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Will Renewable Energy Certificates(RECs) drive the growth of Solar in India?
Will Renewable Energy Certificates(RECs) drive the growth of Solar in India?
Will Renewable Energy Certificates(RECs) drive the growth of Solar in India?
Will Renewable Energy Certificates(RECs) drive the growth of Solar in India?
Will Renewable Energy Certificates(RECs) drive the growth of Solar in India?
Will Renewable Energy Certificates(RECs) drive the growth of Solar in India?
Will Renewable Energy Certificates(RECs) drive the growth of Solar in India?
Will Renewable Energy Certificates(RECs) drive the growth of Solar in India?
Will Renewable Energy Certificates(RECs) drive the growth of Solar in India?
Will Renewable Energy Certificates(RECs) drive the growth of Solar in India?
Will Renewable Energy Certificates(RECs) drive the growth of Solar in India?
Will Renewable Energy Certificates(RECs) drive the growth of Solar in India?
Will Renewable Energy Certificates(RECs) drive the growth of Solar in India?
Will Renewable Energy Certificates(RECs) drive the growth of Solar in India?
Will Renewable Energy Certificates(RECs) drive the growth of Solar in India?
Will Renewable Energy Certificates(RECs) drive the growth of Solar in India?
Will Renewable Energy Certificates(RECs) drive the growth of Solar in India?
Will Renewable Energy Certificates(RECs) drive the growth of Solar in India?
Will Renewable Energy Certificates(RECs) drive the growth of Solar in India?
Will Renewable Energy Certificates(RECs) drive the growth of Solar in India?
Will Renewable Energy Certificates(RECs) drive the growth of Solar in India?
Will Renewable Energy Certificates(RECs) drive the growth of Solar in India?
Will Renewable Energy Certificates(RECs) drive the growth of Solar in India?
Will Renewable Energy Certificates(RECs) drive the growth of Solar in India?
Will Renewable Energy Certificates(RECs) drive the growth of Solar in India?
Will Renewable Energy Certificates(RECs) drive the growth of Solar in India?
Will Renewable Energy Certificates(RECs) drive the growth of Solar in India?
Will Renewable Energy Certificates(RECs) drive the growth of Solar in India?
Will Renewable Energy Certificates(RECs) drive the growth of Solar in India?
Will Renewable Energy Certificates(RECs) drive the growth of Solar in India?
Will Renewable Energy Certificates(RECs) drive the growth of Solar in India?
Will Renewable Energy Certificates(RECs) drive the growth of Solar in India?
Will Renewable Energy Certificates(RECs) drive the growth of Solar in India?
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Will Renewable Energy Certificates(RECs) drive the growth of Solar in India?

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In this presentation, you will get an overview of the REC mechanism and its importance for the future of solar in India.

In this presentation, you will get an overview of the REC mechanism and its importance for the future of solar in India.

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  • http://articles.economictimes.indiatimes.com/2012-05-10/news/31655869_1_power-companies-power-ministry-state-utilitieshttp://m.timesofindia.com/PDATOI/articleshow/12476156.cms
  • http://indiatoday.intoday.in/story/states-hike-power-tariffs/1/182936.html
  • Transcript

    • 1. Will Renewable Energy Certificates(RECs) drive the growth of Solar in India?
