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August 2013

Vol: XXXIIII

From Management‘s Desk

In this issue we focus on the status of RPO enforcement and the likely demand-supply scenario till March 2014. In the main article, we have analyzed the potential im-pacts of a disappointing Gujarat RPO order and assess the current RPO enforcement scenarios in greater detail. As we enter in last two quarters of this financial year, it is important that RPO enforcement is strengthened, as REC markets - with over 30 lakh inventory and clearing ratios in low single digits - are at the verge of total col-lapse. However, recent order from several states hint that significant demand may materialize before March 2014. In the August 2013 trading session, demand was abys-mally low and clearing volumes hit an all-time low. Au-gust marked one complete year i.e. 12 consecutive months of trading non-solar RECs at floor price. Al-though, volumes in solar REC markets increased mod-estly as compared to previous month, prices remained at floor. We hope that this issue will be an insightful read for you and as always we will be keen to hear your feedback. - Team REConnect

CO

NT

EN

T

RPO Enforcement: Enter-

ing a critical phase

Regulatory Updates

REC Trade Results

REC Project Stats

Green News

About REConnect

RPO Enforcement: Entering a critical phase

RPO Enforcement: En-

tering a critical phase About REConnect Green News REC Project Stats REC Trade Report Regulatory Updates

www.reconnectenergy.com Page 1

45%

Market Share

in REC Trading

PAN

India

Presence

2.1 GW

Projects under

management

Managing REC

Projects in

16

States

REC Enforcement: Entering a critical phase

Introduction

The RECs markets have over 30 lakh unsold RECs. At

current demand levels, this represents over 2 years

worth of RECs. Further, with the current high-wind sea-

son drawing to a close, we expect that by the end of

year another 20 lakh RECs will be issued. With clearing

volumes at an all-time low, and trading at floor prices

for the last 12 months, REC markets have all but totally

collapsed.

The primary reason for this is the lack of enforcement of

RPO by state regulators. The record on this has been

two small steps forward and one big step backward. For

example, in recent months, Maharashtra, Chhattisgarh,

Punjab and Delhi have all taken positive steps towards

RPO enforcement. However, the recent order from Guja-

rat, which waived RPO shortfall altogether, was a big

step backward.

In a recently concluded 37th meeting of the FOR,

Hon’ble Minister of State for Power Shri Jyotiraditya

Scindia addressed all the members of the forum. The

hon’ble minister took up three issues for discussions

among which, top priority was given to “RPO : Status of

compliance - suggestions for more effective enforce-

ment”. It can be inferred from the Minister’s speech that

the center is also keen on enforcing RPO.

Analysis of Gujarat Order on RPO -

On 8th August 2013, Gujarat came up with an order on

RPO which can have a far-reaching impact on the REC

markets. In the backdrop of some encouraging orders

from Maharashtra, Delhi and Chhattisgarh on the RPO

compliance front, Gujarat’s order is being seen as a step

backwards. In the recent order the regulatory commis-

sion of Gujarat has waived off the shortfall in RPO com-

pliance for FY13. GERC in taking such a decision has

agreed to the submissions of its obligated entities that

despite earnest efforts by the later there was not enough

supply available to meet RPO targets in totality. Hon’ble

commission in an order on Suo-motu petition no.

1219/2012 had allowed GUVNL to carry forward its RPO

targets of financial year 2011-12 and had mandated to

meet RPO targets of FY13 cumulatively.

GUVNL and TPL submitted that the following were the

reasons for non-compliance of RPO targets for FY12 and

FY13. Firstly, there were supply constraints as wind de-

velopers were not willing to sign PPA’s at preferential

tariff as for them REC mechanism deemed a lucrative op-

tion. As power procured by DISCOMs under REC mecha-

nism is not counted towards RPO compliance GUVNL

submitted that it was unable to comply with aforesaid

targets. Secondly, due to discontinuation of prevalent

benefits like AD and GBI, wind capacity addition in the

state (and India as a whole) had plummeted drastically.

As per details furnished in the recent order against a to-

tal power purchase requirement of 62,203 MUs of the

four DISCOMs, the shortfall of around 836 MUs was al-

The Hon’ble Minister took up three

issues for discussions among which,

top priority was given to “RPO :

Status of compliance - suggestions

for more effective enforcement”. It

can be inferred from the Minister’s

speech that the center is also keen on

enforcing RPO.





