RE Chronicles - From the Editor's desk - EfficientCarbon

There is a lot of buzz in CERC and also other government agencies on this front which would hopefully lead to a positive outcome. We shall keep monitoring the ...
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RE Chronicles - From the Editor’s desk Hello Readers. Hope you enjoyed the second issue of RE Chronicles. We would love to have your feedback on which articles you liked and which ones you didn’t. In this issue, we are bringing you all the articles that we have promised the last time – REC Trading update for September session, Mid-Year Review of REC Markets, a Special Article on RE and a few important updates from the world of RE policy and technology innovations. There is some pretty good movement on the Solar REC trading front as it crossed a couple of important milestones. NonSolar REC Trading, however, seems to be heading towards a Oversupply/Under-demand scenario where the supply is steadily increasing with each passing month but the demand which could be far higher than supply is at the present less than half the supply leading to rock-bottom clearing price. More on this in our REC Trading Update section. We have done a special Mid-Year review of REC markets in order to give our readers a clear picture as to what happened during the first 6 months of this year and what the future holds. On the policy front, Andhra Pradesh has released its Solar Policy which has been very well received by all sections. The benefits issued to project developers under REC scheme, however, have sparked up a debate. More on this in our Policy Update section. On a different note, we have recently shifted our office. Please make note of the new address. We would be happy to see you!! Efficient Carbon Management Solutions, Regus Business Center, 4th Floor, Gumidelli Commercial Complex, 1-10-39 to 44, Old Airport Road, Begumpet, Hyderabad-500016

We have put our best efforts in order to come up with the articles in this third issue. We hope you would enjoy it as much as we did. Kindly give your valuable feedback on how we can improve RE Chronicles and make it even more delightful and interesting for you. Happy reading!!

REC Trading Update – September 2012 REC Inventory: September 2012 witnessed the continuing trend of increased inventory with closing balance of more than 9 lakh RECs. The following sections give an update on the Non-Solar and Solar front.

Non-Solar This month’s REC trading session opened with 598642 Non-Solar RECs and 568124 RECs were issued along the course of the month. Though close to a million Non-Solar RECs were available to be traded, only 711171 were put up for sale by sellers fearing lower clearing price as in August. Though all the Buy-bids were cleared, the closing balance stood at an all-time high of 902320. Non-Solar REC Inventory for Jul-2012 to Sep-2012 (as on 30-Sep-2012) Month, Year

Opening Balance

REC Issued

REC Redeemed

Closing Balance

July, 2012

173777

382384

158220

397941

August, 2012

397941

474594

273893

598642

September, 2012

598642

568124

264446

902320

Solar Though the opening balance for Solar RECs was only 181, as many as 1443 RECs (more than all the previous months put together) were issued this month putting the total at 1624. The closing balance stood at a nominal 464. Solar REC Inventory for Jul-2012 to Sep-2012 (as on 30-Sep-2012) Month, Year

Opening Balance

REC Issued

REC Redeemed

Closing Balance

July, 2012

221

328

179

370

August, 2012

370

190

379

181

September, 2012

181

1443

1160

464

REC trading: For the first time since May 2011, all the Non-Solar buy-bids were cleared. Solar REC trading also was impressive as it touched important milestones such as 1000+ ‘Clearing Volume’ and Rs.1 Crore+ ‘Trading value’. The following sections talk about Non-Solar and REC trading figures for the month and a more detailed insight and forecast for next month.

Non-Solar RECs Trading: Owing to lower clearing price of Rs.1500 in the last trading session, only 711171 of close to 1 million Non-Solar RECs were put up for trading. Against Sell-bids of 711171 Non-Solar RECs, there were buy bids only for 264446 and interestingly all of them were cleared resulting in trading value of Rs.39.67 crores. The session closed with a balance of 902320 RECs. Non-Solar REC trading from June – September 2012 800000 700000 600000 500000 400000 300000 200000 100000 0 June'12

July'12

Buy Bid (No. of certificates)

August'12 Sell Bid (No. of certificates)

September'12 Traded Volume

Forecast for October trading session: The recent Rajasthan High Court Judgement on levying penalties on companies such as Ambuja Cement and Hindustan Zinc would definitely push more private companies towards meeting their RPO Obligations. While this definitely represents a positive scenario and leaves investors/traders/RE generators anticipating higher trading, the question is as to when this would happen. The real demand however would come from state-run DISCOMs which are still inactive on the RPO obligation front. The coming session in October is bound to see similar trading volumes and clearing prices of Rs.1500/REC only unless there is a sudden spike in private players running to meet their RPOs and DISCOMs finally coming ahead to meet their share.

