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NOV 10 2014

Comments on Draft CERC (Term & Conditions for recognition and issuance of REC for RE Generation) (Third Amendment) Regulations, 2014 and Order on determination of Forbearance and Floor Price for the Solar

  • Economic Times, ET Bureau / Hyderabad
  • Created: Mon 10th NOV 2014

The hearing took place on the above subject on 10 November 2014 at CERC. The main concerns represented by different representative of the Power Industry are as follows:

The current status of the REC market:
1011 projects with cumulative capacity of 4559 MW  registered (including 237 projects with  cumulative capacity 519 MW of Solar PV projects)
Till date more than 170 lakh RECs have been issued
50,000 RECs have been redeemed through self-retention by RE generators since September 2014.
In the month of March, 2014, trading crossed Rs 100 crore marks for the first time.

Monetary value of about 68 lakh RECs traded is about Rs. 1285 Crore. However, more than 110 lakh RECs worth Rs. 2013 Crore are yet to be redeemed.   
More than 16000 RECs have expired till 20.10.2014.
The solar and non-solar certificates are being traded at floor price since August 2012 and June 2013 respectively because a significant gap exists in the buy and sale bids.

The proposed comments by the invitees in the hearing:
The Amendments brought in are supply driven. It caters to increase in the supply of the RECs in the market where already there is a huge unsold inventory of around Rs. 2000 Crore. The honorable Commission has not looked upon the balance of supply and demand of the product (RECs) into the market. Most of the likely it is required to increase the demand of the REC into the Market.
Now question arises how to increase the demand for RECs in the Power Market?
1.  The SERCs has to impose the RPO on the obligated entities (specially the Distribution licensees). This is needed to be understand, that these amendments are not creating any demand for RECs into the market. Hence forth the market will get crashed and the cash flows will get affected.
2.  To create the demand the RPO target shall be increased and imposed on the obligated entities with full emphasis. This shall create a demand for RECs instantly and the market will get driven.
3.  Penalization of all the obligated entities who have failed to comply with their RPO is important. No remedy shall be deemed to defaulters. The RPO since 2010 shall be quantified up to 2014 and shall be imposed on them with harshness.
4.  In search of new market honorable Commission shall allow the RECs to be traded outside the Power Exchange. Allowing the bilateral trading of the RECs will open a new dimension to the market. This will create an interest among the investors, traders and other player.
5.  distribution licensee shall not be eligible entity to apply for registration with the Central Agency for issuance of and dealing in RECs. Bring licensees into the bye & sale of electricity will introduce the gaming in the market. The main motive of the RECs mechanism is to promote the renewable but this amendment will not do so. The distribution licensees are acting as a demand creators (consumers) for the product in REC mechanism. But this amendment will curb the demand for the RECs. There for it vital to reanalyze/organize the REC mechanism by the Honorable Commission.  
6.  Bringing in the individuals also in the REC regime can also help to create demand. By providing some incentives such as tax benefits, etc. This act shall add new consumer into the market and shall create demand. India is a huge market and for the sake of environment many individuals would like to join to this mechanism for the social cause.

The introduction of these amendments will kill the cash flow. The investors as had faith in the Government policies and on that bases they had taken the risk. They are bearing the heavy interest and it has become very difficult to bear all the expenses. Therefore the generators want these changes.
The suggestions are as follows:
1.The proposed amendment of issuance of RECs to DISCOM is basically for DISCOMs of RE Rich States. This amendment is focused to increase the cash flow of the Distribution Licensees of these states.
2.  It is also pertinent to point out that in most of the cases, the tariff regimes of these states are different from CERC tariff regime and their tariffs are significantly lower than the tariff based on CERC RE Tariff Regulations 2012. Which shows that States are completely refuses to get in aligned to the Central policies.
3.  The definition of APPC provided in CERC Regulation which in all the cases comes out to be lower than the APPC computed based on CERC definition. This decreases the realization under REC mode.
4.  The new REC projects under OA/CGP route will restrict RE generators to sell energy only under preferential tariff or under model of APPC. This shows the consumer has no choose to select the product, but he is compelled towards a single defined product. These steps show that the whole REC mechanism is working against the basics philosophy of the competitive market. A regulator is responsible to bring in the completion in the market which leads to reduction of the price and hence bring benefit to the consumer.
5.  The validity of Certificates, which are likely to expire in the next one year from the notification of this amendment, shall be increased by another three hundred and sixty five days. The generators stressed upon the increase in the validity of the RECs for at least two years. Some have suggested for the validation shall be increased up to infinity.
6.  The demand of solar RECs has been reducing in the past months and one of the possible reasons is the solar pricing of floor and forbearance price notified for control period FY2012-2017.  All the projects came into existence on the trust of the government policy. But the new price band and the introduction of the Vintage multiplier for the solar projects will have the radical effect on the cash flows. The honorable Commission shall take a Retrospective View on the proposed Amendments.
7.  Also some of the generators bring in the concept of issuing of the RECs under two categories. (REC1 & REC2). The REC1 shall constitute the inventories. The REC2 shall be the new RECs issued from 2014. The preference should be given to the REC1 above REC2.
8.  The co-gen generators work on round the clock (RTC) bases. They are not allowed for the banking of the power .Their main consumers are industrial. They want the RECs validity shall be extended and also bring the REC mechanism under Corporate Social Responsibility (CSR).
9.  None of the generators has welcomed the vintage multiplier. The order suggests that solar projects commissioned during year 2013 would get 1.47 Solar RECs, 2014 would get 1.19 Solar RECs and 2015 onwards to get 1 REC for every 1 MWh of Generation. Likewise, OA and CGP based REC projects to get 0.74, 0.6 and 0.5 Solar RECs (2013, 2014 and 2015 respectively) for every 1 MWh. The any changes in the floor and forbearance price during the current control period or in future can have adverse impact on the REC market which is already facing challenges.  
The concerns put forward by the POSOCO/Power Exchange before Honorable Commission:
1.  The sale of electricity through Power Exchange route comes basically under OA in collective transaction category.  Presently, on Power Exchange Platform, sale of RE is not separately monitored. Monitoring and keeping track of the amount of electricity sold under this category will be a tedious task.
2.  Clarity may also be provided to the unsold solar RECs already in the inventory because with the change in the floor and forbearance prices, their numbers are also likely to be revised which would mean a change retrospectively.
3.  The proposed amendment to the REC Regulations will entail revision of the detailed procedures and changes in the software and its testing in the REC web application.

Tags

BILATERAL Banking Andhra Pradesh Power Coordination Committee Renewable Purchase Obligation Renewable Energy Certificates Central Electricity Regulatory Commission Tariff Energy Tax Rural Electrification Corporation Central Agency Power power market web Trading Power Industry Electricity Consumer India REC Solar

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