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October 1, 2014REC Market in India
The Indian government’s policy of creating a market driven renewable energy market in India to meet the goal of 15% RE generation by 2020, has become a big failure. The REC trading exchanges are seeing very little volumes, as there is little interest from buyers of RECs. Most of the large Indian companies do not buy RECs because they do not get penalized by the government and the electricity regulators, for not meeting their quote of green energy generation. Most of the electricity regulators in different states allow the utilities to not meet their targets due to different reasons. The central regulator can do little as electricity laws are concurrent in nature, which means that both the state and central government have jurisdiction.
The companies which have built their renewable energy plants on the basis that they can sell RECs in the exchange, have seen their business models collapse. The reason is that though the solar EPCs have a high floor price, there is no buyer in the exchange. The RECs also have a limited shelf life after which they expire which means if they do not find a buyer in 3 years’ time, they will not make any money on it, even if the IEX exchange starts to function normally.
Only 2% of the total RECs brought in the market by the sellers were sold at the floor prices. This is becoming a big deterrent to renewable energy producers who are relying on the REC market to make money. There is a petition that has been filed at APTEL to force regulators to make obligation entities comply with the REC commitment. However, the REC market needs more fine tuning. Some renewable energy projects in wind and biomass energy are competitive by themselves and do not need additional remuneration from sales of RECs. They should be removed from the REC scheme. There needs to be active monitoring and change of floor prices. Rs 9 is too high for a solar REC as solar power is being built at Rs 6.5-7.5 per unit in state auctions. It will be cheaper to build a solar power plant by an obligated entity, rather than buying it from the REC market.
Also, the central government needs to force the states to meet their RE targets otherwise REC will remain a joke. All the RE policies needs to be seen in an integrated manner as different schemes such as accelerated depreciation, solar parks, JNNSM etc. are being done in a piecemeal manner. This is complicating things resulting in some green energy projects getting too little return, while some are getting very high returns.
The trading that took place in ‘renewable energy certificates’ on the country’s two energy exchanges on Wednesday is a sharp reminder of how a well-meant legislation can be rendered useless by poor enforcement.
On Wednesday, 93,62,473 non-solar and 3,69,977 solar RECs were offered for sale, but only 22,650 and 1,363 respectively were bought.
The reason is that the obligated entities (OEs) are not meeting their obligations and the State electricity regulatory commissions, who are supposed to enforce the law, are not doing so. “It has become a very frustrating experience to run REC trade sessions these days,” says Vishal Pandya, Director, REConnect, a REC market consultancy.