Solar RECs Trading: The 5th month of Solar REC trading, September, witnessed trading of 1160 RECs resulting in trading value of Rs.1.47 crore both of which are milestones in themselves. Against buy-bids of 1842, 1621 were put up for trading and 1160 were cleared. The average clearing price of IEX and PXIL was Rs.12647 which is close to last month’s price of Rs.12850. Solar REC trading from June – September 2012 10000 8000 6000 4000 2000 0 June'12

July'12

Buy Bid (No. of certificates)

August'12 Sell Bid (No. of certificates)

September'12 Traded Volume

Forecast for October trading session: Demand continues to outstrip Supply and hence the Clearing price would again be in the Rs.1250013000 band. A higher trading volume is expected as the inventory could increase owing to more no. of RECs to be issued in the month of October. No major changes or activity expected unless there is an increased activity from the private players and DISCOMs owing to the recent Rajasthan High Court judgement.

REC Markets: Mid-Year Review Non-Solar: Non-Solar REC Inventory for first half of 2012 Month, Year

Opening Balance

REC Issued

REC Redeemed

Closing Balance

April, 2012

38545

122369

71226

89688

May, 2012

89688

230448

168675

151461

June, 2012

151461

258801

236485

173777

July, 2012

173777

382384

158220

397941

August, 2012

397941

474594

273893

598642

September, 2012

598642

568124

264446

902320

Quarter

Q1

Q2

Non-Solar REC trading for the first half of 2012 800000 700000 600000 500000 400000 300000 200000 100000 0 April'12

May'12

Buy Bid (No. of certificates)

June'12

July'12

August'12

Sell Bid (No. of certificates)

September'12

Traded Volume

Observations: The following important observations could be made from the above graph  

Sell-Bids have increased constantly which is due to the increasing number of RECs issued. The year started with ‘Buy-bids’ at more than 3 times the ‘Traded Volume’. However, the gap has decreased over the last 6 months and it has been within 5-7% in the last 3 months.



‘Opening Balance’ is increasing with each month as 100% of the ‘Sell-Bids’ are not getting cleared. This is increasing at a faster rate as Sell-Bids are outstripping Buy-Bids by 2 to 3 times. Lower number of RECs are being put up for Sell-Bids compared to the inventory as ‘Clearing Price’ is hovering close to the floor-price of Rs.1500/REC in the last 2 months which is again due to the huge gap in demand and supply.



Solar: Solar REC Inventory for first half of 2012 Quarter

Q1

Q2

Month, Year

Opening Balance

REC Issued

REC Redeemed

Closing Balance

April, 2012

0

0

0

0

May, 2012

0

249

10

239

June, 2012

239

324

342

221

July, 2012

221

328

179

370

August, 2012

370

190

379

181

September, 2012

181

1443

1160

464

August'12

September'12

Solar REC trading for the first half of 2012 10000 8000 6000 4000 2000 0 April'12

May'12

Buy Bid (No. of certificates)

June'12

July'12

Sell Bid (No. of certificates)

Traded Volume

Observations: Solar REC trading started only in May 2012 and hence the month of April can be discounted for the purpose of this analysis. The following important observations could be made from the above graph based on trading in the months May-September:    

Off to a humble start, inventory has slowly built up as capacity addition is increasing. Buy-Bids in all the 5 months have been higher than Sell-Bids which has ensured a reasonable Clearing Price. Clearing Price has hovered between Rs.12500 to Rs.13000 per Solar REC with average of the last 5 months being Rs.12715. Owing to good Clearing Price, all the RECs in inventory have been put up for sale at each trade session unlike Non-Solar REC market which has been seeing a gap in Inventory vs SellBids due to lower Clearing Price.

