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Volume: XX Month: April ’12 Contents of this newsletter are for informational purposes only

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Vol. XX April 2012

www.reconnectenergy.com

Dear Readers,

April trading session was the pleasant sur-

prise. Traded price was Rs 2201/ REC (32%

higher than the floor price). But the bigger

surprise was the robust demand – of 264,000

RECs - in the very first month of the compli-

ance year. It is perhaps an indication of en-

forcement expectation.

In the main article this month, we have devi-

ated from our focus on the REC markets. But

we believe that it’s with a very good reason.

The recent notification of rules of the PAT

mechanism will kick-off and exciting new mar-

ket of Energy Savings Certificates. We present

a detailed analysis in the article.

On the regulatory side, all eyes are now on

State ERCs for enforcement of the RPO regu-

lations. However, a recent development re-

garding applicability of RPO in Chhattisgarh is

covered.

We look forward to feedback and comments

from you. Enjoy reading!

-Team REConnect

REConnect Energy Solutions REC, Energy Efficiency, Electricity Portfolio Management

Analysis of the Energy Savings Certificate Markets

From Management’s Desk

Regulatory News REC Trade Report REC Project Statistics Green News About REConnect Index PAT Mechanism

The rules relating to the Energy Efficiency “Perform, Achieve and Trade” mechanism (PAT)

were notified by the central government recently. We present the highlights below (for an

introduction to the PAT scheme see our newsletter Vol. 9 of May 2011):

The PAT mechanism1 was notified recently. This will operationalize the mechanism. Broadly,

the mechanism requires ‘designated consumers’ – the largest companies in the 8 most energy

intensive industries in the country – to meet certain energy efficiency norms. The program is

managed by the Bureau of Energy Efficiency (BEE).

What is required of the Designated Consumers?

Approximately 560 industrial units in 8 energy intensive sectors are considered “Designated

Consumers” (DCs). The PAT notification provides a specific target for the end of the first cycle

– a period of three years – that the DC has to achieve. As an example, NALCO’s Aluminium unit

in Korpaut district is a DC. Its target is to reach 0.307 tons of oil equivalent (TOE) per ton of

production from the current 0.325 TOE (a reduction of 6.1%). This target is specific to each

unit, and is based on its recent energy consumption pattern. For examples, another aluminum

unit – Hindalco’s plant in Muri has a target of 0.598 TOE (vs 0.674 TOE at present; a reduction

of 11.3%).

Reduction Target in Specific Energy Consumption in Aluminum Industry

1The rules framed are called “Energy Conservation (Energy Consumption Norms and Standards for Desig-

nated Consumers, Form, Time within which, and Manner and Preparation and Implementation of Scheme,

Procedure for Issue of Energy Saving Certificate and Value of Per Metric Ton of Oil Equivalent of Energy

Consumed) Rules, 2012”. Since it will be impossible to come up with an abbreviation of this name, we will

stick to calling it the PAT mechanism or PAT Rulesin this article http://220.156.189.23/schemes/documents/nmeee/pat/PAT_Rules_English.PDF

Desiganted Consumers are from the following sectors :

1. Alumunium 2. Cement 3.Chlor Alkali 4. Fertilizer

5. Iron and Steel 6. Pulp and Paper 7.Textile 8. Themal Power Plant

Try India’s First Online RPO Calculator

http://reconnectenergy.com/rec/index.php/rpo-calculator.html

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How are energy efficiency norms calculated?

The norms have been calculated by developing a detailed baseline for each DC. For this, data of the past 3 years have been considered.

After calculating the baseline, a benchmark was developed and targets set on the basis of the deviation from the benchmark.

What will be the targets and progress be monitored?

Each DC is required to maintain extensive data on its energy consumption and reduction efforts. The DCs will be subject to extensive audits

by designated Energy Auditors. Data will have to be submitted to BEE on an annual basis, along with a report of the energy auditor and its

‘opinion’ on the efforts and achievement of target by the DC.

There is a further provision of a ‘check-verification’ that BEE can order. This will require another Energy Auditor to independently verify the

submissions of the DC and the opinion of the auditor. Penalty provisions are in place in case of mis-reporting and taking unfair advantage

of the trading scheme.

How will issuance and trading of Energy Saving Certificates work?

The ‘T’ in the PAT scheme refers to trading. The DCs who exceed their target will be entitled

to get Energy Saving Certificates (ESCerts) and those who do not meet them will be required

to purchase for compliance. In this way, the more efficient DCs will be rewarded and the less

efficiency ones will be penalized.

