General Carbon NewsletterENERGY & ENVIRONMENTAL COMMODITIES NEWSLETTER MAY 2012, ISSUE:11Notice awaited! REC PROJECT HIGHLIGHTS (as on 1st May 2012)The price of REC in the April trading session left many a questionsunanswered. While volume available for the trading was lower, the traded Accredited Projects:493quantity was even lower at 89,199. General Carbon prepared an assessment (2822.398 MW)of the supply and demand for RECs, which reinforced the belief that we Registered Projects: 388would be in deficit of our RPO targets in 2013, as well. While a deficit in (2424.933 MW)achieving RPO would indicate strong demand of RECs, the market is REC Issuance:awaiting signals on compliance and enforcement which could take close to REC Issued: 1,22,369six months. Most DISCOMs in the southern and western states indicate that REC Redeemed: 71,226they will be able to achieve their RPO target, while some in Karnataka feel Closing Balance: 89,688that they may even exceed their target. The view of DISCOMs that are going (Source: Recregistry, India)to fall short on their RPO targets and their plans are eagerly awaited. REC PRICE WATCHThe carbon market continued to remain in disarray. Set aside discussions Apr 2012 Sessionseem to have been “set-aside” for now. We continue to see historic lowprices, amazingly large issuances, record registrations coupled with strong IEX: Price (Volume)project and PoA inflow. The EB meeting in early May decided not to conclude Non solar -INR 2,201on credits for efficient coal projects, which reduces any hope of registration (62,277)by December 2012 for supercritical coal projects. Solar - (Not traded)Demands to extend accelerated depreciation benefits for wind turbines as PXIL: Price (Volume)well as GBI extension were covered by media, however no official word on Non solar -INR 2,201the same. Power markets witnessed regular action during the month with (8,949)nothing major to report. Traction on energy efficiency is increasing with Solar - (Not traded)renewed focus due to PAT targets. CER PRICE WATCH 30 May 2012Best, BlueNext Daily Spot: Price (Volume) € 3.63 (30,000)Satish Kashyap
Impact of PAT and RPO on emission reduction by India Energy MarketWhat is the combined impact of PAT and RPO in effecting India’s emission Newsreductions till 2020? Is there need for other initiatives to help India achieve itsemission reduction target under the National Action Plan on Climate Change West Bengal plans(NAPCC)? policy on Renewable energyAs per the interim report titled “Low Carbon Strategies for Inclusive Growth, The West BengalPlanning Commission of India, 2011”, India’s target to reduce emission government isintensity by 20-25% by 2020 will require reduction of 733 million ton CO2e mulling a new policy(MTCO2). As per the report, various emission reduction options are identified on renewableand the resulting quantum of annual emission reductions under scenario energy. We aretitled “determined effort” is 376.5 MTCO2. Hence to achieve 20-25% emission planning to bring aintensity decrease (from 2005 levels) by 2020 requires aggressive effort and policy on renewablenew emission reduction options need to identified and deployed. energy sources, said an official from theEffort-wise allocation of annual emission reduction is: dept of power. Estimated emission reduction from MTCO2 % sectors in 2020 CO2 savings from Energy Efficiency from Demand side 96 25% M&B the first Savings from Supply side change in company to get generation efficiency and mix 85 23% solar REC Savings from freight modal shift 14 4% registration Passenger transport modal shift 17 5% Vehicle fuel efficiency norms 11 3% BSE listed M & B Commercial buildings sector (compliance to Switchgear has ECBC, ratings) 60 16% become India’s first Steel Sector 36 10% solar developer to Cement sector 57 15% get itself registered Oil & gas 0 0% by NLDC for solar Forestry under national mission 43 11% renewable energy 376 100% certificates. The company hasTwo key efforts to drive the emission reduction are the Perform Achieve and commissioned a 1.5Trade (PAT) scheme and the Renewable Purchase Obligation (RPO) MW solar plant,mechanism. The Demand Side EE measures (PAT), Supply Side measures which is expected to(PAT, RPO), measures in Steel and Cement cover about 66% of emission generate 1,500 REC.reductions.The PAT scheme covers only seven industrial sectors and 478 designatedconsumers contributing to ~100 million tCO2e emission. PAT’s contributionto emission reduction works out to 14% when calculated against the requiredannual emission reduction target of 733 MTCO2 of emission reduction.
