Agneya\'s Newsletter on Renewable Energy Sector and REC market in India
agneya Volume 2 Issue 6HORIZONS26 September, 2012 The C in AT&CRenewable Energy: Achievement and BottlenecksOver the years, RE has grown AT & C lossessteadily to become an important 2012 Chinapart of the country’s energy mix. 2007Wind energy has achieved 2002 USsubstantial size while solar energy Brazil 0% 50% 100%is beginning to accelerate. For Indiafurther growth however, major Hydro Thermal Nuclear RESimprovements in the country’s 0% 10% 20% 30%distribution capabilities are Source: Ministry of Powerrequired. Source: World Development Indicators databaseDistribution: Unlocking India’s potential While AT&C losses inA 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 ofGeneration capacity in the country has reached from 100 GW in 2001 to 200 technical losses. In developedGW in 2012. At the same time however, demand has grown faster than countries commercial losses aresupply. This gap is expected to persist as further addition in thermal practically non-existent. In Indiageneration is limited by coal extraction capacity. however, lack of metering, payment default and theftThis highlights the role of RE in bridging the energy deficit. However, for RE contribute to “commercialto be able to deliver benefits, an efficient distribution system needs to be in losses”, usually clubbed withplace. The importance of distribution is often lost in the discussion about T&D losses.need to increase generation capacity. A 15% reduction in losses asenvisaged by the Ministry of Power recently will mean effective addition of30,000 MW of capacity - more than half the capacity addition of 53 GW in the11th five year plan.
2Solar 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 4.4Source: SERC Tariff orders, Newsarticles Discoms in developed countries have AP PT 3.5 higher share of infirm renewable energyRecently concluded bidding Guj REC 4.11 5.01 in their energy mix. In India, discoms areprocess for solar power invarious States as well as under unable to manage the grid with Guj PT 3.56JNNSM resulted in surprisingly increasing share of renewable energy Kar REC 4.23 5.13low tariffs. injected into the grid. Financial Financing sustainability is a prerequisite for Kar PT 3.7However, investors have opted discoms to implement technologicalfor projects under these policies developments. Commercialsdue to lower risk of default from Source: SERC orders, Lower REC price takendistribution companies. This is at Rs. 1.5/ unit and higher REC price taken atbecause investors have taken Bailout, not Reform Rs. 2.4/ unit (Average of 1.5 & 3.3)into account risk of payment Technologydefault under other commercial Regulators aim to transition to a process of competitive bidding for deciding themechanisms. renewable energy tariff in the States. To achieve this, a competitive distribution sector able to provide open access is important. The Government has found aThe REC mechanism however, temporary solution to the problems of distribution companies by reducing theis providing a major boost to debt servicing burden on the discoms. In the long run however, such financialsolar energy especially through engineering will have limited impact on the sector. A calibrated plan of increasethe captive route. in tariffs is required to ensure viability as well as higher efficiency.
3 REC Market in September 2012 REC InventoryREC Trade Clearing Price Buy Bids Sell Bids Volume TradedSep 2012 Rs. per REC REC Inventory Sep 2012 IEX 239,364 664,641 239,364 1,500Non-Solar PXIL 25,082 46,530 25,082 1,500 2,64,446 IEX 1,317 1,094 735 12,500 5,17,432Solar PXIL 525 527 425 12,900 8,51,628Non-Solar prices wait for demand to catch up 5,98,642The REC market in September 2012 recorded the highest volume of REC issuanceever resulting in the highest closing balance in the REC trade, Demand howeverremained subdued. Price realization remained at floor level of Rs. 1,500 with all thebuy bids cleared at both IEX and PXIL. Even if we consider that only 20% of the RPOcompliance is done through RECs, annual demand of RECs for FY 2012-13 should Source: REC Registrybe more than 1 Crore. This demand is not yet reflected in the REC market as onlyless than 12 lakh RECs have been traded till September. This shows that whileregulators have provided support to RE through RPO, more effort on enforcement is Solar RECs cross 1000required. 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.
Capacity Registered, MW 600 35004State-wise Registered 500 3000Capacity, April 2012 to 384 2500 400date 335 2000 300 271 250State MW 1500Tamil Nadu 329Maharashtra 253 200 172 158 149 1000Gujarat 135 113 106 107Karnataka 126 93 100 73 62 500Rajasthan 27Madhya Pradesh 22Uttar Pradesh 20 0 0Chhattisgarh 12Odisha 5Himachal Pradesh 4Punjab 0Uttarakhand 0 Cum. Registered till Date(RHS) RegisteredKerala 0 Source: REC RegistryJ&K 0Haryana 0 In total, 107 MW of capacity was registered in September. With this addition, theTotal 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 RegisteredCapacity, April 2012 todateSource MWWind 731Biomass 97Bio-fuel cogen 81Solar PV 18Small Hydro 6Total 933 Source: REC RegistryagneyaAgneya 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 – firstname.lastname@example.org | Phone – +91-20-41203800, +91-88 06 07 07 83 | Website – www.agneya.in