International experience in REC mechanismmr


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International experience in REC mechanismmr

  1. 1. 01.08.2012 Seite 1Page 101.08.2012 The International Experience: REC Mechanism Mohit Anand BRIDGE TO INDIA New Delhi, July 24th 2012
  2. 2. 01.08.2012 Seite 2Page 2 0 5000 10000 15000 20000 25000 30000 SolarCapacity Additions till 2011 Top20Countries Cumulative CapacityAddition ofSolartill 2011 (MW) Capacityaddition ofSolarin 2011 (MW) Japan, Australia and UK are countries with the most robust REC mechanisms globally Source: BRIDGE TO INDIA market analysis EPIA; “Global Market Outlook for Photovoltaics till 2016”; May 2012 Australia: Country with a Renewable Energy Certificate since 2000 India: Country with a Renewable certificate since 2010, with a solar specific carve out Japan: Country has a New Energy Certificate since April 2003 UK: Country with a renewable Obligation Certificate since April 2002 Global Overview  Total number of countries with an RPS/Quota policies: 71  Total Number of countries with a tradable REC:: 6  Apart from Ghana India is the only developing country to have a tradable REC ; Ghana does not have an RPS  India unlike Japan, Italy, UK and most American states has a solar carve out MW
  3. 3. 01.08.2012 Seite 3Page 3 UK has a two year validity of Renewable Obligation Certificates (ROCs) and a penalty re-cycling mechanism 01.08.2012 REC trading Price  Two ROCs for 1MWh solar produced  Buyout price INR3,200/ROC (£36.99/MWh)  (2010-11). Validity  2 years Volumes  Data specific to solar ROCs is unavailable  Overall 24,884,608 ROCs issued in 2010-11 RPO obligation  Policy formulated in 2000  15.4% RPO till 2015-16  20% renewable RPO till 2020 Solar targets  No solar specific targets in RPO enforcements  22GW of solar power by 2020 Compliance  Implementing body: OFGEMS  Yearly penalties exist but are redistributed to compliant utilities in the proportion of their share of total ROCs bought in the country RPO implementation Source: BRIDGE TO INDIA market analysis
  4. 4. 01.08.2012 Seite 4Page 4 Japan has defined penalties for non-compliance, quarterly accounting for compliance and a carry over of obligations 01.08.2012 REC trading Price  Tradable New Energy Certificates (NEC) with a forbearance price of JPY11 (INR7.59) Validity  2 years Volumes  NA RPO obligation  Policy formulated in 2003  Target to install 16TWh of renewable energy by 2016 Solar targets  No solar specific targets in RPO enforcements Compliance  Penalty of up to JPY1m (INR 0.7m) on interim and annual basis  There is also a quarterly compliance mechanism  20% carry over of obligation is permissible RPO implementation Source: BRIDGE TO INDIA market analysis
  5. 5. 01.08.2012 Seite 5Page 5 Australia has a differentiated non-compliance penalty enforcement and allows re-cycling of penalties 01.08.2012 REC trading Price  Solar Credits REC multiplier of around 1.5 for small solar installations  INR1,378/STC1 and INR1,952/LGC2 Validity  1 Year Volumes  NA RPO obligation  Policy formulated in 2000  45,000GWh (or 20%) RPO till 2020 Solar targets  No solar specific targets in RPO enforcements Compliance  Monetary as well as civil penalties for severe non- compliance  Severity based on reasons for non-compliance  Re-cycling of penalties over three years  Carrying forward a part of penalty to the next year RPO implementation 1Small-scale technology certificate (STC) 2large-scale generation certificate; 1 LGC = 1MWh of renewable electricity generated above the power station baseline; Based on BRIDGE TO INDIA market analysis
  6. 6. 01.08.2012 Seite 6Page 6 India has separate solar specific obligations and the states are charged with on-ground implementation 01.08.2012 REC trading Price  Floor price – INR 9,300/MWh  Forbearance price – INR 13,400/MWh  Trading price (Recent) - INR13,000/MWh Validity  1 Year Volumes  336 bids cleared on IEX RPO obligation  Policy (NAPCC) formulated in 2008  15% renewable RPO till 2020 Solar targets  3% solar RPO till 2020 Compliance  Compliance at forbearance price  States may implement further penalties RPO implementation Source: BRIDGE TO INDIA market analysis
  7. 7. 01.08.2012 Seite 7Page 7 Learnings: India needs to incorporate measures to improve RPO enforcement 01.08.2012 Differential penalties  Australia segregates penalties for non-compliance by measuring the reasons for non compliance  The higher the risk the more stringent is the legal action taken  Enforcement measures can reflect ground realities of utilities  Obligated entities are better place to reach full compliance in stages  Regulators advise on regulations to ensure better compliance Specific Penalties  Japan has a penalty of up to JPY1m (INR690,000) for non compliance  Imposed on an interim and annual basis  Puts a value on potential costs for non compliance  Gives certainty on enforcement to project investors  Improves the bankability of projects Source: BRIDGE TO INDIA market analysis Relevance for IndiaExamples
  8. 8. 01.08.2012 Seite 8Page 8 Learnings: India should incentivise RPO compliance through REC and increase REC window 01.08.2012 Recycling penalties  UK has a buy out fund where non complying entities deposit a penalty  Complying entities can claim it after they deposit the proportionate number of ROCs*  Australia has a pay back mechanism of penalties charged in case of compliance for 3 years  Complying entities have a potential income stream  It provides partial off set to REC costs for utilities  Provides incentives for RPO compliance through RECs Long term validity  Japan’s New Energy Certificates and UK’s issues ROCs have a validity of 2 years.  Indian RECs have a validity of a year  This two year validity increases the trading window for developers  Mitigates risks from potential demand and supply mismatchesSource: BRIDGE TO INDIA market analysis *ROC: Renewable Obligation Certificate Examples Relevance for India
  9. 9. 01.08.2012 Seite 9Page 9 Learnings: India has to heighten the price stability and increase bankability of RECs 01.08.2012 Source: BRIDGE TO INDIA market analysis Long term pricing  All other countries with an REC mechanism are developed countries  They have robust market mechanisms in place  Long term pricing increases the bankability of a project in the absence of a strong market mechanism . Examples Relevance for India Quarterly compliance  Japan checks the compliance of its obligated entities on a quarterly basis  Balances the number of REC purchases made through out the year  Improves the price stability of the REC  Improves cash flow available to developers
  10. 10. 01.08.2012 Seite 10Page 1001.08.2012 Thank You