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Page 1 REConnect’s analysis on CDM vs. REC gets international media coverage! Please read News section of this newsletter for details. Volume: V Month: Dec’10 & Jan’11 O P E N A C C E S S Vol. V www.reconnectenergy.com Background: Honorable Central Electricity Regulatory Commission (CERC) announced a formal commencement of REC Mechanism on November 18, 2010. Accord- ing to REC mechanism, obligated entities like distribution licensees, open access consumers and captive consumers having Renewable Purchase Obli- gation (RPO), need to buy either physical renewable energy or REC to meet RPO compliance. This provision would ensure that obligated entities that are not able to procure physical renewable energy, would purchase RECs to avoid penalty. Even though, the regulatory provision has been provided for mandatory RPO compliance, as the provision being enforced for the first time in India, a question on every stakeholder’s mind is “Who will actually buy RECs?” With the RPO being enforced, it is anticipated that only distribution licen- sees would contribute in bringing demand for RECs in the market. How- ever, we believe that in the initial years, they would not be the only signifi- cant buyers of RECs in the market place. This is mainly because they al- ready buy a significant volume of green power under preferential tariffs. Further, the revised RPOs set by various SERCs are set up in such a way that the net shortfall of renewable energy for a distribution licensee to meet its RPO would very minimal. Following sections initiates a detailed discussion on demand side participa- tion from Distribution Licensees, Open Access Consumers and Captive Consumers for REC Mechanism. Demand from Distribution Licensee: As mentioned above, RPOs set by various state regulatory commissions are set considering the present avail- able renewable energy within state, actual quantum available to distribu- tion licensees to meet their RPO and the new renewable energy genera- tion anticipated. The new target given for RPO next year is usually margin- ally higher than the actual quantum available. Hence, if RPO is to be met by distribution licensee completely, they may require to purchase that marginal shortfall in form of REC to avoid penalty. This very fact will bring in some demand side volume in REC market. Even though the volume from each distribution licensee may not be very high, being operating a gigantic grid size, even a small percentage of shortfall in RPO would generate good (Continued on page 2) Dear Readers, In 2003, with the commencement of the Electricity Act, a landmark provision got legislated. The provision was for “Open Access”. A provision which gives right to every electricity market stakeholder a Non-Discriminatory access to trans- mission & distribution network which used to be considered a monopoly. Today, Power Market is evolving at tremendous pace with plethora of regulatory changes and new mechanisms getting introduced at Central & State level making the market very dynamic in nature and difficult for all the stakeholders to keep close track of it. Since inception, REConnect’s endeavor has been to create awareness and sensitize the stake- holders about various developments surrounding REC Mechanism and Power Market in general. To achieve the objective, we started our monthly newsletter service in August-2009 with specific focus on REC Mechanism to help stakeholders understand the mechanism better. ‘Knowledge’ is USP for REConnect and we intent to share it with the stakeholders in non- discriminatory manner. Today, while releasing our fifth volume of newsletter, we attempted to make this initiative more meaningful by assign- ing it a formal name - A name which clearly re- flects its true objective and motive. And we could not think any other name other than “Open Ac- cess”. So, welcome to “Open Access” of Knowledge and we hope you will enjoy this. - Team REConnect. REConnect Energy Solutions REC, Energy Efficiency, Electricity Portfolio Management Impact analysis of RPO Demand Side participation in REC Mechanism & impact of RPO on Captive Consumers From Management’s Desk
Transcript
Page 1: OOOO PPPP RE Connect Energy Solutions EEEE NNNN AAAA...In 2003, with the commencement of the Electricity Act, a landmark provision got legislated. The provision was for “Open Access”.

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REConnect’s analysis on CDM vs. REC gets international media coverage!

Please read News section of this newsletter for details.

Volume: V Month: Dec’10 & Jan’11

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Background:

Honorable Central Electricity Regulatory Commission (CERC) announced a

formal commencement of REC Mechanism on November 18, 2010. Accord-

ing to REC mechanism, obligated entities like distribution licensees, open

access consumers and captive consumers having Renewable Purchase Obli-

gation (RPO), need to buy either physical renewable energy or REC to meet

RPO compliance. This provision would ensure that obligated entities that

are not able to procure physical renewable energy, would purchase RECs to

avoid penalty. Even though, the regulatory provision has been provided for

mandatory RPO compliance, as the provision being enforced for the first

time in India, a question on every stakeholder’s mind is “Who will actually

buy RECs?”