    • 2. About RESolve• Advisory firm with strong capabilities in Strategic, Regulatory , Commercial and Technical aspects of renewable energy projects• Founded by professionals from India and Germany with strong global exposure• Specific focus on Solar PV and Wind in India• Offerings in – Market Entry strategy for solar firms into India – Market Intelligence on the Indian Solar PV sector – Concept-to-Commissioning of PV projects – Policy and Regulatory advice• On-going projects – Advisory for a 5 MWp project under REC mechanism REC Mechanism 2
    • 3. Overview1. What are RPOs and RECs?2. Why are RECs important?3. Do RECs make financial sense?4. Aren‟t RECs very challenging?5. What are the takeaways? REC Mechanism 3
    • 4. RPOs – Key to JNNSM target achievement JNNSM solar target 25000 “An additional 3000 MW 20,000 20000 by 2017 through the mandatory use of the Capacity in MW 15000 RPO by utilities backed with a preferential tariff.” ( JNNSM – Section 3) 10000 5000 3,000 2000 1000 1000 200 0 Phase 1 (2010-13) Phase 2 (2013-2017) Phase 3 (2017-22) Utility power including rooftops Off-grid solar applications• The Government of India plans 3,000 MW of solar power projects in phase 2 of the JNNSM• Additional 6,000 MW projects through solar-specific renewable purchase obligation (RPO) scheme• Renewable Energy Certificate (REC) scheme is expected to “catch on from next year”Mr Tarun Kapoor, Joint Secretary, MNRE on June 14, 2012 REC Mechanism 4
    • 5. What is RPO?Renewable Purchase Obligation(RPO) – A mandate for obligated entities(OEs) topurchase a percentage of the total electricity consumptionMandated by Electricity Act 2003Section 86(1)(e) - “The State Electricity Regulatory Commission(SERC) should…. specify, forpurchase of electricity from renewable energy sources, a percentage of the totalconsumption of electricity in the area of a distribution licensee”Section 61(h) – The CERC shall…specify the terms and conditions for the determinationof tariff, and ..shall be guided by … the promotion of co-generation and generation ofelectricity from renewable sources of energySection 66 - The CERC shall endeavour to promote the development of a market(including trading) in power in such manner as may be specified and shall be guided by theNational Electricity Policy REC Mechanism 5
    • 6. Solar RPO targets set by SERCs Uttarakhand Uttar Pradesh Tripura Tamil Nadu Rajasthan Punjab Orissa Nagaland Meghalaya Maharashtra Madhya Pradesh Kerala Karnataka JharkhandHimachal Pradesh Haryana Gujarat Chhattisgarh Bihar Assam Andhra Pradesh 0 0.5 1 % of RPO 1.5 2 2.5 2018-19 2017-18 2016-17 2015-16 2014-15 2013-14 2012-13 2011-12 2010-11 REC Mechanism 6
    • 7. Who and How?• Obligated entities(OEs) – Distribution Companies – Open Access Consumers – Industries consuming captive power• To meet the RPO, OEs can – Generate their own renewable energy – Purchase energy from RE sources that comply with RPO regulations – Purchase Renewable Energy Certificates(RECs) REC Mechanism 7
    • 8. RECs – The green attribute REC Vs CDMSpecific to India GlobalFocus on Renewable Energy growth Focus on CO2 abatementRECs and CDM are independent of each other and both can be availed for thesame project REC Mechanism 8
    • 9. Overview1. What are RPOs and RECs?2. Why are RECs important?3. Do RECs make financial sense?4. Aren‟t RECs very challenging?5. What are the takeaways? REC Mechanism 9