The next 6 months: Forecasting trading for the next months is not possible given the several factors that affect trading and it would be unwise to mislead market-players with false projections. Hence, we present our opinion here based on a few governing factors. Non-Solar REC Market: Supply (Sell-Bids) is far higher than Demand (Buy-Bids) which is the reason for the low Clearing Price of Rs.1500 in the last trading session. The fact that September ended with a ‘Closing Balance’ of 902320 Non-Solar RECs clearly shows that the scenario is not going to be any better in the next session either. If the trend continues, the Inventory at the end of next trading session could be well above 1 Million RECs and would continue to build upto 2 Million by the end of FY 2012-13 keeping the price constant at Rs.1500/REC. This is unless ofcourse a large faction of the REC sellers refrain from putting up the RECs for sale thus bringing down the demand-supply gap hence increasing the Clearing Price to a satisfactory level. This too can’t go on for long as all the RECs generated will have to be traded within an year from the date of Issuance. Hence, before going into any further anticipation, it is important to focus on the level of RPO enforcement. Only this can give a clearer picture as to the ‘demand’ aspect of trading. Solar REC Market: Solar REC market is slowly picking up pace as more capacity is being added under the REC scheme. A total of 18.16 MW has been registered thus far against the accredited capacity of 19.41 MW. The 18.16 MW can result in 27240 Solar RECs (@1.5 Million Units/Year/MW) annually which would mean 2270 REC/month on an average or 13620 REC over the next 6 months. However, not all this capacity has been installed yet and hence only a part of this would generate tradable RECs. 1443 Solar RECs have been issued in the last month which is the highest in the 5 months of trading.

Going forward, an increase in supply could reduce the prices in the short term as demand is still lower than what the RPO Obligation should result in. Hence, now is a good time to sell the generated Solar RECs which already seems to be the trend as almost all the generated RECs are being made available for trade. In the long-term, however, an increase in demand resulting from strict enforcement would once again favour the investors until the point Solar Capacity under REC mechanism matches the supply with the demand. At that point, market dynamics come into play which is a known fact. While we have stated our opinion above, we have talked below about a few factors that can affect the REC market – both positively and negatively. Factors affecting the market: Positively 



Enforcement: According to August 31st judgement by Rajasthan High Court, penalties have been levied on a few private players for not meeting RPO. This is going to be a strong influence on all the private players who haven’t met their RPO thus far. AP Solar Policy: The AP Solar Policy [Abstract] released on 26th September, 2012 gives a lot of incentives to solar power developers under REC scheme which could give a boost to investors’ confidence thus rapidly increasing solar capacity addition under the REC mechanism. While that is the case, it is important to note that a few aspects of the policy on the REC front directly contradict those of CERC and it remains to be seen how these would be resolved. (Check our blogpost on AP Solar Policy or Policy Update section below for more).

Negatively 



Supply-Demand gap (Non-Solar RECs): Supply being far higher than demand, Non-Solar REC prices have already plummeted to the Floor Price of Rs.1500/REC. This trend is expected to continue and as more and more Non-Solar RECs are issued each month, the price is going to stay low. While this is a good sign for buyers, it is a deterrent for prospective investors of Non-Solar REC projects as the financials may not seem as attractive at the base-price. Lack of participation from DISCOMs: DISCOMs which are by far the biggest Obligated Entities of RPO are yet to make a move in a big way. Though private DISCOMs have been participating, state-run DISCOMs form the major chunk of prospective buyers but haven’t been able to participate owing to financial conditions.

The negative factors presented above could be eliminated in a single strike through the single biggest positive influencer – Enforcement of RPO. There is a lot of buzz in CERC and also other government agencies on this front which would hopefully lead to a positive outcome. We shall keep monitoring the markets closely as always and shall bring the latest updates to you and present the data and our critical analysis.

REC Capacity Addition - September Wind, as asual, encountered the highest capacity addition under REC scheme in September. Small Hydro, Biomass and Bio-Fuel Cogeneration also witnessed capacity additions while the remaining RE sources where fairly stagnant. The tables below indicate the Resource-wise capacity addition in September and the total capacity as on 30th September, 2012. Capacity Addition (MW) in September S.No. 1. 2. 3. 4. 5. 6. 7.

