Agneya\'s Newsletter on Renewable Energy Sector and REC market in India


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Horizons V2 Issue 4

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Agneya\'s Newsletter on Renewable Energy Sector and REC market in India

  1. 1. agneya Volume 2 Issue 4HORIZONS 25 July, 2012International Markets for Renewable Energy Compliance Vs VoluntaryRenewable Energy Certificates (RECs) were introduced in India in 2010 to promote RE MarketsRenewable Energy Sources and to support Renewable Purchase Obligationmechanism. Since trading started in March 2011, the market has taken off well andhas matured over the period. Globally, Europe and United States are the biggest Comparative size ofmarkets of Renewable Energy. Compliance and Voluntary RE segmentsEurope IndiaCompliance marketThe Renewable Purchase Standards in Europe are driven by commitment to EUincrease the share of Renewable Energy in the electricity mix. Obligated entities can USfulfill obligations by purchasing Renewable Energy Certificates (RECs). Compliancecertificate schemes in Europe are national, with all countries except Italy having 0% 50% 100%obligations on the percentage of electricity to be consumed from Renewable Energy Compliance Voluntarysources by electricity suppliers. Certificates are issued by Government designatedauthorities. In UK, The Gas and Electricity Markets Authority is responsible for the Source: Hedenstroem, C. (2011).implementation and administration of RPS on all licensed electricity suppliers. Size Highlights of EU policies for renewablesof Compliance certificate market for UK was £1.3 billion (i.e. around Rs. 8,500Crores) for the year 2010-11 International REC markets are mix of Compliance and VoluntaryVoluntary market segments. While Compliance isUnlike the Compliance market, Voluntary market in Europe is driven by environment dominant segment, Voluntaryconscious electricity consumers. Voluntary schemes for Renewable Energy markets provide valuable supportCertificates in Europe started in 2001, after liberalization of the electricity sector. to the overall RE market.Designated competent bodies supervise the issue of “Guarantees of Origin” (GO)which specifies the source, time and place where the electricity is produced. TheAssociation of Issuing Bodies (AIB) was formed to standardize the certification
  2. 2. 2Options for BuyingRenewable Energy Share of Market Sector in Total Voluntary Sales (US), Million MWh 5.4 19.8 10.4 system across member States. There are currently 16 countries with a standardized certificate system and issuing body as a member of AIB. Utility Green Pricing USA Competitive Markets Compliance market Unbundled REC Markets Most States in US have independent targets for increasing the share of Renewable Energy in the electricity mix. Thirty-nine of the fifty States have binding RPS in US.Source: NREL, Oct 2011 Most of the States allow the use of RECs for fulfilling RPOs. Independent bodies issue RECs which are independently audited by Utility Commissions. RECs have associated attributes such as energy facility (e.g. wind or biomass), technology ofVarious options are available to origin, and the generation date. Prices of REC vary as per attributes and issuingconsumers including residential body. Most States allow RECs generated in their respective States only for fulfillingconsumers to buy Renewable the RPS, with tracking systems to ensure that RECs are exhausted after use.Energy: Voluntary market1) Utilities offering Green The drivers for this market are similar to European markets with environmental Energy to electricity consciousness and growing awareness amongst the population being the key consumers. Consumers can reasons. Buyers include both Residential and Business consumers. Voluntary RECs pay premium for purchasing are issued and marketed by different issuing bodies. Further, programs such as Renewable Energy for either Green-e Energy have been developed to ensure that no double selling of voluntary full or partial consumption of certificates occurs. The size of the Voluntary market in US is estimated to be $168 - Renewable Energy. 285 million.2) Consumers can choose to Energy Markets in Europe and US (TWh/annum) switch electricity Financing if supplier Source: their current provider does EU 3300 350 300 Hedenstroem, not offer green energy option. 