INTEGRATION OF GREEN ENERGY Role of Power Markets in Developing Green Energy in India March 8, 2011 Power Exchange India Limited
Agenda Renewable Energy Certificate An Introduction Regulatory Aspect of REC REC Mechanism Framework Auction Design Commercial Aspect of REC Trading
Agenda Renewable Energy Certificate - Introduction - Enablers Regulatory Aspect of REC REC Mechanism Framework Auction Design Commercial Aspect of REC Trading
Renewable Energy Certificate ( REC) REC is a market based instrument Provides evidence that a generator has produced a certain quantum of power from a RE resource which has been consumed Reflects the environmental attributes of the source of generation Can therefore be traded in the market to allow entities to meet their Renewable Purchase Obligations Why do we require REC Distribution of RE resources is not uniform across the country Location of plants may not be possible in various States States with higher RE potential may have difficulty in absorbing larges amounts from RE sources / issues of costlier electricity Increased flexibility for participants to carry out RE transactions Reduce transaction costs for RE transactions Create competition among different RE technologies
REC - Enablers Provision in EA 2003 to promote generation of electricity from RE sources National Action Plan on Climate Change Renewable Purchase Obligations from SERCs CERC notification dated January 14, 2010 Organized national market place for electricity through exchanges
Agenda Renewable Energy Certificate An Introduction Regulatory Aspect of REC - Salient features -Category, Denomination and Price REC Mechanism Framework Auction Design Commercial Aspect of REC Trading
REC Regulations Salient Features Two type of Entities defined in Regulations: Eligible Entities (EE) Generators who can only sell REC s Obligated Entities (OE) Entities having RPO from SERC who can only buy NLDC would be the Central Agency which would be responsible for Registration, Issuance, Redemption, Settlement, Repository, etc. Central Agency would be ably supported by State Level Agency Eligible Entity to undergo Accreditation process with State Agency and a Registration process with Central Agency REC would be traded only once - through Power Exchange Renewable Energy Source would be as declared by MNRE from time to time
REC Categories, Denomination & Price Categories: Solar Non Solar (SHP, Wind, Bio Gas etc) Denomination 1MWh 1 REC Price -- Price discovery at exchange (market based instrument) Once in a month trade to start with (Last Wednesday of the month) Double sided anonymous auction
Agenda Renewable Energy Certificate An Introduction Regulatory Aspect of REC REC Mechanism Framework - Eligibility - Price Band -Trading Mechanism Auction Design Commercial Aspect of REC Trading
Eligibility for RECs RE Generators are eligible for issuance of RECs, if It has obtained accreditation It does not have a PPA for sale at preferential tariff; and It sells the electricity generated to Distribution licensee of the area at a price not exceeding the pooled cost of power, or To any other licensee / OA consumer at a mutually agreed price, or Through a power exchange at market determined price Has not taken any other benefit such as exemption in electricity duty, concessional transmission charges etc.
REC Mechanism Conceptual Framework Sale at preferential tariff Obligated Entities Distribution Utility at a price not more than average pool price RE Generation Third Party sale at mutually agreed prices Electricity Component A Captive Consumer Sale in REC Framework Sale through Power Exchange Renewable Component (REC) Sale through Power Exchange
Eligibility for RECs Obligated entities are Distribution Utilities Captive Consumers Open Access Customers (Different states have taken different approaches for OA customers)
REC Price Band Non Solar REC (Rs/MWh) Solar REC (Rs/MWh) Forbearance Price 3,900 17,000 Floor Price 1,500 12,000
REC Trading REC Trading through Power Exchange Electricity to Grid Electricity from Grid E N E R G Y A/c Issuance of REC Application to issue REC Redemption Of REC Confirmation of EA RE- Generator Accreditation Compliance Monitoring RPO Compliance Reporting State Agency State Agency
Agenda Renewable Energy Certificate An Introduction Regulatory Aspect of REC REC Mechanism Framework Auction Design Commercial Aspect of REC Trading
REC Auction Design Closed bid double sided Auction Matching as per Demand and Supply Step curves Matching to have Price Priority Sellers to ensure volume bid on both Exchanges are valid in terms of number of REC existing with them PXIL to send sell orders for confirmation with Central Agency If Central Agency confirms violation, the bid of that seller would be removed from the System completely Matching would be done post removal of violation, if any
REC Auction Design Market Clearing Price (MCP): In case of exact intersection the point of intersection of Dd and Ss curve In case of overlap on multiple price ticks the Average of highest and lowest price tick Market Clearing Volume (MCV): In case of exact intersection the point of intersection of Dd and Ss curve In case of overlap on multiple volume points the highest volume point (following the principle of Maximum dispatchable volume )
PXIL REC Member Login Screen
PXIL - REC Trading screen Orders description Order Entry
Agenda Renewable Energy Certificate An Introduction Regulatory Aspect of REC REC Mechanism Framework Auction Design Commercial Aspect of REC Trading Advantage Key Success
Commercial Aspects Advantages in case of REC Price band for the certificates will depend upon the different technologies. Upward pressures would be maintained by states having potential yet to be exploited Higher RoE as a deficit market is expected Realizations directly proportional to PLF Lower pay back period Ability to sell to third party at mutually agreed rates RPOs would be revised upwards every year Market based mechanism, therefore responsive to supply demand dynamics Revision expected every three years APPC to go up by approximately 3% per year Wind power to continue to dominate the total RE Generation
Key Success Factors Structural Issues Distribution Utilities are not inclined to enhance their ARRs Only sixteen states had come up with their RPO prior to REC mechanism Even with REC Mechanism only about 15 states have come up with REC orders. States with less RE potential are shying away Even for the states with higher RE potential, issues arising out of the infirm nature of power need to be addressed Lack of incentives to develop renewable portfolio for better capacity utilization for eg. development of biomass generation linked to fuel costs
Key Success Factors Pricing Issues Price view on certificates would take some time to develop RPO trajectory front loaded or back loaded or uniform Front loaded trajectory would result in higher capacity addition during initial years Site selection is expected to move from more superior sites to inferior ones resulting in lower CUFs Increased RE tariff during later years would lead to higher impact on APPC during later years APPC with newer generation coming up based on competitive bidding would result into vide varying PPC across states Apprehensions about the long term trajectory of PPC APPC increasing by ~5% and likely to increase in future Degradation of old plants Increase in fixed costs due to increased mix of new plants in the overall generation Increased fuel costs
Key Success Factors Financing Issues REC revenue is yet to be recognized for project funding Availability of lien over RECs? Implementation Issues Penal mechanisms need to be strictly enforced to boost the confidence of RE generators in the instrument Penal mechanism to define the price of the certificate? Audit and accounting issues with respect to the eligible entities as well as obligated entities Access to markets
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