    • 10. Each state has a different RPO target.. Solar RPO Capacity Requirements (2011-12) 350 4 319 300 3.5Solar RPO Capacity (MW) 3 214 APPC Price (Rs/kWh) 250 2.5 200 154 162 2 150 137 127 103 1.5 100 87 1 48 50 28 35 22 25 0.5 4 6 3 1 8 1 2 0 0 Capacity Required (MW) APPC Price (Rs/kWh) More than 25GW required by 2020 to meet solar RPOs(Source: CERC) REC Mechanism 10
    • 11. ..but not all have equal solar resource • Uneven geographic distribution of solar resource • Concentrated in certain pockets – Rajasthan has high solar resource – Mizoram has lower solar resource • States achieving targets unwilling to buy more • Interstate sale of power not possible The solution - RECs REC Mechanism 11
    • 12. Salient Features of RECs Parameters Details Participation Voluntary 1 REC Certificate 1 MWh Validity 365 Days after issuance Trading Platform Power Exchanges only (IEX and PXIL) Banking Not Allowed Borrowing Not Allowed Transfer Type Repeat trade of the same certificate is not possible Floor price - Solar INR 9,300 (April 2012-March 2017)Forbearance price -Solar INR 13,400 Price Guarantee Through „Floor‟ Price (Minimum Price) Price Discovery Mechanism Closed Double-sided Auction* Trading Mechanism Last Wednesday of the month (T day) for 2 Hours Financial Settlement Buyers pay upfront (T day) and Sellers receive on (T+1 day) Interstate Transaction Possible REC Mechanism 12
    • 13. Non-Solar REC trading well established.. ..Solar REC trading taking off Non-Solar RECs 250000 236485 3500 206188 199737 3000 200000Traded Volume 171524 168675 158220 2500 150000 111621 2000 95404 105527 100000 71226 1500 46362 1000 50000 18502 16385 18588 25096 500 424 260 0 0 Number of RECs traded Weighted Average Price(Rs/REC) Solar RECs 400 342 13,100Traded Volume 300 13,000 13,000 179 12,900 200 12,775 12,800 12,800 100 10 12,700 0 12,600 May-12 Jun-12 Jul-12 Number of RECs traded Weighted Average Price(Rs/REC) Source: recregistry.in, IEX, PXIL REC Mechanism 13
    • 14. Solar REC market shaping up• M&B Switchgear Ltd, owns and operates a 2 MW Solar Plant, traded 179 RECs @12,800 INR/REC in July 2012.• Revenue forecast from RECs for M&B Switchgear Solar REC (Rs/MWh) Revenue For 1,500 RECs/MWp/Year @Forbearance price 13,400 Rs 2 Crore @Floor price 9,300 Rs. 1.4 Crore Status of Solar based REC projects (as of July 2012) Total number of registered projects – 7 Total capacity of registered projects – 18.16 MW REC Mechanism 14
    • 15. Voluntary RECs also have a role to playVoluntary RECs popular among several global companies(Yahoo, HSBC, Citi, etc)*Starbucks Google• Purchases RECs generated through wind farms • Purchases renewable energy through PPAs• 2011 - Purchased RECs equivalent to 50% of • Sells renewable energy purchased to the local grid total electricity consumption globally after stripping out the REC component• 2015 Target – To purchase RECs equivalent to • RECs generated are applied to the energy 100% of total electricity consumption consumed at data centers making them carbon neutral Image credit - Starbucks Image credit : Google*Source: REConnect REC Mechanism 15
    • 16. Voluntary RECs in IndiaVoluntary RECs – Useful tool to meet Sustainable Development goals Public Sector Undertakings(PSUs) Private Sector CompaniesPurchase of Voluntary RECs encouraged RECs offset carbon footprint and achieveby Department of Public Enterprises Corporate Social Responsibility(CSR) goals(DPE)• Indian Oil, SAIL, BHEL, etc • MNC IT Companies • Over 38% of total energy consumed in ITC is from renewable sources through their• POSOCO – First PSU to purchase own wind farms, though not through REC Voluntary RECs purchaseImage credit - POSOCO Image credit - ITC REC Mechanism 16