With the RPO being enforced, it is anticipated that only distribution licen-

sees would contribute in bringing demand for RECs in the market. How-

ever, we believe that in the initial years, they would not be the only signifi-

cant buyers of RECs in the market place. This is mainly because they al-

ready buy a significant volume of green power under preferential tariffs.

Further, the revised RPOs set by various SERCs are set up in such a way that

the net shortfall of renewable energy for a distribution licensee to meet its

RPO would very minimal.

Following sections initiates a detailed discussion on demand side participa-

tion from Distribution Licensees, Open Access Consumers and Captive

Consumers for REC Mechanism.

Demand from Distribution Licensee: As mentioned above, RPOs set by

various state regulatory commissions are set considering the present avail-

able renewable energy within state, actual quantum available to distribu-

tion licensees to meet their RPO and the new renewable energy genera-

tion anticipated. The new target given for RPO next year is usually margin-

ally higher than the actual quantum available. Hence, if RPO is to be met

by distribution licensee completely, they may require to purchase that

marginal shortfall in form of REC to avoid penalty. This very fact will bring

in some demand side volume in REC market. Even though the volume from

each distribution licensee may not be very high, being operating a gigantic

grid size, even a small percentage of shortfall in RPO would generate good

(Continued on page 2)

Dear Readers, In 2003, with the commencement of the Electricity Act, a landmark provision got legislated. The provision was for “Open Access”. A provision which gives right to every electricity market stakeholder a Non-Discriminatory access to trans-mission & distribution network which used to be considered a monopoly. Today, Power Market is evolving at tremendous pace with plethora of regulatory changes and new mechanisms getting introduced at Central & State level making the market very dynamic in nature and difficult for all the stakeholders to keep close track of it. Since inception, REConnect’s endeavor has been to create awareness and sensitize the stake-holders about various developments surrounding REC Mechanism and Power Market in general. To achieve the objective, we started our monthly newsletter service in August-2009 with specific focus on REC Mechanism to help stakeholders understand the mechanism better. ‘Knowledge’ is USP for REConnect and we intent to share it with the stakeholders in non-discriminatory manner. Today, while releasing our fifth volume of newsletter, we attempted to make this initiative more meaningful by assign-ing it a formal name - A name which clearly re-flects its true objective and motive. And we could not think any other name other than “Open Ac-cess”. So, welcome to “Open Access” of Knowledge and we hope you will enjoy this. - Team REConnect.

REConnect Energy Solutions REC, Energy Efficiency, Electricity Portfolio Management

Impact analysis of RPO Demand Side participation in REC Mechanism & impact of RPO on Captive Consumers

From Management’s Desk

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amount of buy side volume in market. The classic example to justify the

same could be - Maharashtra. Maharashtra state is a about 18,000 MW

Grid and RPO for the present financial year i.e., 2010-11 is fixed at 6%. If

Maharashtra faces a shortfall of just 1% in their RPO (hypothetical figure

taken for analysis purpose only), actual demand in form of REC that may

arise from the scenario would be about 180 MW. Considering low PLFs of

renewable generators, this could satisfy REC supply of about 350-450 MW

of renewable energy equivalent (assuming average PLF of 40-50 %).

Hence, it can be envisaged that even though the deficit may be marginal,

demand side participation from DISCOMs would be sizable considering

the large size of electricity grid they are managing.

Demand from Open Access Consumers: Leaving apart distribution licen-

sees, inter-state open access consumer segment largely comprises of con-

sumers purchasing electricity directly from Power Exchanges. This con-

sumer segment has been developed recently and represents a very small

capacity of less than 1% (approximately) compared to the over all transac-

tions that are being carried out under short-term inter-state open access.

The another segment under open access regime that could bring some de-

mand for REC would be the consumers availing intra-state open-access

within state. However, like inter-state open-access consumers, intra-state

open-access consumer segment is also very small and slowly developing,

demand side participation for RECs from these segments would be very

small.

