Horizons V2 Issue 6

1. agneya Volume 2 Issue 6
HORIZONS
26 September, 2012
The C in AT&C
Renewable Energy: Achievement and Bottlenecks
Over the years, RE has grown AT & C losses
steadily to become an important 2012
China
part of the country’s energy mix. 2007
Wind energy has achieved 2002 US
substantial size while solar energy Brazil
0% 50% 100%
is beginning to accelerate. For India
further growth however, major Hydro Thermal Nuclear RES
improvements in the country’s 0% 10% 20% 30%
distribution capabilities are Source: Ministry of Power
required. Source: World Development Indicators
database
Distribution: Unlocking India’s potential
While AT&C losses in
A number of steps have been taken to promote the electricity sector in India developed countries are small,
– EA 2003, unbundling of SEBs, policy and tariff support to RE sources etc. they mainly comprise of
Generation capacity in the country has reached from 100 GW in 2001 to 200 technical losses. In developed
GW in 2012. At the same time however, demand has grown faster than countries commercial losses are
supply. This gap is expected to persist as further addition in thermal practically non-existent. In India
generation is limited by coal extraction capacity. however, lack of metering,
payment default and theft
This highlights the role of RE in bridging the energy deficit. However, for RE contribute to “commercial
to be able to deliver benefits, an efficient distribution system needs to be in losses”, usually clubbed with
place. The importance of distribution is often lost in the discussion about T&D losses.
need to increase generation capacity. A 15% reduction in losses as
envisaged by the Ministry of Power recently will mean effective addition of
30,000 MW of capacity - more than half the capacity addition of 53 GW in the
11th five year plan.

2. 2
Solar Tariffs in India
Tariff in (Rs./ Unit)
Guj PT FY12
CERC PT
FY12
Maha PT
FY12
Distribution: Backbone of commercial models
The REC Mechanism introduced last year provided RE generators a significant
Kar State
policy
alternative to selling to cash strapped State Utilities. The non-solar REC market
however has been muted of late. While generators have enthusiastically opted
JNNSM for this mechanism, the corresponding demand is yet to reach expected levels.
Phase I Batch This is due to slow implementation of RPO mechanism of which distribution
II
companies are key constituents.
Odisha State
policy One of the important reasons for poor
Wind tariffs (Rs./ Unit)
financial condition of Utilities is delayed
6.5 11.5 tariff hikes. Actual cost of power taking
TN REC 4.04 4.94
Lower value Higher value into account increased fuel prices is not
passed to consumers to avoid tariff TN PT 3.39
shocks.
AP REC 3.5 4.4
Source: SERC Tariff orders, News
articles Discoms in developed countries have AP PT 3.5
higher share of infirm renewable energy
Recently concluded bidding Guj REC 4.11 5.01
in their energy mix. In India, discoms are
process for solar power in
various States as well as under unable to manage the grid with Guj PT 3.56
JNNSM resulted in surprisingly increasing share of renewable energy
Kar REC 4.23 5.13
low tariffs. injected into the grid. Financial
Financing sustainability is a prerequisite for Kar PT 3.7
However, investors have opted discoms to implement technological
for projects under these policies developments.
Commercials
due to lower risk of default from Source: SERC orders, Lower REC price taken
distribution companies. This is at Rs. 1.5/ unit and higher REC price taken at
because investors have taken Bailout, not Reform Rs. 2.4/ unit (Average of 1.5 & 3.3)
into account risk of payment
Technology
default under other commercial Regulators aim to transition to a process of competitive bidding for deciding the
mechanisms. renewable energy tariff in the States. To achieve this, a competitive distribution
sector able to provide open access is important. The Government has found a
The REC mechanism however, temporary solution to the problems of distribution companies by reducing the
is providing a major boost to debt servicing burden on the discoms. In the long run however, such financial
solar energy especially through engineering will have limited impact on the sector. A calibrated plan of increase
the captive route. in tariffs is required to ensure viability as well as higher efficiency.

3. 3
REC Market in September 2012
REC Inventory
REC Trade Clearing Price
Buy Bids Sell Bids Volume Traded
Sep 2012 Rs. per REC
REC Inventory Sep 2012
IEX 239,364 664,641 239,364 1,500
Non-Solar
PXIL 25,082 46,530 25,082 1,500
2,64,446
IEX 1,317 1,094 735 12,500 5,17,432
Solar
PXIL 525 527 425 12,900
8,51,628
Non-Solar prices wait for demand to catch up 5,98,642
The REC market in September 2012 recorded the highest volume of REC issuance
ever resulting in the highest closing balance in the REC trade, Demand however
remained subdued. Price realization remained at floor level of Rs. 1,500 with all the
buy bids cleared at both IEX and PXIL. Even if we consider that only 20% of the RPO
compliance is done through RECs, annual demand of RECs for FY 2012-13 should
Source: REC Registry
be more than 1 Crore. This demand is not yet reflected in the REC market as only
less than 12 lakh RECs have been traded till September. This shows that while
regulators have provided support to RE through RPO, more effort on enforcement is Solar RECs cross 1000
required. milestone
300
274 3,500 While non-solar RECs market
264
has been muted, solar RECs
3,000
250 236
have been picking up steadily
206 200
200
2,500 for the last few trading
172 169 sessions.
158 2,000
150
106 112 1,500 Solar REC witnessed a surge in
96
100 trading this month. With 1,160
71 1,000
46 certificates traded, the volume
50 500 this month more than tripled
volume of last trading session.
- -
Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep-12
The trade also saw a healthy
2011 2011 2011 2011 2012 2012 2012 2012 2012 2012 2012 2012 price realization at Rs. 12,500
per certificate at IEX. Value of
IEX and PXIL Whole Volume Trade in Thousands Price at IEX (RHS) Price at PXIL (RHS)
trade more than tripled and
Source: IEX and PXIL exceeded Rs.1.4 Crores in this
trading session.

4. Capacity Registered, MW
600 3500
4
State-wise Registered 500 3000
Capacity, April 2012 to 384
2500
400
date 335
2000
300 271 250
State MW 1500
Tamil Nadu 329
Maharashtra 253
200 172 158
149 1000
Gujarat 135 113 106 107
Karnataka 126 93
100 73 62 500
Rajasthan 27
Madhya Pradesh 22
Uttar Pradesh 20 0 0
Chhattisgarh 12
Odisha 5
Himachal Pradesh 4
Punjab 0
Uttarakhand 0 Cum. Registered till Date(RHS) Registered
Kerala 0 Source: REC Registry
J&K 0
Haryana 0 In total, 107 MW of capacity was registered in September. With this addition, the
Total 933
capacity registered in this financial year has touched 933 MW. Total trade value
of solar and non-solar RECs exceeded Rs. 40 Crore in this trading session.
Source-wise Registered
Capacity, April 2012 to
date
Source MW
Wind 731
Biomass 97
Bio-fuel cogen 81
Solar PV 18
Small Hydro 6
Total 933
Source: REC Registry
agneya
Agneya 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 maximum
value 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 to
assess 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 of
business. 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 – rahul@agneya.in | Phone – +91-20-41203800, +91-88 06 07 07 83 | Website – www.agneya.in