45%

Market Share

in REC Trading

PAN

India

Presence

2.1 GW

Projects under

management

Managing REC

Projects in

16

States

lowed to be carried forward to FY13. This shortfall was

16 % of the total renewable power these DISCOMs had

to buy to meet FY12 RPO targets. This shortfall would

have been met by purchasing 8,36,000 RECs from the

REC markets. In FY13, GUVNL had purchased 247 MUs

of additional RE power i.e. it had exceeded the RPO

targets of FY13 by 247 MUs but was not able to meet

the carried forward RPO targets completely.

This revision of RPO targets for 2012-13 has snatched

away from the REC markets, a significant demand of

over 5 lakh RECs. This demand is around 15 percent of

the total RECs available in the REC inventory which is

currently at 32 lakh RECs. To put in other words, if

GERC had not passed this order for RPO target revi-

sion, the REC markets could have easily expected a de-

mand of 5 lakh RECs, which is though not adequate

but would have brought significant upward push for

REC prices in the market.

The assertion that GERC put forward, in order to pro-

scribe meeting of shortfall of RPO of FY13 by purchas-

ing RECs seems abysmal. The order states that -

“From the above [reading of the CERC regulations], it

transpires that the REC was introduced for the fulfill-

ment of RPO for the States who are not having geo-

graphical conditions which is suited for RE generations

and due to which they are unable to comply with the

RPO envisaged in NAPPCCC and the Electricity Act,

2003. However, the State of Gujarat has very high po-

tential of wind and solar generation. But the distribu-

tion licensees in the State could not fulfill their non-

solar RPO due to lower capacity addition and unwill-

ingness of the Wind Generators to supply electricity at

the preferential tariff determined by the Commission.

Under such a condition, procurement of RECs, would un-

justifiably burden the consumers of the State.”

It is clear from these statements, that the commission

seems to have interpreted that RECs are only meant for

those states that do not have adequate RE resources.

This is despite its own regulation stating that RECs are a

valid way to meet RPO, and GERC also taking cognizance

of RECs in its order on RPO last year. .

A further risk from this order is that other states may also

be tempted to take this line of reasoning.

Enforcement Scenario

The enforcement scenario in major states of the country

can be summarized as in fig.1. On the basis of past en-

forcements, current action (notices sent), early enact-

ment of RPO regulation, high RE potential, and large REC

accreditations, the exhaustive list of RPO enforcement

was arrived at.

As per our analysis of the expected demand of RECs by

the end of the current financial year, an incremental de-

mand of over 42 lakh RECs is expected from the states of

Chhattisgarh, Maharashtra, Delhi and Punjab.

Owing to expected strong enforcements in select states

in the coming time, the prevalent supply-demand mis-

match scenario of REC markets is expected to improve.

The self explanatory graph in fig. 2 highlights the impact.

It can be seen that even after stricter enforcement orders

in select states, by the end of FY14 there will be a gap of

around 14 lakh RECs, as the supply continues to increase

exponentially with time.





45%

Market Share

in REC Trading

PAN

India

Presence

2.1 GW

Projects under

management

Managing REC

Projects in

16

States

Figure 1: Enforcement scenario in major states. *Court cases against RPO regulations in local High court/Supreme

Court in the case of Rajasthan

Figure 2 : Expected Demand-Supply of RECs.

* (Dotted lines) show projections as per REConnect’s analysis. Source - Recent T.Os and relevant orders on RPO





45%

Market Share

in REC Trading

PAN

India

Presence

2.1 GW

Projects under

management

Managing REC

Projects in

16

States

REC Markets - going forward

There is a a possibility of improvement in the REC markets following some major pronouncements on RPO front.

Issues that are expected to drive the markets in a positive direction are that : 1) APTEL process is entering last

phase, the order on the same is expected by the end of December’13 2) Tariff hikes in DISCOMs and 3) Increase in

open-access in AP/other states.

- end of article -

Now, find all REC trade related results on

your fingertips. Download, register and

“Enjoy”.