Demand from Captive Consumers: Captive consumers, consuming elec-

tricity from their own Captive Power Plants (CPPs) are also mandated to

purchase physical green energy or REC to meet the compliance. In India,

many electricity intensive industries like Cement, Steel, Ferro Alloys, Paper

& Pulp etc., are operating their own power plants run by either thermal

generation or generation from other resources including renewable en-

ergy. This segment of consumers represents a fairly large capacity and

are likely to contribute good volumes in REC from buy side.

A Case Study on impact of RPO on Captive Consumers: Distribution licen-

sees may incur additional cost in meeting RPO as they have to purchase

RECs to meet their marginal shortfall in meeting RPO compliance. Hence,

the net impact on DISCOMs’ finance due to purchase of REC would likely

be very minimal. However, for open-access and captive consumers, the

situation would be different. Prior to REC mechanism also, RPO framework

was existing in almost all the states. However, as the RPO framework was

(Continued from page 1)

(Continued on page 3)

Upcoming Events

REC Conclave: Bangalore Renewable Markets India is organizing a one day conference on REC Mechanism on February 5, 2011 at Bangalore. This event is expected to be attended by about 150 stakeholders with key speakers representing CERC, NLDC, State Nodal Agencies and Power Exchange. REConnect is spon-soring the event and will be sharing insights about “NAPCC, RPO and REC - The missing links and way forward”. Past Events VaVoVa - 2011: Chennai (January 14, 2011) Tamil Nadu Electricity Development Agency (TEDA) organized three day national level exposition on Renewable Energy during January 14-16, 2011. Mr. Vishal Pandya from REConnect participated in the event as a key speaker and presented a case study on “Understanding REC Mechanism & Struc-turing Sale of Electricity to avail REC benefits”.

Impact analysis of RPO - Continued

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not enforced in almost all the state due to lack of green

power to fulfill obligations. Now, with REC mechanism

in place, and RPO framework being enforced on a man-

datory basis, all the open-access and captive consum-

ers, unlike DISCOMs, would be required to make new

set of arrangements to meet RPO compliance. There is

no denying that the RPO laws will increase the cost of

electricity for the obligated entities. In some ways that

is the desired outcome – to increase the cost of conven-

tional energy and in-turn incentivize renewable energy.

However, our analysis for a client shows that the im-

pact will not be significant. While in the specific case

study we conducted, the increase in cost was about 3%,

it will differ from case-to-case. We expect it to be in the

range of 2-7%. The same is being illustrated below.

A case study on a Steel plant consuming 38 MUs a

year:

Key assumptions about the plant and other parameters:

• Annual Consumption: 38 MUs

• Captive Generation: 35 MUs

• Purchase from DISCOM: 3 MUs

• State RPO: 6%

• Existing purchase of RE: Nil

• Electricity Cost: 3.5 Rs/kWh, REC: 2000 Rs./REC

Frequently asked questions on RPO

Q: Will the first compliance period be March 2011?

Ans: In most cases, yes. However, given how nascent

(Continued from page 2)

Impact analysis of RPO - Contd. & FAQ

REConnect Energy Solutions REC, Energy Efficiency, Electricity Portfolio Management

the REC market is, we expect this to be relaxed or

rolled-forward. Given the way REC markets are devel-

oping, it is unlikely that significant REC volume will be

available for purchase initially. This is likely to spur

State ERCs to defer or roll-forward RPO compliance for

year ended March 2011.

Q: Will RE captive generators also have RPO Obliga-

tions?

Ans: Yes. The RPO obligation applies to all captive con-

sumers. Thus, if you are a captive consumer generating

power from RE source, you will still have to fulfill the

obligation. The REC mechanism will still have a signifi-

cant benefit on the bottom line, as only a small per-

centage of the total RE generation will be required for

RPO compliance, while the rest can be sold in the REC

markets if such RE captive generator is eligible for REC

mechanism.

Q: Can RPO obligation for RE captive generators be

met by keeping certain RECs for compliance?

Ans: No. The RE captive generator will be required to

obtain REC for the entire generation and will have to

necessarily sell them on the exchange. To meet its own

obligation, the generator will have to buy REC from the

exchange.

Circular as it sounds, CERCs procedures make this very

clear –

“In case of CPP the entire generation from the

CPP would be eligible for REC. However in case

CPP wants to fulfill its own RPO , the CPP shall

have to procure the REC from the CERC ap-

proved Power Exchanges only”

The possible reason for this is to ensure proper ac-

counting of all REC transactions and to maintain the

floor and forbearance price determined by CERC. How-

ever, it will have cost implications on a RE captive gen-

erator as it will have to incur charges like power ex-

change charges, brokerage charges, etc.

