pradesh developed by M&B market is primarily driven by wind projects supplying the Switchgears Limited. energy projects (50% at 1,332MW), certificates. Going ahead, the supply of solar followed by bio-fuel cogeneration (23% at 622.5MW) and biomass (20% at RECs is likely to be bolstered by six 542MW)7 . additional projects that are currently registered. Figure 2-2-2: Projects registered under the REC Mechanism (August 2012)4 Project State Capacity (MW) Jaibalaji Business Corporation Pvt.Ltd. Maharashtra 1.0 Omega Renk Bearings Pvt.Ltd. Madhya Pradesh 0.15 © BRIDGE TO INDIA, 2012 M/S Gupta Sons Madhya Pradesh 0.5 Jain Irrigation Systems Ltd. Maharashtra 8.5 Kanoria Chemical & Industries Ltd. Rajasthan 5.0 Numeric Power Systems Ltd. Tamil Nadu 1.16 While the solar REC M&B Switchgears Ltd. Madhya Pradesh 2.0 market has just taken Source: BRIDGE TO INDIA off, the non-solar REC Figure 2-3-1: Registered REC projects by renewable energymarket has been active resource8 since May 2011. 1% 23% Wind Small Hydro 50% Biomass Bio-fuel Cogeneration Solar PV 20% 6% © BRIDGE TO INDIA, 2012 Source: BRIDGE TO INDIA CLICK HERE TO DOWNLOAD THE FULL REPORT 4 5 REC Registry 105 KW 6 The REC Registry lists this project as 1.055MW 7 REC Registry 8 REC Registry © BRIDGE TO INDIA, 2012 03 3