The Central Electricity Regulatory Commission (CERC) has lowered the band of prices within which ‘renewable energy certificates’ issued to eligible solar power producers could be traded in the market.
The ‘floor’ and ‘forbearance’ prices are now Rs 3,500 and Rs 5,800 respectively for each solar REC. Earlier, they were Rs 9,300 and Rs 13,400, respectively.
Background
RECs are generation-based ‘certificates’ awarded (electronically, in demat form) to those who generate electricity from renewable sources such as wind, biomass, hydro and solar, if they opt not to sell the electricity at a preferentially higher tariff. These certificates are trade-able on the exchanges and are bought by ‘obligated entities’, who are either specified consumers or electricity distribution companies. These obligated entities may either required to purchase a certain quantum of either green power or RECs. Trading happens on the last Wednesday of each month. Within the obligation, there is a small slice carved out for ‘solar RECs’, or RECs issued to solar power generators.
Significance
The CERC notification lowering the price band is significant because the previous band did not serve any purpose. Even the floor price (Rs 9,300 per REC) was very high. Since one REC is issued for every megawatt-hour of electricity generated, the floor price translated to Rs 9.30 per unit of solar power. Nobody would buy an REC at this price because any obligated entity would find it cheaper to buy solar energy, which is now available at between Rs 6 and Rs 7 a unit, rather than buy a solar REC paying Rs 9.30. The solar industry had been clamouring for a downward revision of the band.
Another amendment
The CERC has also brought in another amendment giving more certificates to solar power plants already registered under the REC regime that sell their power to the electricity distribution company of their regions. These projects will now get 2.66 RECs for each megawatt-hour of energy they generate. This dispensation will continue till March 31, 2017, after which the plants will get one REC for every MWhr they produce.
As a result, the market will be flooded by solar RECs. Today, there are 5.8 lakh solar RECs waiting to be sold. Vishal Pandya, Founder of REConnect, a consultancy that deals in REC matters, calculates that the solar REC inventory would shoot up to 15.50 lakh.