First it blended green fuel into petrol. Now, the government wants green power blended into electricity to light up our homes, offices and factories. Energy distribution companies have to replace 6% of their total quantity with power generated from solar, wind or hydel energy. Or buy it on paper
new financial instrument — reduction in emission certificate or REC — has been created that will be sold by Indian companies producing renewable energy to distribution companies such as Maharashtra State Electricity Distribution Company, Tata Power, Reliance Infrastructure and BEST. One REC will represent 1 megawatthour (MWh).
An REC aims to help consumers meet their renewable purchase obligations, or what the government calls RPO. The concept is directed specially at states that have no renewable energy potential but can meet it through the purchase of RECs. “A Certified Emission Reduction (CER), however, is targeted at carbon emissions. Hence, it is measured in tonnes while an REC is measured in units of kilowatthour,” said Vivek Sharma, head of energy practice at Crisil Advisory, a consultancy firm. The paper will begin trading from December on the two national electricity exchanges — the Indian Energy Exchange and the Power Exchange of India.
An official with the Power Exchange of India said potential buyers would be distribution companies of state electricity boards, captive power plants and open access consumers. “Wind, biomass, cogen and hydel generators are eligible to sell RECs. Solar is a separate category, with a separate certificate, it being a very small generator. The focus is non-solar renewable,” the official said. REC market pegged at 14k cr
WITH India’s 1.60-lakh mw installed capacity, 9,600 mw has to be bought from renewable energy companies physically or as REC. And given the government-fixed price band of 1.5-3.67/mwh, the market is worth a minimum 14,400 crore. No wonder sellers have begun licking their lips as they wait for this new source of profit.
“We can earn over and above the price per unit that we get from the state power utility. In Rajasthan, for instance, we get 3.90 per unit for the wind power we supply to the state utility. When the tradable REC comes into force, we can get an additional 1.50 per unit for the power we have sold,” said Satyen M Patel, director, commercial, at Sahyadri Industries, a 295-crore player in building materials. His company has already installed 25 windmills and plans to add six more to produce 23 mw power not all of which is eligible for REC trading, though.
Each seller will get REC from the state electricity regulatory commission equivalent to the actual quantity of renewable energy supplied to the state grid. The paper can then be traded.To really take off, the fledgling REC market needs equally enthusiastic buyers. In theory, they should come rushing. The government has fixed stiff penalties for companies that do not meet their 6% obligation. It is also difficult to buy renewable energy only through shortterm contracts or in the spot market.
Even so, buyers are reluctant. Some, such as Tata Power, are meeting their 6% commitment through captive capacities. “Of our total generation of 2,977 mw, 647 mw is in the form of wind and hydro power,” said Banmali Agarwala, executive director, strategy and development, Tata Power.Other players have already inked short-term contracts for this fiscal and so don’t need to buy RECs yet. An official in Reliance Infra, the ADA Group’s energy company, who did not wish to be named, said the company signed short-term contracts for renewable energy last fiscal for the current year.
“We have approached the Maharashtra Electricity Regulatory Commission, asking that this year at least we should be allowed to meet our obligation from the sources and at the rates at which we have already contracted. If MERC does not accept our case, then we will certainly be in the market to buy RECs. But this will cost an additional 80-180 crore and this will naturally be passed on to the customer,” he said. Reliance Infra has tied up 150 million units at MERC-mandated rates while the balance 400 million units are at a higher price.
The high price-band fixed for REC by the government is also a worry for cost-sensitive distribution companies. Maharashtra State Electricity Distribution Company managing director Ajay Mehta said it has tied up its current annual obligation of 600 mw, which is 6% of the 10,000 mw the company distributes annually. “We met our target last year and we should be able to meet it this year too. We will definitely not be trading because we expect to meet our targets. This trading is to encourage the generation of green power but at whose cost,” he said.
Meanwhile, the two power exchanges are preparing to help create the REC market. “The price band prescribes a minimum and maximum range between which it (an REC) will trade and the price discovery will happen then,” said Deepak Zade, senior vice-president, energy and carbon services, Mitcon Consultancy and Energy Services, an advisory firm for renewables. The demand-side management of REC is ensured through the RPO framework. To ensure supplyside participation, Central Electricity Regulatory Commission, CERC, has laid down guidelines and eligibility criteria under which renewable energy generator can get REC benefit. “We are yet to fully ascertain the size of the market after finalisation of CERC Regulations on renewable power produced by CPPs,” said an official at power exchange IEX.
Green energy to light up homes soon | Magicbricks.com Property Pulse