Renewables purchase obligations: CERC to make it easier for discoms

The Central Electricity Regulatory Commission (CERC) has proposed to decrease the floor prices of renewable energy certificates (RECs), making it easier for the state discoms to meet their renewable energy purchase obligations (RPOs). For solar, the proposed floor price is R1,000 per REC, substantially lower than the current rate of R3,500. For non-solar RECs, the proposed floor price has been suggested to be R1,000, down from the current R1,500. The proposed reduction in REC floor prices are in line with the fall in renewable energy costs. REC mechanism is a market-based instrument to promote renewable energy and facilitate compliance of RPOs. It aims to address the mismatch between availability of renewable energy resources in the states and the requirement of the obligated entities to meet their RPOs. One REC is treated as equivalent to 1 Mwh of green electricity. RPO mandates that all electricity distribution licensees should purchase or produce a minimum specified quantity of their requirements from renewable energy sources. The state electricity regulatory commissions fix the minimum RPO for the states.

The forbearance prices of RECs, or the upper price limit at which the RECs can be traded, have also been proposed to be cut. Forbearance prices for solar RECs may be slashed by more than half to R2,500 from R5,800. The same for non-solar RECs may come down to R2,900 from R3,300.The average levelised bid tariff discovered in solar auctions between January 2016 to February 2017 has been R4.65/unit. Since the price evolution in solar has been more pronounced, the fall in solar REC prices, both floor and forbearance, have been much steeper than its non-solar counterparts since 2010. The floor prices of solar RECs in 2010, 2011 and 2014 were R12,000, R9,300 and R3,500 respectively. Non-solar RECs’ floor prices have been stagnant at R1,500 since 2010.

A total of 8.61 lakh RECs were traded in the REC trading session held in February at the Indian energy exchange. Out of this, 8.15 lakh were non-solar RECs and the rest were solar. In this quarter, the exchange has already traded 21.49 lakh RECs, 20% more than the trade done in first three quarters of this fiscal. Apart from a hike in demand, lowering of prices are expected to have other implications as well. There are fears that it would be detrimental to the financial conditions of the established REC projects. It would also make it easier to reach the RPO targets set for the discoms, open access consumers and captive generators. Until February, 1,142 projects were registered in the REC framework.

Kameswara Rao, partner at PwC, said there’s no doubt that lower rates will motivate better compliance, and hence will expand the entire market for renewable energy suppliers. Improvement in RPO compliance by discom has been a key reason for trade of 39 lakh RECs this fiscal (till February) compared to 31.39 lakh RECs traded in fiscal 2016, an increase of about 24%. Mytrah Energy, a wind power developer, however believes that there would be a short-term rise in REC trading with falling floor prices. The surge in trading would not be significant as purchase of wind and solar power through the bidding route has become a viable option, the company said. Mytrah was one of the successful bidders at the first-ever tariff-based reverse auction for wind energy, where rates touched a historic low of R3.46/unit. CERC has invited stakeholders’ suggestions on the proposal. The quasi-judicial body would hold a hearing later this month before taking a final decision.

Source:TFE