ESCerts will be issued to DCs on the basis of the annual return and the Energy Auditor’s

report, and will be adjusted against the entitlement in the final year of the 3 year cycle. Each

ESCert will represent one TOE, and will be tradable in the power exchanges. The ESCert will

have a ‘value’ assigned to it which will be calculated on the basis of price and consumption

mix of coal, oil, gas and electricity of all DCs. The value assigned to 1 TOE for 2011-12 is Rs

10,154.

The rules pertaining to trading of ESCerts leave some important questions unanswered and are silent on other important matters. Will

ESCerts be traded only once and then retired (like in the case of REC) or can they be traded multiple times? It is also unclear what would be

the purpose of the ‘value’ of 1 TOE as specified in the rules. Is it a penalty price?

An important aspect the Rules leave out is the provision to issue ESCerts to non-DCs for energy efficiency measures. This could have been a

great monetary incentive and potentially led to the development a broad-based energy efficiency market going beyond the DCs. Another

aspect is the interaction and transferability between REC and ESCerts – this can be easily done by allowing companies that purchase RECs

beyond their RPO requirement to count ‘zero’ TOE for renewable energy consumed. Similarly, what will the TOE for companies that gener-

ate and consume renewable power but claim RECs (and therefore essentially consume regular power)?

Conclusion

Compared to other environmental markets like REC and carbon credits, the PAT mechanism is complex. There is a significant monitoring

and reporting requirement which puts an onerous burden on the DCs and relies on the Energy Auditor to a great extent.

ESCerts will be issued annually. This will make the trading market in ESCerts illiquid. At the same time, there are several unanswered ques-

tions regarding the finer details of trading of ESCerts. However, there is time to sort out those details as trading is unlikely to begin for an-

other 1.5 years

Overall, it’s great to see another environmental market kick-off. This will be a very different market from RECs, but let’s hope that its fol-

lows the same trajectory in terms of market participation and development.


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Regulatory News


RPO notification from Chhattisgarh State Electricity Regulatory Commission (CSERC)

Recently a notification regarding the applicability and enforcement of RPO regulations was made by Chhattisgarh State Electricity Regula-

tory Commission (CSERC). Previously, the CSERC RPO 2011 regulation specified that the RPO will be applicable to the captive user(s) and

open access consumer(s) from the date as would be notified in the Official Gazette. This notification specified that the renewable

purchase obligation will be applicable from April 01,2012 for the captive user(s) and open access consumer(s) .

Those captive users and open access consumers who have purchased RECS in the last financial year 2011-12 can adjust against their

renewable purchase obligation for 2012-13. This notification will be little disappointing for those who bought RECs later during the last

financial year at a higher price.

Tamil Nadu Electricity Regulatory Commission (TNERC) order on Generation, Distribution and Transmission charges

The TNERC, recently released an order on the Determination of Tariff for Generation & Distribution of TANGEDCO and the Intra-State

Transmission Tariff of TANTRANSCO. Some of the key highlights have been mentioned below.

Transmission Charges:

The transmission tariff for long term & short term open access has been increased by about two and half times from the existing tariff.

The transmission charges are as follows

T r a n s - mission

Loss:

The transmission losses have been maintained almost the same form the previous year. The losses, as defined by TNERC,

Wheeling Charges:

The wheeling charges for the year 2012 – 13 have been increased from Rs. 14.74 paise/unit to Rs. 23.27 paise/unit.

——X——


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Transmission Charges Existing Charges Revised Charges

Long Term Open Access Rs. 2781/MW/Day Rs. 6483/MW/Day

Short Term Open Access Rs. 28.96/MWh Rs. 270.11/MWh

Voltage Level 2011 – 12 2012 – 13

230 KV 0.95% 0.95%

110 KV 1.5% 1.5%

33 KV 1.5% 1.5%

22 KV 2.5% 2.5%

11 KV 3% 3%

LT 10.5% 10.1%

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April’s trading session was the first of the new compliance year (2012-13). Both volume and price expectations were low, given that there

is no real pressure on the obligated entities to buy this early in the year. Considering that, both prices and volumes surprised – IEX and

PXIL traded price was Rs 2,201/ REC (32% higher than the floor price of Rs 1,500; we believe that prices and volume this month are not

comparable with March 2012 as the drivers for buyers and sellers were very different last month).

The total demand was for 263,913 RECs. This appears high compared to last month (demand last month was for 389,000 RECs; last April

was 260) given that this is the first month of the compliance year.

Supply was impacted by low issuance of RECs (118,000 in April vs 204,000 in March) likely due to reduced urgency on part of generators

to claim RECs. Total available RECs were 157,000, of which 133,000 were bid for sale (85% participation). At this stage in the market, the

participation level was high. Of the total bid for sale, only 54% were sold indicating seller’s willingness to hold and expectation of even

higher prices later in the year.