Similarly, in the case of RPO, if the targets communicated by all the statesare met, then RPO can contribute to 6% when calculated against the Gujarat has 749GWrequired annual emission reduction target of 733 MTCO2 of emission of renewablereduction. energy potential: TERIHence, PAT and RPO are covering about 20% of the required emissionreductions to meet the goal of 733 MTCO2 of emission reduction. At present Gujarat’s overallRPO and PAT are the only rigorous tractable mechanisms to achieve and integrated renewabletrack emission reduction. Given that 80% of the target is to be achieved by energy potential isother means, we are likely to see more new mechanisms as well as estimated to beenhancement in scope of existing mechanisms (increase in obligated entities 748.77GW. Theunder PAT and RPO etc.) going forward. The majority of emission reductions overall renewable(the balance 80%) are therefore in effect left to initiatives which are yet to be energy potential indetailed. Gujarat is very high, considering if all thePravin Jadhav identified suitable lands can be made available. Orissa demands subsidy for DISCOMs to buy solar power The state consumers are unwilling to pay for high cost solar power. The government of India should subsidise solar power purchase by DISCOMs. National Solar Mission completes 89% of allotted capacity The National Solar Mission, which aims to install 20,000MW
capacity of solar energy by 2020, has commissioned 89% of its allottedWhat a EUR 4 price means to additionality? capacity in its first stage.Many experts were hoping that CER prices would return to EUR 12 – 15towards the end of the compliance period (December 2012) and prevent aflashback of near zero price witnessed during the end of the previouscompliance phase. With European economies in recession, increased supply TANGEDCO wantsof the CERs due to improvement of CDM processes and reduced demand penalty for misusedue to lower industrial output in Europe has led to a downward trend in CERprices. TANGEDCO has filed a petition beforeAdditionality is an essential concept for any carbon credit (offset). The TNERC seekingconcept of additionality addresses the question of whether the project would approval for levyinghave happened anyway, even in the absence of revenue from carbon credits. excess demand andOnly carbon credits from projects that are "additional to" the business-as- energy charges onusual scenario represent a net environmental benefit. HT, LT, LTCT industrial servicesMost project developers have demonstrated additionality by proving that consumers who areprojects are not financially viable without revenue from carbon offsets. In not complying withother words, the revenue from the carbon offsets is a decisive reason for the revisedimplementing a project. Investment additionality is most often proved by restrictions anddemonstrating that project returns (IRR or NPV) is lower than the industry control measures.benchmark.The increase in IRR due to carbon credit revenue varies based on projecttype Wind, Biomass & Hydro projects o Revenue increase from CERs at EUR 4 results in ~ 6% increase India seeks Kyoto in revenue and 1-2% increase in IRR type agreement o Revenue increase from CERs at EUR 14 results in ~ 21% after 2020 increase in revenue and 4-5% increase in IRR Giving European Landfill gas and biogas projects Union thumbs down, o Revenue increase from CERs at EUR 4 results in ~ 30% increase India has proposed in revenue and 5-6% increase in IRR that global climate o Revenue increase from CERs at EUR 14 results in ~ 60% treaty after 2020 increase in revenue and 12-15% increase in IRR should be similar to existing treaty Kyoto Cookstove project (assuming 2 CERs/ stove/ year) Protocal stipulating o Revenue from CERs at EUR 4 results in EUR 8 per cookstove mandatory emission per year cuts for the o Revenue from CERs at EUR 14 results in EUR 28 per cookstove developed world and per year voluntary mitigation action for the
Thus, lower CER prices will not help many projects alleviate the benchmark, developing world.but only increase returns marginally. Considering a typical example of a windenergy project, if IRR without CDM is 8%, at 4 Euro CER price, the IRR can Governmentat best increase to 9.5%. Typically wind projects in India have benchmarks prepares firstfrom 12-13.5% (bank lending rates/ WACC). Thus, most registered projects energy policy draftfrom India had used CER rate assumption from 10-15 Euro to meet thisbenchmark. Thus, at 4 Euro CER price, these projects will not get benchmark At a time when thereturns to make them financially viable. entire world isFor Landfill and Biogas projects, there would be no impact since the IRR is focussing on thealready high. non-conventional orThis is again different in community based projects. The carbon markets have renewable sources ofbeen highly volatile and this is where the Bachat Lamp Yojana scheme energy, it took theflounders. When the scheme was launched, CER price was 12 Euro (around eco-friendly BengalRs 780). Investors were upbeat. But CER price touched an all-time low last government 10year. This has resulted in the dip in number of buyers and thus the project is months to prepare aon standstill. final draft of this seems little bothered about it.Kshitija Rangnekar Renewable Energy Wind Energy units seek to restore depreciation benefits With the Union Government removing the accelerated depreciation benefit for investors in wind mill projects from April 1, 2012, investment in the wind energy sector will not be attractive to the small captive investors.
Power Price Trend Power Min issues directives to CERC on open access In yet another push for granting open access to all electricity consumers with power requirement of 1 Mw and above, the power ministry, exercising its power under section 107 of the(Source: IEX website) Electricity Act, 2003, has issued directives to the Central Electricity RegulatoryREC Price Trend Commission (CERC) stating that regulators have no jurisdiction to decide energy charges for such consumers. Industries can now purchase power from open market The government has now invoked special powers under the Electricity Act and directed the Central and State regulators to implement a long- pending reform to allow industrial consumers to buy cheaper power from the open market.(Source: PXIL and IEX websites)
Market Updates EDITOREnvironmental Market News Rameez ShaikhUnique scheme for energy efficiency rameez.shaikh@general-The PAT scheme requires notified industries to invest in energy efficiency carbon.comand reduce at least 5% of input energy cost for self and public good. Thesavings in the first three years of the scheme are estimated at 0.8 million Kshitija Rangnekartonnes of oil equivalent of energy or approximately 9000MW of avoided kshitija.r@general- carbon.comthermal power capacity, without compromising on the industrial output. GENERAL CARBONGovernment to make the vehicular fuel efficiency labels mandatoryAs an extension of the Energy Conservation Act and a pollution controlexercise, the Government of India has cleared the proposal for fuel efficiencylabels to be made mandatory on new cars. The labels have to be approvedby an appointed government agency and car companies are expected toimprove their averages over time.The First Multi-Technology Project to credit water treatment andefficient cook stovesImpact Carbon and The Paradigm Project announced today that a project inKenya has issued Gold Standard Voluntary Emission Reductions generatedby both water filters that reduce the need to boil drinking water with dirty fuelsand by energy saving cook stoves as part of the same project.