Kindly note that the app supports Android powered devices only.

http://www.reconnectenergy.com/wp-content/themes/reconnect/images/REConnect.apk

Regulatory Updates




Punjab pushes PSPCL for RPO compliance by De-

cember’13

PSPCL has been asked to comply with its stipulated RPO

target for FY12, FY13 and FY14 cumulatively. In an order

dated 12 August 2013, Punjab regulator allowed PSPCL to

carry forward 114.80 non solar MUs and 25.8 solar MUs to

FY14, which is the cumulative shortfall for FY12 and

FY13. For the current fiscal (FY14), PSPCL has to purchase

around 400,000 RECs and the shortfall of 1,14,800 will

eventually entail over 500,000 RECs to be purchased by

end of December 2013.

With Maharashtra and Delhi also pushing for RPO on

similar lines, it is expected that the buy side participation

will improve in the poorly performing REC market.

For the copy of the order – Click Here

Delhi Discoms build RPO compliance costs into

their tariff

According to the most recent tariff orders, the DERC has

allowed Tata Power Delhi Distribution Limited, BSES Ya-

muna Power Limited, BSES Rajdhani Power Limited, New

Delhi Municipal Council to incorporate the cost of Renew-

able Purchase Obligation (RPO) for FY2013-14 in their tar-

iff. The details of their obligation are given in table below.

We see this as a good starting point. By including in its

tariff order, Discoms will essentially start to recover the

cost of RPO as part of the tariff it charges. This should

pave the way for RPO compliance (like in the case of Pun-

jab). However, it is too early to count compliance by Delhi

Discom’s as a certainty. Eventually, DERC will have to en-

force compliance. We will come to know of that after

March 2014. In the tariff order, the Discom’s and DERC

are silent regarding the extent of compliance in 2012-13.

MPERC issues fresh directives on RPO compli-

ance

Electricity regulatory commission of Madhya Pradesh, in

a fresh directive has ordered all DISCOMs of the state to

comply with RPO. Owing to unavailability of information

on power purchase from renewable sources by DIS-

COMs, the commission clarified that it was not in a posi-

tion to include its effect in recent orders. However, in this

fresh directive, MPERC has come up explicitly mention-

ing that any variation in power purchase costs will be

considered and correspondingly accounted for in the

true-up exercise.

This directive reads as -

“RPO compliance: Directive: The Commission has notified

regulation for Renewable Purchase Obligation (RPO), ef-

fect of which on power purchase has not been consid-

ered by the Commission in the present order as the peti-

tioner has not filed any availability of power from renew-

able sources. However, the petitioner is directed to en-

sure RPO compliance for FY 2013-14 as per RPO Regula-

tions and any variation in power purchase costs will be

considered during true-up exercise.”

MP plans to meet its RPO obligation completely by the

end of FY15 by purchasing 2500 MW as per an article in

India’s largest REC Trading Company

FY13

PSPCL/PEDA

Shortfall

(+/-) in

MUs

in MWh RECs re-

quired

Non Solar Obligation 114.8 114800 114800

Solar Obligation 25.8 25800 25800

Total 140.6 140600 140600

in MWh

Tata

Power

BSES

Yamuna

BSES

Rajdhani NDMC Total

Non So-

lar Obli-

gation 342190 255070 454710 61956 1113926

Solar Ob-

ligation 14880 11090 19770 2964 48704

http://reconnectenergy.com/blog/2013/08/punjab-pushes-pspcl-for-rpo-compliance-by-december13/

http://reconnectenergy.com/blog/2013/08/punjab-pushes-pspcl-for-rpo-compliance-by-december13/

http://reconnectenergy.com/blog/2013/08/merc-tightens-rpo-compliance-prevents-interchangeability/

http://www.pserc.nic.in/pages/Petition%20No.%2036%20of%202013.pdf

http://reconnectenergy.com/blog/2013/08/delhi-discoms-build-rpo-compliance-costs-into-their-tariff/

http://reconnectenergy.com/blog/2013/08/delhi-discoms-build-rpo-compliance-costs-into-their-tariff/

Regulatory Updates….contd.




a Hindi Daily. For compliance of RPO by the end of

FY14, MP will need 14 Lakh non-solar RECs and 2,55,000

solar RECs.

For a copy of the relevant order click here.