With the new floor and forbearance price from this financial year coming in picture, today’s price will bring some smile on the sellers. The

relatively high demand and prices are an indication of expectation of enforcement.

No solar RECs were traded this month.


Review of REC Trading-April 2012



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Status of projects in REC Mechanism


Accredited Capacity : 2767.148 MW



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Status of projects in REC Mechanism


Registered Capacity : 2339.733 MW



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• Narmada canals can give 2,200 MW of solar power:Mr Narendra Modi

If even 10 per cent of the 19,000 km-long Narmada canal network in Gujarat is used for setting up canal-top solar panels, it

has the potential to produce 2,200 MW of solar power, save 11,000 acres of land that would otherwise be used and prevent

2,000 crore of precious water from evaporation annually, the Chief Minister, Mr Narendra Modi, said.

http://www.thehindubusinessline.com/industry-and-economy/economy/article3352783.ece

• Sun shines over renewable energy

The Indian renewable energy industry has never had it so good. Wind power installations in 2011-12 were the highest in a

single financial year, at 3,163 MW, taking the total installed capacity to 17,320 MW.

http://www.thehindubusinessline.com/features/article3342620.ece

• Offshore wind energy panel formed

In a bid to give a big thrust to wind power, the Ministry for New and Renewable Energy (MNRE) has constituted an Offshore

Wing Energy Steering Committee (OWESC) under the chairmanship of Secretary, MNRE to steer the offshore wind power de-

velopment in India in a directed and focused manner especially in Tamil Nadu, Maharahstra and Gujarat.

http://www.thehindu.com/business/article3345520.ece

• Gujarat Solar Park: Asia's largest solar power park opens

A 600 MW solar power park, touted as Asia's first and largest, was Thursday dedicated to the nation by Gujarat Chief Minister

Narendra Modi in the state's Patan district, in a boost to India's efforts towards low carbon growth.

http://articles.economictimes.indiatimes.com/2012-04-19/news/31367545_1_gujarat-solar-park-solar-project-solar-power-

policy

• IFC may invest $40 million in Inox Group’s wind energy businesses

International Finance Corporation (IFC) is looking to invest up to $40 million to acquire stake in a subsidiary of Gujarat Fluoro-

chemicals Ltd that runs its wind power generation business. The investment arm of the World Bank will also provide a senior

debt of $90 million to INOX Renewables Ltd, part of the $2 billion INOX Group.

http://www.vccircle.com/500/news/ifc-may-invest-40m-in-inox-group%E2%80%99s-wind-energy-biz

• Indian Banks Exposure to Coal Limits Lending to Solar, SBI Says

Indian banks have limited scope to boost lending to solar plants after funding for coal projects pushed them close to the limit

for financing to the power industry, the nation’s biggest lender said.

http://www.bloomberg.com/news/2012-04-26/indian-banks-exposure-to-coal-limits-lending-to-solar-sbi-says.html

• Biomass-based power producers seek tariff revision

Biomass-based power producers, with an installed capacity of 2,664 Mw, have made a strong pitch for according priority sec-

tor status on the lines of agro sector. These producers have also appealed to the Centre to launch biomass mission on the

lines of solar mission to attract more investments.

http://business-standard.com/india/news/biomass-based-power-producers-seek-tariff-revision/470758/

• Investment in green technologies will benefit India,US: Sushilkumar Shinde

US companies investing in India's green energy market will have good prospects and it will be a "win-win" situation for both

the countries, Power Minister Sushilkumar Shinde said.

http://articles.economictimes.indiatimes.com/2012-04-17/news/31355377_1_energy-sector-win-win-situation-power-sector

Green News



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Status of RPOs across various states in India - As on April 24 , 2012


State

Status of Regulation

2012–13 RPO

Obligation

RPO on CPP?

RPO on OA

Users?

Penalty ?