    • 17. Overview1. What are RPOs and RECs?2. Why are RECs important?3. Do RECs make financial sense?4. Aren‟t RECs very challenging?5. What are the takeaways? REC Mechanism 17
    • 18. Revenue streams – REC Vs Preferential Tariff 2012 2017 2022 2027 2032 2037Case 1 - Pessimistic ScenarioAPPC(Rs/kWh) 2.57 3.28 4.19 5.34 6.82 8.70REC Price(Min)(Rs/kWh) 9.30 6.51 4.56 3.19 2.23 2.23Total(Rs/kWh) 11.87 9.79 8.74 8.53 9.05 10.94Case 2 - Optimistic ScenarioAPPC(Rs/kWh) 2.57 3.28 4.19 5.34 6.82 8.70REC Price(Max)(Rs/kWh) 12.00 8.40 5.88 4.12 2.88 2.88Total(Rs/kWh) 14.57 11.68 10.07 9.46 9.70 11.58Case 3 - Realistic ScenarioAPPC(Rs/kWh) 2.57 3.28 4.19 5.34 6.82 8.70REC Price(Average)(Rs/kWh) 10.65 7.46 5.22 3.65 2.56 2.56Total(Rs/kWh) 13.22 10.74 9.40 9.00 9.38 11.26Preferntial FiT 9.00 9.00 9.00 9.00 9.00 9.00 Assumptions 1. APPC for base year 2011– Rajasthan 2. Increase in APPC – 5% per year 3. REC price drop every 5 years – 30% 4. Total life time of the plant – 25 Years REC Mechanism 18
    • 19. Financial Analysis IRR Scenario Analysis(Based on revenue/kWh) 45.0% 40.0% 35.0% 38.1% 30.0% 29.7%IRR % 25.0% 20.0% 22.1% 15.0% 18.2% 16.1% 10.0% 14.0% 12.2% 10.6% 5.0% 0.0% Fixed PPA Pessimistic Realistic Optimistic Equity IRR Project IRRAssumptions1. Capital Cost – Rs. 8.5 Crore/MWp2. D:E Ratio – 70:303. Interest rate – 10% per annum4. Energy generation – 1.6 Million kWh/Year/MWp5. Depreciation – Straight Line REC Mechanism 19
    • 20. Alternate scenario• RECs becoming irrelevant after 2017 – Due to Grid parity – Due to Regulatory issues• Possible solution • Vintage Based Multiplier(VBM) for RECs • CERC deemed vintage RECs out of scope REC Mechanism 20
    • 21. Overview1. What are RPOs and RECs?2. Why are RECs important?3. Do RECs make financial sense?4. Aren’t RECs very challenging?5. What are the takeaways? REC Mechanism 21
    • 22. Financial Woes of Discoms Shunglu Committees report to the Planning Commission(Dec. 2011) Losses of all Discoms 200,000 179,000 180,000 160,000 140,000 Rs. Crores 120,000 100,000 82,000 Before subsidy 80,000 57,000 After subsidy 60,000 40,000 27,000 20,000 - 2009-10 2005-2010Bottom 5 states account for 80% of total debt1. Tamil Nadu (more than 50,000 Crore of accumulated debt)2. Rajasthan (about 8,500 Crore)3. Uttar Pradesh Image credit – Economic Times4. Haryana5. Madhya Pradesh REC Mechanism 22
    • 23. RPO Enforcement and other challenges• Lack of enough solar projects/RECs – Punjab SERC ruling - Carry forward to next year – Other possibility – Waiver of RPO for a year• Control period – 5 years whereas loan tenures are about 10 years – Uncertainty of cash flows deter lenders• APPC prices – Need for consistency in APPC determination for every stateOthers• 3 Years required to switch Switch over to REC mechanism from preferential PPA• 250 kWp minimum size(with exceptions) hindrance for growth of REC based rooftop projects REC Mechanism 23
    • 24. Clouds clearing?• Power tariffs hike - steps taken to improve financial health of Discoms State Average Tariff Increase (%) Gujarat <5 Bihar, Mizoram, Manipur, Haryana, Chhattisgarh, >10-15 Maharashtra Andhra Pradesh, Orissa, Bihar, Jharkhand, J&K, >15-25 Tripura Nagaland, Delhi, Rajasthan Upto 30% Kerala, Tamil Nadu More than 30%• Increase in coal prices and shortages – increase in APPC price REC Mechanism 24
    • 25. Overview1. What are RPOs and RECs?2. Why are RECs important?3. Do RECs make financial sense?4. Aren‟t RECs very challenging?5. What are the takeaways? REC Mechanism 25