3950 C. (2011). US 55 35 Commercials Electricity supplier can either Highlights of EU policies for purchase RECs or buy Conventional energy market Compliance RE market Voluntary RE market renewables Renewable energy from Generators Technology3) Consumers can buy green India – An evolving framework for REC markets energy from the market The REC market in India is new, with pricing capped by the government. The role of through companies, brokers the Government in pricing, however, is expected to reduce as the market matures. selling unbundled RECs Compliance REC markets are still in the process of stabilizing – the process for registration needs to be streamlined in order to make it easier for larger number of buyers/sellers to participate. Introduction of Voluntary market mechanism meanwhile, has the potential of further boosting REC market in the country.
  3. 3. agneya 3 REC Market in July 2012 REC InventoryREC Trade Clearing Price Buy Bids Sell Bids Volume TradedJuly 2012 Rs. per REC REC Inventory July 2012 IEX 149,628 435,348 147,369 2,000Non-Solar PXIL 11,400 32,194 10,851 2,202 IEX 8,554 419 93 12,800Solar 3,33,969 1,58,220 PXIL 200 130 86 12,800 3,49,526 1,73,777Lean trading session for RECsAfter strong showing in the first three trading sessions of this financial year, the RECmarket slowed down in July. The first quarter was expected to present ObligatedEntities with the opportunity to fulfill their commitments at a lower price as the markettends to pick up gradually after April. With the initial rush for purchases over, the Source: REC Registrymarket is settling down for a lean period. It must be noted however, that REC price ofRs. 2000 in July is still 29% higher than same session last year, even after loweringof forbearance price from Rs. 3900 to Rs. 3300. Opportunity for 250 236 3,500 Obligated Entities 206 200 3,000 200 With highest ever balance of 172 169 158 2,500 RECs accumulated with 150 2,000 developers and Wind season on, 106 112 it is expected that supply will 96 1,500 100 exceed demand by a wide 71 1,000 margin in next trading session. 46 50 25 Hence, it is a good opportunity 19 500 for Obligated Entities to fulfill - - RPO by buying RECs at lower July 2011 Aug 2011 Sept 2011 Oct 2011 Nov 2011 Dec 2011 Jan 2012 Feb 2012 Mar 2012 April 2012 May 2012 June 2012 July 2012 prices. IEX and PXIL Whole Volume Trade in Thousands Price at IEX (RHS) Price at PXIL (RHS)
  4. 4. Capacity Registered, MW 600 30004State-wise Registered 500 2500Capacity, April 2012 to 400 384 335 2000date 300 273 287 271 1500 172 172State MW200 149 158 1000 113 106Tamil Nadu 257 93 73Maharashtra 197100 500Gujarat 106Karnataka 69 0 0Madhya Pradesh 21Uttar Pradesh 13Chhattisgarh 12Rajasthan 8Himachal Pradesh 3Punjab 0 Cum. Registered till Date(RHS) RegisteredUttarakhand 0Kerala 0J&K 0 Although trade value in this session fell by 44% of last trading session toHaryana 0 Rs.31.86 Crore, still this is 14 times of the trade value during July last year.Total 686Source-wise RegisteredCapacity, April 2012 todateSource MWWind 532Biomass 82Bio-fuel cogen 50Solar PV 18Small Hydro 4Total 686agneyaAgneya is promoted by alumni of IIM Ahmedabad and IIM Bangalore. We provide services in the following areas –Renewable Energy – advising clients on the best possible portfolio of renewable energy (wind, solar, bio) across tariff regimes,technology options, electricity sales structuring and availing incentives like REC and GBI.Renewable Energy Regulations – advising clients on regulatory aspects of electricity market, options for realizing the maximumvalue from their energy assets and minimizing costs related to regulatory compliance including addressing RPO.Carbon & Energy – measuring carbon footprint, current/future energy profiling, and setting up energy management systems toassess risks and opportunities related to energy security and climate change.Sustainability – building robust long term foundations for business i.e. managing economic, environmental and social aspects ofbusiness. These include establishing sustainability management framework and reporting as per GRI guidelines.For further information on Renewable Energy Certificates or other services, please contact us at –E-mail – | Phone – +91-20-41203800, +91-88 06 07 07 83 | Website –