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Current Post-RPO

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Comparision of energy cost between the pre and post RPO scenario

Cost structure for a Steel Plant: Pre & Post REC Scenario

REC

Electricity cost

3%

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REConnect’s analysis on REC Vs. CDM gets interna-

tional media attention.

As an initiative to create awareness about various as-

pects surrounding REC Mechanism, REConnect has

been publishing monthly newsletters on REC Mecha-

nism since August-2010. Our November-2010 month

newsletter containing comparison between REC mecha-

nism and CDM mechanism has got international media

attention and the same has been reported by

Bloomberg, an organization tracking and reporting in-

ternational capital, commodity and environmental mar-

kets. The article titled “Cash-for-Clean Energy in India

May Beat UN Carbon Plan” was reported on January

28, 2011 and the same can be found by clicking the link

given below. http://www.bloomberg.com/news/2011-

01-28/cash-for-clean-energy-trading-to-start-in-india-

with-threat-to-un-market.html

Punjab ERC notifies draft Regulation on REC Mecha-

nism & appoints Nodal Agency for REC Mechanism

Honorable Punjab Electricity Regulatory Comission

(PSERC), has appointed Punjab Energy Development

Agency (PEDA) for implementing REC mechanism in the

state of Punjab. Further, PERC has also nofied draft

regulation on REC Mechanism for which comments

have been invited form the stakeholders by January 27,

2011.

Rajasthan ERC declares final regulation on RPO and

REC

Honorable Rajasthan Electricity Regulatory Commission

(RERC) declared final regulation on REC Mechanism and

RPO last month. REConnect had also submitted its com-

ments on the draft verson of the regulation and many

of the suggestions submitted by REConnect have been

incorporated in the final RPO framework. Following are

the highlights of the Regulation:

• RPO: 8.5% Non-Solar + 0.25% Solar (Non-Solar to

be met from Biomass)

• Obligation on Open Access Consumers & Captive

Consumers

• Penalty for non-compliance linked with maximum

price of respective RECs

News / Regulatory Developments on REC & Energy Efficiency

REConnect Energy Solutions REC, Energy Efficiency, Electricity Portfolio Management

Tamil Nadu becomes the first state in India to make

official announcement of Average Power Purchase

Cost

Honorable Tamil Nadu Electricity Regulatory Commis-

sion (TNERC) have made an official announcement of

Average Power Purchase Cost (APPC) for the state of

Tamil Nadu. With this development, TN becomes the

first state in India to officially declare APPC. Readers

may note that REC Mechanism allowes RE Generator to

sell power at APPC to the Distribution Licensee and still

participate in REC Mechanism. As final REC regulation

has already been published in TN, this development

willl help RE generators to evaluate and structure their

electricity sale to maximize their revenue through the

new option created.

TNERC declares final regulation on RPO and REC

Honorable Tamil Nadu Electricity Regulatory Commis-

sion (TNERC) declared final regulation on REC Mecha-

nism and RPO on December 14, 2010. Following are the

highlights of the Regulation:

• RPO: 14% Non-Solar + Solar (to be notified sepa-

rately)

• Obligation on Open Access Consumers & Captive

Consumers [As per Electricity Act, 2003, Section

86 (1-e)]

• Penalty for non-compliance linked with maxi-

mum price of respective RECs

India to unveil emissions trading scheme in February

India will be unveiling its own cap and trade mecha-

nism to deal with air pollution on February 1. The pro-

posed market-based mechanism seeks to introduce a

system of self-regulation among industrial units by put-

ting a price on emission of pollutants.

A price for emissions, makes it costly to pollute, there-

fore incentivizing polluters to reduce emissions. The

first domestic emissions trading scheme will begin in

Tamil Nadu and Gujarat. (Ref: Economic Times, Dt: Jan,

27 - 2011)

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Services Provided by REConnect

REConnect Energy Solutions REC, Energy Efficiency, Electricity Portfolio Management

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Detailed Services in REC Space Services for RE Generators

Services for Obligated Entities (Distribution Companies / Open Access Consumers / Captive Consumers)

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Feedback: Dear Readers, You may also suggest a topic/issue which needs some analysis or stakeholders’ attention. We would always try to accommodate the same in our monthly newsletter - OPEN ACCESS. Your feedback on the newsletter also keeps us motivated and would help us to improve the quality of it. Kindly write to us. We are ea-ger hear your views. Best Regards, Team - REConnect

Consolidated Status of RPOs across various states in India - As on January 28, 2011

REConnect Energy Solutions REC, Energy Efficiency, Electricity Portfolio Management

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State Status of Regulation 2010 RPO Obligation*

RPO on CPP? RPO on OA Us-ers?

