The newsletter provides an overview of developments in India's energy and carbon markets in May 2012. It notes that REC trading volumes were low in April and prices remained uncertain. It also discusses the impact of the PAT and RPO policies on India's emission reduction targets, finding they will only achieve about 20% of reductions needed. Other sections highlight renewable project highlights, REC and CER price trends, and policy developments regarding renewable subsidies, solar targets, and power sector reforms.

1. General Carbon Newsletter
ENERGY & ENVIRONMENTAL COMMODITIES NEWSLETTER MAY 2012, ISSUE:11
Notice awaited! REC PROJECT
HIGHLIGHTS
(as on 1st May 2012)
The price of REC in the April trading session left many a questions
unanswered. While volume available for the trading was lower, the traded Accredited Projects:493
quantity 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: 388
would 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: 1,22,369
six months. Most DISCOMs in the southern and western states indicate that REC Redeemed: 71,226
they will be able to achieve their RPO target, while some in Karnataka feel Closing Balance: 89,688
that 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 WATCH
The carbon market continued to remain in disarray. Set aside discussions
Apr 2012 Session
seem to have been “set-aside” for now. We continue to see historic low
prices, 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 2,201
on 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 2,201
the 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 2012
Best, BlueNext Daily Spot: Price
(Volume)
€ 3.63 (30,000)
Satish Kashyap

2. Impact of PAT and RPO on emission reduction by India
Energy Market
What is the combined impact of PAT and RPO in effecting India’s emission News
reductions till 2020? Is there need for other initiatives to help India achieve its
emission reduction target under the National Action Plan on Climate Change West Bengal plans
(NAPCC)? policy on
Renewable energy
As per the interim report titled “Low Carbon Strategies for Inclusive Growth, The West Bengal
Planning Commission of India, 2011”, India’s target to reduce emission government is
intensity 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 renewable
and the resulting quantum of annual emission reductions under scenario energy. We are
titled “determined effort” is 376.5 MTCO2. Hence to achieve 20-25% emission planning to bring a
intensity decrease (from 2005 levels) by 2020 requires aggressive effort and policy on renewable
new emission reduction options need to identified and deployed. energy sources, said
an official from the
Effort-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 has
Two key efforts to drive the emission reduction are the Perform Achieve and commissioned a 1.5
Trade (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 designated
consumers contributing to ~100 million tCO2e emission. PAT’s contribution
to emission reduction works out to 14% when calculated against the required
annual emission reduction target of 733 MTCO2 of emission reduction.

3. Similarly, in the case of RPO, if the targets communicated by all the states
are met, then RPO can contribute to 6% when calculated against the Gujarat has 749GW
required annual emission reduction target of 733 MTCO2 of emission of renewable
reduction. energy potential:
TERI
Hence, PAT and RPO are covering about 20% of the required emission
reductions to meet the goal of 733 MTCO2 of emission reduction. At present Gujarat’s overall
RPO and PAT are the only rigorous tractable mechanisms to achieve and integrated renewable
track emission reduction. Given that 80% of the target is to be achieved by energy potential is
other means, we are likely to see more new mechanisms as well as estimated to be
enhancement in scope of existing mechanisms (increase in obligated entities 748.77GW. The
under 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 in
detailed. Gujarat is very high,
considering if all the
Pravin 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

4. capacity of solar
energy by 2020, has
commissioned 89%
of its allotted
What a EUR 4 price means to additionality?
capacity in its first
stage.
Many experts were hoping that CER prices would return to EUR 12 – 15
towards the end of the compliance period (December 2012) and prevent a
flashback of near zero price witnessed during the end of the previous
compliance phase. With European economies in recession, increased supply
TANGEDCO wants
of the CERs due to improvement of CDM processes and reduced demand
penalty for misuse
due to lower industrial output in Europe has led to a downward trend in CER
prices.
TANGEDCO has
filed a petition before
Additionality is an essential concept for any carbon credit (offset). The
TNERC seeking
concept of additionality addresses the question of whether the project would
approval for levying
have happened anyway, even in the absence of revenue from carbon credits.
excess demand and
Only carbon credits from projects that are "additional to" the business-as-
energy charges on
usual scenario represent a net environmental benefit.
HT, LT, LTCT
industrial services
Most project developers have demonstrated additionality by proving that
consumers who are
projects are not financially viable without revenue from carbon offsets. In
not complying with
other words, the revenue from the carbon offsets is a decisive reason for
the revised
implementing a project. Investment additionality is most often proved by
restrictions and
demonstrating 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 project
type
 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

5. 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 wind
energy project, if IRR without CDM is 8%, at 4 Euro CER price, the IRR can Government
at best increase to 9.5%. Typically wind projects in India have benchmarks prepares first
from 12-13.5% (bank lending rates/ WACC). Thus, most registered projects energy policy draft
from India had used CER rate assumption from 10-15 Euro to meet this
benchmark. Thus, at 4 Euro CER price, these projects will not get benchmark At a time when the
returns to make them financially viable. entire world is
For Landfill and Biogas projects, there would be no impact since the IRR is focussing on the
already high. non-conventional or
This is again different in community based projects. The carbon markets have renewable sources of
been highly volatile and this is where the Bachat Lamp Yojana scheme energy, it took the
flounders. When the scheme was launched, CER price was 12 Euro (around eco-friendly Bengal
Rs 780). Investors were upbeat. But CER price touched an all-time low last government 10
year. This has resulted in the dip in number of buyers and thus the project is months to prepare a
on 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.

6. 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 Regulatory
REC 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)

7. Market Updates
EDITOR
Environmental Market News
Rameez Shaikh
Unique scheme for energy efficiency rameez.shaikh@general-
The PAT scheme requires notified industries to invest in energy efficiency carbon.com
and reduce at least 5% of input energy cost for self and public good. The
savings in the first three years of the scheme are estimated at 0.8 million Kshitija Rangnekar
tonnes of oil equivalent of energy or approximately 9000MW of avoided kshitija.r@general-
carbon.com
thermal power capacity, without compromising on the industrial output.
GENERAL CARBON
Government to make the vehicular fuel efficiency labels mandatory
As an extension of the Energy Conservation Act and a pollution control
exercise, the Government of India has cleared the proposal for fuel efficiency
labels to be made mandatory on new cars. The labels have to be approved
by an appointed government agency and car companies are expected to
improve their averages over time.
The First Multi-Technology Project to credit water treatment and
efficient cook stoves
Impact Carbon and The Paradigm Project announced today that a project in
Kenya has issued Gold Standard Voluntary Emission Reductions generated
by both water filters that reduce the need to boil drinking water with dirty fuels
and by energy saving cook stoves as part of the same project.