Source Wind Urban or Municipal Waste Solar PV Small Hydro Others Biomass Bio-fuel Cogeneration Total

Accreditation 105.45 0 0 5 0 0 6.62 117.07

Registration 67.03 0 0 2.2 0 14.4 23.4 107.03

Capacity in MW based on Type of RE Source (As on 30th September 2012) 1977 2000

1794

1800 Capacity Accredited (in MW)

1600

Capacity Registered (in MW)

1400 1200 1000

759

800

558

600 400 200 0

660

524

173 154 0 0

19

18

0 0

16 0

2

2

Off-Grid RE Power - The challenges The last 1 week has witnessed 3 important events on the solar front in India: 1. Andhra Pradesh Solar Policy 2. Gujarat invited RFP for 5 MW rooftop solar power plants 3. Solar REC trading touched important milestones Each of them is important in their own way and has positives and negatives. Let’s deal with them one by one: Andhra Pradesh Solar Policy: A lot of benefits have been given for Solar Power developers which could attract huge investment to the state and push it to the forefront. However, these benefits have been extended for REC based projects as well thus raising doubts in the minds of experts/project developers and investors as to whether NLDC would issue RECs for such projects on the count that CERC clearly rules out availing of any benefits for REC based projects. Gujarat’s RFP for 25 MW Rooftop SPV: Gujarat has invited RFP for 5 different Solar PV Rooftop projects totally 25 MW. Rooftops would be leased by project developers intending to set up the power plants. All these projects would be grid-connected wherein all the generated power would be sold to GUVNL and its subsidiaries. While this is the second time Gujarat has come up with gridconnected rooftop projects, the issue remains as to how this can be scaled up and how off-grid or perhaps micro-grid/local-grids can be brought into the ambit of such schemes. Solar REC trading in September: As highlighted in the ‘REC Trading Update’ section, Solar REC trading has crossed 1000 RECs and Rs.1 Crore trading value mark in September. While these are significant milestones, it is important to understand that the amount of trading happening is far lower than what the RPO for 2012-13 dictates (See our article on ‘REC Potential for 2012-13’ in the first issue). If RPO Enforcement is a strong tool to guide the Solar REC Market ahead, allowing offgrid CPPs and off-grid RE generators to participate in the REC scheme or Tariff-based mechanism can hugely boost the overall solar capacity. Monitoring Issue: The common problem encountered for off-grid installations in all the above mentioned situations and more is that of ‘Monitoring’. Identifying the amount of energy generated or consumed in offgrid installations is tough as there are no monitoring mechanisms available that can ensure the regulatory authorities of the correctness of the procedure followed. This is the major hurdle that stands in the way of utilizing off-grid power for all govt. schemes that are applicable for Deemed Injection in addition to the usual Grid-Connected power plants. While ‘Deemed Injection’ clause has already been in use for CPPs, the potential of off-grid RE plants can be used if a proper monitoring mechanism can be established.

Can the monitoring problem be solved? If yes, how? Yes. We certainly think this problem can be solved using a very good mechanism that is a mix of both technology and policy instruments. A simple solution that we can think of for monitoring of energy generation by off-grid RE plants is to have a wireless data collection solution that would constantly send data to a remote monitoring centre that could be in the control of monitoring agency. While this does not completely solve the issue as there is always a possibility of equipment tampering, setting certain tolerance levels for the variation in energy generated could be a starting point to detect tampering and to limit the amount of tampering to these levels. This being the technology end of it, legal/policy related instruments such as severe penalties for tampering with data or equipment (which could be identified from data analysis of data collected wirelessly and through a periodic check of the on-site instrument) could be a strong deterrent for prospective wrong-doers. Benefits of Off-Grid RE plants inclusion: 







T&D losses avoided: One very compelling argument that supports inclusion of Off-Grid plants under various schemes is that T&D losses which have wide range from 10% to more than 40% for states such as Jammu and Kashmir can be reduced/eliminated. Financial benefits: If you look at the financial aspect of this, payment by DISCOMs or loss accrued by generator w.r.t. tariff equivalent to the T&D losses can be avoided. And clearly, expenses for additional infrastructure can be done away with. Huge potential of Off-Grid: Removing the limitations related to Off-Grid plants as regards their participation in Grid-connected schemes such as tariff-based/REC scheme due to the monitoring related issues could attract large investments in the solar sector. In addition, thousands of industries/companies which could benefit from tariffs/RECs and the reduced costs of grid infrastructure would also actively participate. Micro Grids: Micro grids have evolved in the recent years and decent business models have been built around this idea. With the inclusion of Micro Grids into the available schemes, the project developer can reduce the tariffs collected from end consumers thus making RE very affordable and on par with conventional power.