    • 26. Takeaways..1. Are RPOs important? Yes. RPOs can lead to more than 25 GW of Solar installations by 20202. Do RECs make financial sense? Yes, if RPOs strictly enforced and modifications made to the control period3. Aren‟t RECs very challenging? Yes, but the challenges are not insurmountable REC Mechanism 26
    • 27. Thank youPlease write your comments, suggestions or corrections if any, to Madhavan Nampoothiri Founder and Director madhavan@re-solve.in www.re-solve.in
    • 28. Annexures REC Mechanism 28
    • 29. REC Vs. Preferential PPA REC PPA projectsOpen access Entry through competitive biddingHigh but variable returns Average but fixed returnsAny capacity above 250kWp (with some exemptions – No restrictioneg:100kWp)Allotment is assured Depends on competitionVariable tariff (REC floor+APPC) Fixed tariffNo cap on capacity Limited allotmentCan avail CDM benefits along with REC certificates. Can avail CDM benefits alone with the FiTVoluntary entities can buy REC‟s for reducing their Not applicable here. (sold only to Utilities)carbon footprint.Captive Power Producer (CPP) by Renewable energy CPP cannot avail FiT, by PPA mechanism.power generation are eligible for REC‟s* REC Mechanism 29
    • 30. State wise capacity details in MW(July 2012) Bio-fuel Waste toS.No. Type/State Wind Small Hydro Biomass Solar PV Total cogeneration Energy 1 Gujarat 317 0 1 3 0 0 321 2 Karnataka 69 0 0 0 0 0 69 3 Madhya Pradesh 2 14 23 0 3 0 40 4 Maharashtra 482 28 47 107 10 2 676 5 Rajasthan 58 0 10 0 5 0 73 6 Tamil Nadu 648 0 129 0 1 0 778 7 Himachal Pradesh 0 48 0 0 0 0 48 8 Jammu and Kashmir(JKSPDCL) 0 18 0 0 0 0 18 9 Kerala 0 21 0 0 0 0 21 10 Uttarakhand 0 24 0 0 0 0 24 11 Chhattisgarh 0 0 101 3 0 0 104 12 Haryana 0 0 9 0 0 0 9 13 Uttar Pradesh 0 0 201 470 0 0 671 14 Punjab 0 0 0 46 0 0 46 Total 1576 152 520 629 18 2 2896 REC Mechanism 30
    • 31. REC Pricing Determination of floor price Determination of forbearance price• Reference APPC price is set to the • Reference APPC price is set to the lowest APPC price offered nationally lowest APPC price offered nationally• Lowest APPC price in 2011– Kerala • Lowest APPC price in 2011 – Kerala with Rs. 1.99 per kWh with Rs. 1.99 per kWh• Minimum reference price is then • CERC Solar tariff used as reference calculated based on assumed O&M price, which under current regulation is expenses, interest on loan and interest Rs. 15.39 per kWh on capital • The difference between the reference• The difference between the reference price and APPC price gives the price and APPC price gives the floor forbearance price price – i.e. Rs. 15.39 – Rs. 1.99 = Rs. – i.e. Rs. 11.22 – Rs. 1.99 = Rs. 9.23 per 13.40 per kWh kWh – Which translates to Rs. 13,400 per – Rounded to Rs. 9300 per MWh (1 MWh (1 REC) REC) REC Mechanism 31
    • 32. Factors Affecting REC Price – Status Post Present Control Period• Capital cost of power plant• Prevalent interest rates• These factors affect the interest rates on loans, interest on working capital and loan repayment used in floor price calculations• Would have a higher impact on floor price rather than forbearance price• APPC price does not escalate very quickly (assumption of 5% escalation or less is reasonable)• For Solar REC price to become irrelevant i.e. have 0 worth, the LCOE of solar would have to be equal to the APPC price. This is not very likely to happen by 2017 REC Mechanism 32
    • 33. The REC trading processSource: CERC REC Mechanism 33

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