MERC tightens RPO compliance & prevents inter-

changeability

In a landmark decision by MERC, it was brought forward

that the obligated entities of the state (i.e. DISCOMs,

Captive and OA consumers) will no longer have the

cushion of RPO waiver or interchangeability of solar and

non-solar RPO. Hon’ble commission has strongly as-

serted that all obligated entities in the state will have to

meet their RPO targets (cumulatively) before March

FY14, which means that all RPO targets from FY11- FY14

will have to met after clearing all previous backlogs.

Such a decision is a positive sign for the overall good of

REC market, which has already shown signs of increased

demand in the last trading session. The market is ex-

pected to conduct trading in August 2013 with an in-

ventory of around 30 lakh plus RECs. If more such deci-

sions from other state regulators are put in place, it

eventually will pick RECs from its hitherto floor price.

Relevant article in the Economic Times can be read here.

In another decision, the commission proscribed the in-

terchangeability of solar & non-solar RPO. The commis-

sion while taking a decision on the petition submitted

by Reliance Infrastructure Ltd. (D) referred to discussion

of 33rd FOR meeting in which the forum deemed such a

move as undesirable. The meeting had concluded that

interchangeability will put a lot of burden on obligated

entities and will in-turn affect consumers with undue

costs. RIL had petitioned that since it was unable to

comply with non-solar RPO targets, it must be allowed

to procure the surplus solar power available to offset

the same.

The commission responded that such a case is possible

only when solar power reaches grid parity. It also high-

lighted that such a move will also adversely affect the

growth and penetration of other renewable energy

sources. Regardless of varied stakeholder sentiments,

both these decisions can be rightly called as a step for-

ward towards promoting more renewable energy in

India.

Relevant article in The Guardian

- end of article -


http://www.mperc.nic.in/100913-SEZ-FINAL-TARIFF-ORDER-13-14.pdf



http://articles.economictimes.indiatimes.com/2013-08-21/news/41433450_1_rpo-rec-market-open-access-consumers

http://www.theguardian.com/environment/terra-india/2013/aug/27/solarpower-india

REC Trade Report - August 2013




Non Solar RECs

Markets continued to perform poorly as prices remained at floor for both non-solar and solar RECs. There were

major pronouncements this month on the RPO front which includes one of the most industrialized states like Ma-

harashtra, coming with a stern compliance order by the end of FY14. Owing to these developments, market per-

formance is expected to improve but only in last quarters i.e. Q3 and Q4 of FY14. REC inventory closed with

3187508.

For non solar credits, the clearing volumes, as compared to previous trading session (REC Trading Report – July

2013) plunged by 56% and 89 % at IEX and PXIL respectively. As evident in the chart below, the supply continued

to grow.


For past trading history - CLICK HERE

0

500000

1000000

1500000

2000000

2500000

3000000

3500000

June'13 July'13 August'13

Buy Bid

Sell Bid

Volume Cleared

1500 1500 1500

1000

1500

2000

2500

3000


IEX

PXIL

http://reconnectenergy.com/blog/2013/08/rec-trading-report-july-2013/

http://reconnectenergy.com/blog/2013/08/rec-trading-report-july-2013/

http://www.reconnectenergy.com/letest-rec-trade-results/

REC Trade Report - August 2013


tering a critical phase About REConnect Green News REC Project Stats REC Trade Report

Regulatory

Updates


Solar RECs

As compared to July 2013, clearing volumes at both exchanges increased by a modest 16.2 %, however at IEX it fell

by 11.5 % and at PXIL the clearing volume jumped by 92.4 %. Supply almost doubled at IEX as total supply in the

market breached 30000 mark.

Prices at both exchanges was 9300 per solar REC. Price remained at floor, owing to demand-supply mismatch

with. It can be seen in the graph, that demand is same as cleared volume since last three months. The demand for

solar RECs will only increase if solar RPO (in particular) is enforced effectively.