Penalty ?

Andhra Pradesh - - - - -

Assam Draft 1.35% + 0.05% Yes Yes Yes (RECmax)

Bihar Final 1.25% + 0.25% Yes Yes Yes (RECmax)

Chhattisgarh Draft 4.75% + 0.25% Yes Yes Yes (RECmax)

Delhi - - - - -

Gujarat Final 4.75% + 0.25% Yes (>5MW) Yes Yes (RECmax)

Haryana Draft 1.25% - - -

Himachal Pradesh Final 10% + 0% Yes Yes Yes (RECmax)

J&K Final 1% - - -

Jharkhand Final 1.75% + 0.25% Yes (>5MW) Yes Yes (RECmax)

Karnataka* Draft 9.75% / 6.75 + 0.25% NA NA To be determined by State Commission

Kerala Final 2.75% Yes Yes Yes (RECmax)

Madhya Pradesh Final 0.80% + 0% Yes Yes Yes (RECmax)

Maharashtra Final 5.75% + 0.25% Yes Yes Yes (RECmax)

Meghalaya - - - - -

Orissa Final 4.5% + 0% Yes(>5MW) Yes Yes (RECmax)

Punjab Draft - Yes Yes Yes (RECmax)

Rajasthan Final 8.5% + 0.25% Yes Yes Yes (RECmax)

Tamil Nadu Final 13.75% + 0.25% Yes Yes Yes (RECmax)

Tripura Draft 0.9% + 0.1% Yes (>5MW) Yes Yes (RECmax)

Uttarakhand Final 4% + 0% Yes Yes Yes (RECmax)

Uttar Pradesh Final 3.25 %+ 0.25% Yes Yes Yes (RECmax)

West Bengal Final 2% + NA NA NA REC not recognized

JERC for Goa and UTs Final 0.75% + 0.25% Yes Yes Yes (RECmax)

JERC for Manipur and Mizoram

Final 1.75% + 0.25% (Man) 4.75% + 0.25% (Miz)

Yes Yes Yes (RECmax)

Nagaland Draft 14.75% + 0.25% Yes Yes Yes (RECmax)

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REConnect is a venture focused on the Renewable Energy Certificates, En-

ergy Efficiency and Electricity Portfolio Management.

REConnect’s team has extensive experience in the environmental markets

both in India and internationally:

• Worked in the international carbon markets for several years and has

expertise in the consulting and trading of emissions reductions

• Extensive knowledge about various Renewable Energy Certificate and

Energy Efficiency Certificate markets in USA, Europe and Australia etc.

• Worked with Indian Energy Exchange (IEX), India’s leading power ex-

change, and have extensive knowledge and experience of power mar-

kets

• Alumnus of Columbia University, an Ivy League University in USA, and

IIT Bombay

• Highly experienced core team worked with organizations like J P Mor-

gan, Indian Energy Exchange and Lanco Power Trading

Contact REConnect Mumbai / New Delhi Mr. Vibhav Nuwal

[email protected]

+91 99875 11999

Bangalore Mr. Vishal Pandya

[email protected]

+91 9620 221101

Ludhiana Mr. Nishant Singhal

[email protected]

+91 9872 900 263

About REConnect

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Dear Readers, Our previous newsletters are available at our website www.reconnectenergy.com. Please do visit the website and download the same. The summary of newsletters we have published so far is available below.

• Volume I: August 2010 Introduction to Renewable Energy Certificates (REC)

• Volume II: September 2010 REC Implementation - Process Overview, Fees and Charges

• Volume III: October 2010 Analysis on Eligibility of RE Captives Generators for REC Mechanism

• Volume IV: November 2010 Launch of REC Market, CDM Vs. REC Mechanism - An Analysis (Analysis of this has been also reported by Bloomberg)

Past Newsletters


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