Off-grid presents a very huge potential and if properly incentivized, can push Grid-Parity much closer. CERC is contemplating similar policies and is even rooting for inclusion of off-grid RE power plants under REC scheme. The coming months could witness some very positive changes to the Indian Solar Energy sector that could set us on a course to an energy secure India.

Policy Update: AP Solar Power Policy On 26 September 2012, Government of Andhra Pradesh announced its Solar Power Policy. This has been specifically done keeping in mind the acute power shortage in the state that has resulted in 3 days/week power holidays for industries and brought back the peak summer power cuts for households. The policy is one of the most progressive solar policies in the country as it promises several benefits to Solar Power developers. Some of these benefits include: - No wheeling/transmission charges for sale of solar power within the state - Cross Subsidy Surcharge (CSS) waived off for third-party sale of solar power within the state - Electricity Duty exemption for captive consumption and third party sale within the state - VAT on inputs for solar power projects to be refunded by the Commercial Tax Department - Stamp Duty and Registration Charges for land purchase for solar power projects to be refunded The complete document can be downloaded at AP Solar Policy [Abstract] While the benefits as such sound attractive to project developers and investors, the same benefits have been extended to REC based projects as well thus giving rise to ambiguity. The following are a couple of challenges that we thought would arise for successful implementation of the policy.

Challenge 1: REC vs concessional/promotional benefits and more The most important feature of the AP Solar Power Policy, is that Solar Power projects going for REC mechanism will be able to avail all the above mentioned benefits. While this is definitely a welcome note and gives a positive boost to a lot of investors and project developers, it is uncertain how NLDC would react as this is in direct contrast with CERC's policy that REC projects are not allowed to avail any concessional/promotional benefits, banking facility and electricity duty waiver. Earlier this year, the APERC itself has clearly mentioned in its regulation on RPO obligation that no benefits should be availed by project developers under REC scheme. While the new Solar Policy is certainly an improvement over this situation, the issue remains how it will be perceived by NLDC. It is a notable fact that Andhra Pradesh does not have even a single Solar Power project under the REC scheme. All the projects 'Accredited' in Andhra Pradesh under the REC scheme are in the wind sector and all this has happened only in the last 2 weeks. The table below presents a few numbers regarding the same:

Projects registered under REC Scheme Accredited No. of Projects Capacity (MW) Total (All RE sources across India) Solar Power projects (across India) Projects in A.P.

Registered No. of Projects Capacity (MW)

671

3505.303

602

3151.958

9

19.41

7

18.16

Wind

10

71.2

0

0

Solar and other RE sources

0

0

0

0

Challenge 2: Deemed Injection Also important to note in the policy is the 'Deemed Injection' clause under REC section (Section 8-f of the policy). Though there is nothing new about Deemed Injection being considered for REC as Captive Power Producers have always been eligible for REC mechanism, the challenge remains as to how regulatory authorities can monitor the power generated in the case of off-grid. The AP Solar Policy sure has taken a step ahead by including off-grid producers too but the fact is that no off-grid plant has been considered for REC mechanism till date considering the challenges of monitoring. While CERC is still contemplating on dealing with this issue, it might be a while before it can come into effect. An article in Hindu Business Line today too highlights the above mentioned issues. The AP Solar Policy if properly managed and if all ambiguities clarified can bring in multitude of solar projects under the REC scheme and can push Andhra Pradesh to the forefront.

Renewable Energy News National Conference on Renewable Energy – Policy, Regulation, Technology and Finance: European Business and Technology Centre (EBTC) along with EU India Chambers organized the Conference on Renewable Energy in Mumbai on September 25-26th. Several excellent speakers from industry and government addressed important issues regarding the Renewable Energy scenario in India be it Solar, Wind, Biomass or Small Hydro. But the common perception among all the speakers seems to be that REC markets are going to pick up well in the next one year. Stricter enforcement by CERC and a few new policies/regulations it is contemplating on should give it a big push. Experts such as Pranav Mehta (Chairman, Solar Energy Society of Gujarat) talked at length about how Gujarat came to be at the forefront of India’s solar energy movement by growing from 50 MW to 650 MW in a short span.