For past trading history - CLICK HERE

9300 9300 93009000

9500

10000

10500

11000

11500

12000

12500

13000


MCP-IEX

MCP-PXIL

0

5000

10000

15000

20000

25000

30000

35000


Total Demand

Total Supply

Total Volume cleared

http://www.reconnectenergy.com/letest-rec-trade-results/

REC Project Status - As on September 5th, 2013




Registered Capacity

3703.778 MW


Projects Registered

State wise

Projects Registered

Source wise

All figures

in MW

All figures in

MW

Biomass

610.395

Small Hydro

197.5

Solar PV

162.68

Wind

2059.24

Bio-fuel

Cogeneration

672.295

Green News - National



Read More



Less takers for renewable energy certificates this month

Reflecting lower demand, the number of Renewable Energy Certificates (RECs) available for sale outstripped their

demand on the Indian Energy Exchange this month. A total of 31,101 non-solar and 1,754 solar RECs were traded,

"with supply far exceeding demand yet again", according to Indian Energy Exchange (IEX). Non-solar RECs saw

just 31,101 purchase bids whereas the sale bids stood at 18, 72,449 during this month's trading session held yes-

terday, it noted. These certificates were sold at a price of Rs 1,500 each. "For solar RECs, buy bids of 1,754 RECs

and sell bids of 23,338 RECs were received against which 1,754 RECs were cleared at Rs 9,300 per REC," the lead-

ing power exchange said in a statement.

India’s most industrialized state pushes for clean energy

It's rare that cheery environmental news comes out of India, especially when it comes to clean energy. But a July

22nd order by the electricity regulatory authority of Maharashtra (MERC), India's most industrialized state, is being

welcomed as a possible game changer. The government has ordered 93 entities to attain renewable power obli-

gation (RPO) targets by March 2014, which include government distribution companies (discoms) as well as large

private consumers of electricity. Also significantly, companies that do not comply will be fined Rs 13.40 per unit

(about 13p), higher than ever before.

Demand for renewable energy certificates continue to dwindle

The fifth renewable energy certificate (REC) trading session of FY 14 held on 28th August, 2013, at IEX, saw IEX

being the platform of choice with 76% market share. The session featured the trade of 31,101 N-Solar and 1,754

Solar RECs with supply far exceeding demand yet again. For non-solar RECs, buy bids of 31,101 RECs and sell bids

of 18, 72,449 RECs were received against which 31,101 were cleared at Rs 1,500 per REC. For solar RECs, buy bids

of 1,754 RECs and sell bids of 23,338 RECs were received against which 1,754 RECs were cleared at Rs 9,300 per

REC.

India’s budget deficit threatens National Solar Mission

India's financial woes are likely to derail the country's ambitious National Solar Mission, widely seen as a model

solar development policy program. The current Indian government's current account deficit (CAD) of $98 billion is

steadily rising, as the much-touted gross domestic product (GDP) growth rate has come crashing down from

highs in the double-digits to under 4%. Consequently, the CAD-to-GDP ratio of 4.9% is also experiencing new

highs as the central government falters in bringing back confidence in the marketplace.

Low demand once again at REC trading session on energy exchange

The fifth Renewable Energy Certificate (REC) trading session of the current financial year witnessed supply far ex-

ceeding demand again. Trading on the Indian Energy Exchange (IEX) on Wednesday featured 31,101 non-solar

trades and 1,754 solar RECs .

Read More

Read More

Read More

Read More

http://www.business-standard.com/article/companies/cerc-order-to-put-gujarat-discoms-profits-under-pressure-113040400419_1.html

http://www.business-standard.com/article/economy-policy/less-takers-for-renewable-energy-certificates-this-month-113082900437_1.html

http://www.theguardian.com/environment/terra-india/2013/aug/27/solarpower-india

http://articles.economictimes.indiatimes.com/2013-08-29/news/41582235_1_solar-recs-rec-segment-obligated-entities

http://solarindustrymag.com/e107_plugins/content/content.php?content.13159

http://www.thehindubusinessline.com/markets/low-demand-once-again-at-rec-trading-session-on-energy-exchange/article5071216.ece

India’s RPO Map


tering a critical phase RPO Map Green News REC Project Stats REC Trade Report Regulatory Updates


Status of Regulation - Final for all states.

^ data as per CSERC Draft RPO regulation.

RPO on OA Users? - Yes for all states.

Gujarat - Not Available.

Karnataka - Yes (> 5MW) 5.00% RPO.

West Bengal - Not Applicable.