Andhra Pradesh Final 4.75 % + 0.25 %

Yes

Yes

Not Specified

Assam Final

4.05 % + 0.15 %

Yes

Yes

Yes (RECmax)

Bihar

Final

3.25 % + 0..75 %

Yes

Yes

Yes (RECmax)

Chhattisgarh

Final

5.25 % + 0.50 %

Yes

Yes

Yes (RECmax)

Delhi Draft

3.25 %+ 0.15 %

Yes

Yes

Yes (RECmax)

Gujarat

Final

6.00 % + 1.00 %

Yet to be notified

Yes

Yes (RECmax)

Haryana

Final

1.50 % + 0.50 %

Yes

Yes

Yes (RECmax)

Himachal Pradesh

Final

10.00 % + 0.25 %

Yes

Yes

Yes (RECmax)

J&K

Final

4.75 %+0.25 %

Yes

Yes

Yes (RECmax)

Jharkhand

Final

3.00 % + 1.00 %

Yes (>5MW)

Yes

Yes (RECmax)

Karnataka

Final

10 % + 0.25 % (BESCOM,MESCOM,CHESCO

M), 7 % + 0.25 % for others

Yes (>5MW)

5% RPO

Yes (>5MW)

5% RPO

Yes (RECmax)

Kerala

Final

3.35 %+0.25 %

Yes

Yes

Yes (RECmax)

Madhya Pradesh

Final

3.40 % + 0.60 %

Yes

Yes

Yes (RECmax)

Arunachal Pradesh Draft 4.1 % +0.1 % Yes Yes Yes (RECmax)

Maharashtra

Final

7.75 % + 0.25 %

Yes

Yes

Yes (RECmax)

Meghalaya

Final

0.60 % + 0.40 %

Yes

Yes

Yes (RECmax)

Orissa

Final

5.35 % + 0.15 %

Yes(>5MW)

Yes

Yes (RECmax)

Punjab

Final

2.83 %+0.07 %

Yes

Yes

Yes (RECmax)

Rajasthan

Final

7.10 % + JNNSM

Yes

Yes

Yes (RECmax)

Tamil Nadu

Final

8.95 % + 0.05 %

Yes

Yes

Yes (RECmax)

Tripura

Final

0.90 % + 0.10 %

Yes (>5MW)

Yes

Yes (RECmax)

Uttrakhand

Final

4.5 % + 0.025 % Yes

Yes

Yes (RECmax)

Uttar Pradesh

Final

5.00 %+ 1.00 %

Yes

Yes

Yes (RECmax)

West Bengal

Final

4 % + NA

NA

NA

REC not recognized

JERC for Goa and UTs

Final

2.60 % + 0.40 % Yes

Yes

Yes (RECmax)

JERC for Manipur and Mizoram

Final

4.75 % + 0.25% (Man) 6.75% + 0.25% (Miz)

Yes

Yes

Yes (RECmax)

Nagaland

Final

7.75 % + 0.25%

Yes

Yes

Yes (RECmax)


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Dear Readers, Our previous newsletters are available at our website www.reconnectenergy.com and can be downloaded from : http://www.reconnectenergy.com/rec/index.php/newsletters-on-rec-mechanism.html The summary of our previous newsletters we have published is available below. • Volume IX: May 2011

REC Market: Another round of Regulatory Push Required

• Volume X: June 2011 Analysis on proposed Floor & Forbearance Prices for control period 2012-2015

• Volume XI: July 2011

Applicability of REC/RPO on Co-Generation Power Plants

• Volume XII: August 2011 REC & RPO: The Dilemma of Double Accounting of “Green Tags”

• Volume XIII: September 2011 Metering Issues in CPPs and Co-Gen: From REC Perspective

• Volume XIV: October 2011 Introduction to Renewable Regulatory Fund

• Volume XV: November 2011 Renewable Purchase Obligation – A Demand - Supply Analysis

• Volume XVI: December 2011

Analysis of Draft RPO of Andhra Pradesh + REC Market Update

• Volume XVII: January 2012 Voluntary Market for RECs

• Volume XVIII: February 2012

Off Grid Projects and REC: A new socio-development tool? • Volume XIX: March 2012

Applicability of RPO on Co-Generation Projects (An Update)

Past Newsletters

Feedback: We wholeheartedly thank you for providing your valuable feed-back on our last newsletter. Your feedback on the newsletter keeps us motivated and would certainly help us to improve the quality of it. Kindly keep writing to us. We are eager hear your views. Best Regards, Team - REConnect


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Services Provided by REConnect


Detailed Services in REC Space Services for RE Generators

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



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REConnect is a venture focused on the Renewable Energy Certificates,

Energy 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

markets

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

IIT Bombay

• Highly experienced core team worked with organizations like

J P Morgan, Indian Energy Exchange, Asia Carbon and Gensol.

Contact REConnect New Delhi Vibhav Nuwal

[email protected]

+91 88006 79988

Bangalore Vishal Pandya

[email protected]

+91 96202 21101

Suresh Kumar (for RPO)

[email protected]

+91 99727 24727

Mumbai Ramkumar K

[email protected]

+91 99303 59992

Chennai Rajesh Vaidyula

[email protected]

+91 99404 78306

Pune Mohit Tyagi

[email protected]

+91 96650 42397

About REConnect




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