(Image Source: EfficientCarbon)

All in all, the conference ended on a positive note with the organizers taking note of several valuable inputs that came out through the discussions and promising to take those issues/suggestions to the necessary regulatory authorities.

Innovation ‘Spin Cells’ from V3Solar: California (USA) based V3Solar has come up with a Solar Panel prototype which defies all existing models and thoughts on how solar panels could be. Termed ‘V3 Spin Cell’, this solar panel is  

conical in shape Rotates on its axis to let all cells on all parts of the cone capture light

(Image Source: v3solar.com)

Some of the key advantages as mentioned by the company are:   

20 times more electricity compared to conventional flat panels using same area of cells Direct AC output (No inverter required) Very low Total Cost of Ownership (TCO)

From our blog Smart Grid conceptualization from EfficientCarbon: Smart Grid is assuming increasing importance each day. With the collapse of the northern grid a month back, even more focus has been devoted to Smart Grid idea and government even constituted teams to expedite the work on this front. Smart Grid, unarguably, is the need of the hour as it can act like a ‘Grid Manager’ if properly built. No more grid collapses, No more load management planning as it can take care of it all. Here’s a conceptualization of the Smart Grid from us. We have integrated RE sources such as Solar, Wind and Biomass too as these are gaining prominence in India’s energy mix with RE source (other than Large Hydro) accounting for 12% of the total or 25000 MW. (Image Source: EfficientCarbon)

To Err is Human As true as that quote may be, we try to avoid any mistakes in the information we give our readers. The following are the corrections for the mistakes we have made in the previous issue. 

REC Trading Update – August 2012: The title for table in Solar section of REC Inventory has been mentioned ‘Non-Solar REC Inventory’. It should be ‘Solar REC Inventory’.

Kindly note the change. Please bring to our notice any mistakes that might have missed our notice. Thank you!!

What next? We hope we have met your expectations thus far. If we haven’t, do write to us or call us on the contact details provided below. Our next issue will contain:  RE Trading Update for October  REC projects capacity addition in October  Special article  Policy Update (If any)  More interesting and exciting articles on Renewable Energy developments from across the world and India.

Editorial Team -------------------------------------------------------------------------------------------------------------------------------------Pradeep Palelli Varun Mittal Managing Partner, Freelance Writer (Renewable Energy) EfficientCarbon -------------------------------------------------------------------------------------------------------------------------------------We would love to hear from you. Drop us an email to [email protected] or give a call on +91-9052224701. Thank you!

About EfficientCarbon EfficientCarbon (http://efficientcarbon.com/) is a Hyderabad based company working in the Energy, Environment and Sustainability domain. We provide focussed services in the following areas:

Renewable Energy Technical Consulting

REC Advisory

Carbon Management

Sustainability Strategy

Energy Efficiency and Energy Management

CDM facilitaion

Our team consists of graduates from respected institutions such as BITS-Pilani and IFMR-Chennai with several years of experience in companies like Infosys, Godrej and Titan. We are also supported by a team of advisors who, on average, have more than 25 years of experience in the above mentioned areas. We have successfully executed several projects for our esteemed clients such as Maha Cements, Andhra Pradesh State Co-operative Bank (APCOB), Ramco Systems, Capital IQ, GTP Granites and Andhra Pradesh Pollution Control Board (APPCB). Renewable Energy and REC Advisory: We have a highly qualified team with expert knowledge on the commercial and technical aspects of various Solar Energy technologies. Also, we pride ourselves in being capable of delivering the best services on the REC front as we are backed-up by a powerful back-end which constantly monitors the REC Market.

Renewable Energy Certificates

Solar Power Plants

Accreditation, Registration, Issuance and Trading

Financial Analysis for Industrial and Gridscale Evaluating technology options

Financial Analysis for projects Market Assessment and Pre-Feasibility Reports Market Intelligence

Preparing Bid documents for tenders