General Carbon Newsletter - November 2011
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  • 1. General Carbon NewsletterENERGY & ENVIRONMENTAL COMMODITIES NEWSLETTER NOVEMBER 2011, ISSUE:06Point of View REC PROJECT HIGHLIGHTS (as on 1st Dec 2011)As the REC market completes one year, observers areeager to quote volume numbers to announce the success of Accredited Projects: 304the market. While REC has no doubt taken off with (1937.138MW)renewable power generators clearly spending more time to Registered Projects: 249analyse the options, participants are keen to see year-end (1619.37MW)accounting of RPO obligations. The enforcement of RPO REC Issuance:through purchase of RECs and penalties on shortfall for REC Issued: 4,59,285captive consumers, open access consumers and DICOMs REC Redeemed: 3,26,628will be eagerly followed. Closing Balance: 1,32,657 (Source: Recregistry, India)While REC markets are growing exponentially, CDM andCER prices are falling off a cliff. With current CER prices at REC PRICE WATCHEUR 6, there is a sense of doom in the market. There is low Nov 2011 Session(or rather no) expectation of a positive outcome from thetalks at Durban and little in terms of positive news flow from IEX: Price (Volume)Europe to suggest a price recovery any time soon. The Non solar -INR 2,900 (96,153)domestic power market witnessed significant volatility due Solar - (Not traded)to lack of availability of coal and natural gas, which affectedprice and volumes on both exchanges. Through significant PXIL: Price (Volume)steps taken to restore coal availability, prices seem to be Non solar -INR 2,800 (9,373)recovering, while long terms structural issues have been Solar - (Not traded)brought to the forefront by this short term challenge.Significant coverage of the dire financial situation of state CER PRICE WATCHelectricity boards have been highlighted in the media. While 30 November 2011reform continues to be buzzword, no real on-ground action BlueNext Daily Spot: Pricewas witnessed in the energy and environmental commodity (Volume)space during the month. € 5.70 (1,05,000)Best,Satish Kashyap
  • 2. Power Price Trend Energy Market News Finally, order compellingOctober saw high volatility at day-ahead power market with open access in powerpower prices moving northwards due to the staggering Ministry tells states,shortage of coal while resulting in lower volumes. (More regulators & discoms tocoverage in our article below). In November the average implement 2003 lawtrading price of power on exchange was around ₹4 per unit. provision. The Union power ministry has told all state governments, power regulators and distribution utilities to delay no more in implementing the open access provisions of the Electricity Act, 2003. Second set of reforms being prepared to unlock power sector Struggling to meet the 11th Plan revised target of 62,000 MW of capacity addition from 78,000 MW, due to shortage of coal, non-availability of gas, high cost of imported coal and tardy pace of various power projects, the United Progressive Alliance-II government is preparing to unleash a second set of power sector reforms, including open access to consumers to choose their(Source: PXIL & IEX websites) electricity supplier and restructuring of power utilities of seven major States —REC Price Trend including Uttar Pradesh and Tamil Nadu.The REC were traded at ₹2800 on PXIL and ₹2900 on IEX inthe November trading session. The REC issuance by NLDC Wind power capacity likelysurpassed over a lakh RECs for consecutively in November, to rise 5,000 MW in 12thwhich led to increased availability of RECs on exchanges. A plan The government plans to addtotal of 1,05,527 RECs were traded on both the exchanges. 5,000 MW of capacity in the 12th Five-Year Plan by encouraging retrofitting of
  • 3. older wind power farms, and tightening existing rules that let promoters enjoy tax breaks even without producing electricity. This 5,000 MW target is in addition to the 15,000 MW planned through new projects. State power distribution cos stare at steep losses; may be forced to buy power from short-term markets State-run power distribution companies are staring at steep losses in the run-up to assembly polls in key states next year, ahead of which the state governments will seek continuous electricity supply to woo voters. This will accentuate the losses of the discoms that paid 14 for every unit of purchase while(Source: PXIL & IEX websites) selling it at Rs 14 during the coal crisis in October. TheCoal shortage shot up power prices cumulative losses of the discoms are expected toIndian power sector could see tougher times ahead due to swell from Rs 80,000 crore todepleting inventory of coal, forcing several power stations to Rs 1,15,000 crore withinoperate at extremely low stock levels. As many as 29 power three years.stations of the 80 coal based power projects in India are TN: Power consumers maycurrently operating with less than 4 days coal stock and 44 have to pay up to 110%with less than 7 days coal stock. (Source- The Economic moreTimes - 27 Oct, 2011). The ongoing crisis due to nonavailability of coal has clearly brought out the stark reality of In the tariff revisionhow vulnerable the economy is in the infrastructure front, application filed with theespecially availability of power. Tamil Nadu Electricity Regulatory CommissionThe crisis has even caused short term power prices and (TNERC) on Thursday, theexchange volume go haywire. The prices in the day ahead TANGEDCO has proposed a hike of 74 per cent for peoplemarket increased to ₹5 per unit from ₹2.75 per unit on the consuming up to 200 units,power exchanges. The Indian Energy Exchange (IEX) 94 per cent for thosewitnessed reduction in daily volume to 32 million units from consuming up to 500 unitsover 40 million units. At the Power Exchange India Ltd and 113 per cent for those(PXIL), the daily volumes have dipped to 2.9 million units