RPO on CPP? - Yes for all states.

Gujarat - Yet to be notified.

Bihar, Haryana, Orissa, Jharkhand, Tripura, Karnataka(5.00% RPO) - Yes (> 5MW).

West Bengal - Not Applicable.

RPO Penalty? - Yes (RECmax) for all the states.

West Bengal - Not Specified.

** RPO targets are not determined for FY14 and are assumed to continue FY13 target levels.

* 10% + 0.25% (BESCOM,MESCOM,CESC), 7% + 0.25% for others.

States

2013-14 RPO

Obligation

(Non Solar)

2013-14 RPO

Obligation

( Solar)

Andhra Pradesh 4.75 % 0.25 %

Assam 5.40 % 0.20 %

Arunachal Pradesh 5.45 % 0.15 %

Bihar 3.50 % 1.00 %

Chhattisgarh 5.75 % ^ 0.50 %^

Delhi 4.60 % 0.20 %

Gujarat 6.00 %** 1.00 %** Haryana 2.90 % 0.10 % Himachal Pradesh 10.00 % 0.25 % J&K 4.75 % 0.25 %

Jharkhand 3. 00 % 1.00 %

Karnataka 10.00 % * 0.25 % *

Kerala 3.65 % 0.25 %

Madhya Pradesh 4.70 % 0.80 %

Maharashtra 8.50 % 0.50 %

Meghalaya 0.60 % 0.40 %

Orissa 5.80 % 0.20 %

Punjab 3.37 % 0.13 %

Rajasthan 7.20 % 1.00 %

Tamil Nadu 8.95 %** 0.05 %**

Tripura 0.90 % 0.10 %

Uttarakhand 5.00 %** 0.05 %**

Uttar Pradesh 5.00 %** 1.00 %**

West Bengal 3.90% 0.10 %

Goa & UTs 2.60 % 0.40 %

Manipur 4.75 % 0.25 %

Mizoram 6.75 % 0.25 %

Nagaland 7.75 % 0.25 %


About REConnect


tering a critical phase RPO Map Green News REC Project Stats REC Trade Report Regulatory Updates


REConnect Energy is India’s leading renewable energy trading company. We provide end-

to-end services for projects in the Renewable Energy Certificate mechanism – from con-

tract structuring and advisory to monetization of RECs. We also work with consumers to

manage Renewable Purchase Obligation liabilities, and develop and execute their energy

sourcing strategy. We are a knowledge focused company that prides itself in providing

premium services to our clients backed by in-depth research and analysis.

REConnect is run by an experienced and professional team. The team consists of members

with relevant experience of working at IEX, L&T, JP Morgan, Arthur Andersen and Gensol.

Key members of the team are alumnus of IIT Bombay, Columbia University (an Ivy League

university) and IIT Kharagpur.

For more details of services provided and profile of the management team, please visit our

website.

Contact Details

Bangalore:

Vishal Pandya

[email protected]

# 4123, 6th Cross, 19th Main,

HAL 2nd Stage, Indiranagar,

Bangalore 560008.

O : 080 - 6547 3383 / 84

F : 080 - 30723571

New Delhi:

Vibhav Nuwal

[email protected]

# 216, Nirvana courtyard, Nirvana

Country, Sector 50,

Gurgaon 122018.

O : 0124 - 4103216

F : 080 - 30723571

Chennai:

Rajesh Vaidyula ( +91 9940478306 )

[email protected]

# 18/1 (88), 2nd Floor, Aarya Gowda

Road, West Mambalam,

Chennai - 600 033.

Hyderabad:

Bhanu Tejja

( +91 7799874036 )

[email protected]

Solar Market:

Anurag Dhyani

( +91 7760300499 )

[email protected]


Mumbai:

Ram Kumar ( +919930359992 )

[email protected]

Haware Fanatasia

Business Park,

F 159, Plot no. 47,

Sector 30-A, Vashi,

Navi Mumbai 400703.

Renewable Purchase Obligation (RPO):

Chetan Singh Adhikari ( +91 9910772666 )

[email protected]

Renewable Regulatory Fund (RRF):

Anuj Xess ( +91 8447501998 )

[email protected]

open access - reconnect energy...delhi discoms build rpo compliance costs into their tariff...

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