  • 4. from 7 million units. consuming above 500 units.Rays of hope National power grid to beAfter a shortage of coal supply earlier in the month, the ready by 2014Ministry of Coal has helped ensure that power plants receive In a bid to improvecoal on a priority basis. On October 24, 2011, a total of 181 transmission of power acrosscoal rakes were dispatched, out of which 147 rakes went tothe power sector. Each rake can carry 3500 tonnes of coal. the country, India plans to connect all regional grids into a national grid by 2014REC/RPO– First year so far so good but...As the REC mechanism completes its first year, the market As defaults mount, powerhas begun to see increased participation from generators, firms warn of blackoutsopen access consumers and DISCOMs. REC trading has Money due to state-runcommenced and shown exponential growth, however, the utilities after 60 days of billyear ending period and account of RPO will be the real test of submission amounts to Rs.the market. 5,347.78 crore as of 24Some pending action points are summarized below October, according to government data Most of the states in India (except Andhra Pradesh, West Bengal, etc.) have come out with regulations specifying Dispatch of coal to power the RPO targets and also specifying the entities which firms a priority:Govt to coal are obligated. miners Many states have waived RPO targets for certain Power plants usually categories of captive and open access consumers from maintain 10-15 days of coal fulfilling the targets. In few states (like Gujarat, stocks. The situation is Maharashtra, Karnataka, etc) a capacity limit is placed considered critical if the (e.g. 1MW, 5MW, etc). reserves fall below seven Clarity on treatment of electricity duty days’ generation exemptions/waivers for generators will expand the supply requirement of REC generators and develop a uniform market MERC rejects JSW Energys Clarity on RPO applicability for captive consumers of plea to revise power tariffs renewable energy is still awaited (esp. in Tamil Nadu), Regulatory authorities have various associations have expressed differing views rejected JSW Energys plea to o The captive renewable generation which is being revise power tariffs because wheeled through grid (using preferential of difficulty in procuring fuel wheeling) should be treated as renewable power from Indonesia, a decision consumed (even though they are not entitiled to that analysts said was a REC) by the user. Hence, it should help setback for other companies
  • 5. consumer fulfil part of their RPO obligation. seeking higher electricity rates on similar grounds. o The captive renewable generation which is being wheeled through grid is obtaining preferential wheeling and therefore this should be treated as Power tariffs should be renewable power for the DISCOM providing the revised annually preferential wheeling. Hence, the renewable State regulators should power can by considered by DISCOM to fulfil devise a formula revising part of its RPO obligation. tariffs in line with changes in o As wheeling benefit has been provided to the prices of power purchase and consumer, the consumer is assumed to be fuel , says ATE procuring non renewable power through open access and will therefore have to comply with RPO obligations. Hence, consumer will have to EDITOR purchase RECs to the extent of his RPO obligation for the power wheeled. Rameez Shaikh, rameez.shaikh@general- The APPC structure for signing PPA for RE projects is carbon.com finalised in very few states. Some DISCOMs have already expressed lack of willingness to sign APPC GERERAL CARBON based PPAs even though APPC has been announced. The REC mechanism seems to have come up with challenges that are state specific which has halted the growth of the mechanism to about six states. The accreditation processing has started in only 10 states, This newsletter is brought to you while participation from other states including Karnataka, by General Carbon. Contact MP, AP, Kerala, etc is still awaited. gcnews@general-carbon.com ifWhile the upward movement of REC prices instils confidence you have any queries oramong project developers resolution of the numerous comments or wish to contributechallenges related to market are needed to evolve REC into news and updates. We welcomea long term success story. your suggestions and contributions. If you wish to unsubscribe fromMarket Updates this newsletter please reply to this email with “unsubscribe” in the subject line.Environmental Market News General Carbon providesEB65 of UNFCCC at Durban strategic, technical and financialEB 65 has put ACM13 on hold with immediate effect, which services across major energyused for supercritical projects, fate of super critical projects and environmental commodityoh hold! markets. We are a leading advisor with expertise across
  • 6. COP17/CMP Begins: Kyoto Future is sealed? electricity markets, renewableStress rises as the future of Kyoto Protocol, which expires at energy, energy efficiency,the end of next year, Green Climate Fund, Trade barriers and sustainability assets, carbonclimate change, Euro zone Crisis markets and carbon offset project development.China, Japan Clash With EU Over Aviation CO2 Curbs atSummitEuropean Union plans to impose curbs on carbon-dioxideemissions by international airlines as of 2012 drew fire fromcountries including China, Venezuela and Japan, marking anew stumbling block at the climate summit this week.Boost for Japans CO2 trading plan: will replace Kyoto?Proposed scheme is being promoted as more flexible thanthe emissions trading system currently being operated bythe United Nations, under the terms of the Kyoto Protocol.Australias plan to price carbon emissionsWill force Top 500 polluting companies to pay a A$24($22.90) a ton price for carbon emissions from mid 2012