Renewable Energy

Certificate MeCHANISM



What is REC?
REC is a paper or electronic instrument which
represents the environmental, social, and
other non-power qualities of renewable
energy generation
All grid-tied renewable-based electricity
generators produce two distinct products:
1. Physical electricity
2. RECs
One Renewable Energy Certificate (REC) is
treated as equivalent to 1 MWh.
Factors behind the emergence of REC
Shift towards Environmental Consciousness
Corporate Business Strategy
Introduction of NAPCC
State Specific RPO
Launch of REC Mechanism by CERC and FoR
REC Mechanism: The Objectives
Development of all encompassing incentive
mechanism
Effective implementation of RPO Regulations
Increased Flexibility to Participants
Overcome geographical constraints
Enforcement or penalty mechanism
Create competition between different RE
technologies

Conceptual Framework
27/10/2014
Avg. PP Cost
of Host Utility
(regulated)
Market Rate
Discovered
on PX
At Tariff
Determined by
Regulatory
Commission
Renewable
Energy
Electricity
REC
Distribution
Company
Renewable
Energy
Electricity
REC
Host
Distribution
Licensee
Obligated/
Voluntary
Entity
(Buyer)
Existing
Mechanism
REC
Mechanism
OA / Trader
Bilateral
agreement
(de-regulated)
Not Avail:
1. Cncesnl TX &
wh charges & losses
2. Waiver of ED
3. Banking
Captive
Consumption
REC Mechanism
Electricity is sold by RE generator through market
mechanism.
RE generators participate in the electricity market in the
same way as any other conventional generator.
Market price is usually set by marginal conventional
generation.
As a result, RE generators are not viable.
To improve the viability, RECs are issued to the Generators.
RECs are sold/traded in market other than electricity
market.
RPS target set under legislation establishes demand for
RECs
Market sets price of REC

Till FY 2012
FY 2012 2017
REC Implementation Mechanism
Flow Diagram of REC Trading
Auction Design
All sell at price equal MCP is
cleared
All buy at price MCP is cleared
All trades are settled at MCP
Renewable Purchase Obligations
Renewable Purchase Obligations
Renewable Purchase Obligations
Renewable Purchase Obligations
Key Characteristics of REC
Participation Voluntary
REC Denomination 1 MWh
Validity 365 days after issue
Categories a) Solar b) Non Solar
Trading Platform Power Exchanges only
Banking Not Allowed
Borrowing Not Allowed
Transfer type Single transfer only, repeated trade of the same
certificate is not possible
Penalty for Non Compliance Forbearance Price (Maximum Price)
Non Solar (Rs 3900/REC), Solar (Rs 17,000/REC)
Price Guarantee Through Floor Price (Minimum Price)
Non Solar (Rs 1500/REC), Solar (Rs 12,000/REC)
Price Discovery Mechanism As per Power Exchanges Business rules for REC
REC Markets and Participants
REC Mechanism- The Regulators and their
Role
1. REC Government of India Ministry of New and
Renewable Energy (MNRE) is the nodal agency for
promotion of renewable energy in the country. Role
of MNRE is to facilitate REC mechanism in India.
2. Forum of Regulators FOR plays a crucial role of
bringing consensus on design/ development and
coordination for implementation in various states
participating in REC
3. Central Electricity Regulatory Commission CERC
is responsible for regulatory framework for inter-
sate transactions
REC Mechanism- The Regulators and their
Role
4. State Electricity Regulatory Commission SERC is
responsible for regulating intra-state transactions.
Since generation, consumption and obligation of
renewable energy is generally at state level, SERC is
responsible for providing regulatory framework
within the state.
5. State Agency State agency in the context of REC is
an agency designated by SERC within the regulated
state. State agency shall be responsible for
accreditation of RE generators, certification of RE in
consultation with SLDC for the purpose of issue of
REC.
REC Mechanism- The Regulators and their
Role
6. State Load Despatch Center SLDC are doing
metering, energy accounting of the energy being
generated and consumed within a state. Hence,
providing accurate data on RE generation and
consumption in a state is the responsibility of SLDC
of that state.
7. National Load Despatch Center has been
designated as central agency. NLDC will function as
REC-registry.
Functions of REC-registry
Registration of eligible RE generators for
issuing REC.
Issuance of REC to RE generators.
Accounting of RECs.
Tracking of REC in its lifetime.
Extinction of REC after its sale.
Provide information to compliance auditors.

CERC Regulations on REC Framework:
Key Points
Renewable Portfolio Obligation framework for each state to
be decided by respective SERCs
A Central Agency to be nominated by the CERC for
registration of RE generators participating in the REC
Scheme
RECs to be issued in the denomination of 1 MWh
Distribution companies, Open-Access consumers and
Captive Power Plants will have an option of purchasing RECs
to meet their RPO
RECs to be traded through CERC approved Power Exchange
only with a price band of floor price and forbearance price
Independent compliance auditors to be appointed by CERC
Operational Framework of REC
Mechanism
Enabling Framework for Promotion of RE
Electricity Act, 2003-Section 86(1)
Regulatory Commissions to specify purchase obligation from RE sources

Tariff Policy-86(1)(e)
State Electricity Regulatory Commissions to fix Progressive RPO
SERCs to fix Preferential Tariffs for distribution utility to procure RE

National Electricity Policy
Central Commission to provide guidelines for pricing non-firm power if RE procurement
is not through competitive bidding

Conceptual Framework
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. Majority of wind/solar potential
lies in Western and Southern part of the country
States with higher RE potential may have difficulty in absorbing larges amounts from RE
sources / issues of costlier electricity ,particularly after respective RPO obligation is met.

Salient Features of REC Regulations
PARTICIPANTS
BUYERS: Obligated Entities OR Voluntary Entities
Obligated: As defined by SERC, distribution utility, OA User, Captive Consumer
The quantum of RECs to be purchased by Obligated entities will be based on the
Renewable Purchase Obligation (RPO) as is declared by the SERCs from time to
time
Voluntary: Any entity or group of individuals or as defined by Ministry of Heavy
Industries & Public Enterprises, CPSEs
SELLERS: Eligible Entities
All sources recognised by MNRE under Renewable Energy Category
Two Categories of Certificates depending on the Source: Solar and Non-Solar
Grid Connected RE Power Projects having NO PPA at preferential tariff and
received accreditation certificate from State Agency
RE Power Projects which have not availed of
Concessional /promotional transmission or wheeling charges;
Banking facility benefit and;
Waiver of electricity duty
Auction Design
Sellers Order time Size Price
S1 20-08-2010 13:45:18 100 3000
S2 20-08-2010 13:45:38 50 3000
S3 20-08-2010 13:45:56 20 3000
S4 20-08-2010 13:46:56 30 3000
S5 20-08-2010 13:46:23 50 3000
S6 20-08-2010 13:46:41 50 3000
Aggregate Supply
100
150
170
200
250
300
Aggregate Demand
50
150
170
200
Buyers Order time Size Price
B1 20-08-2010 13:42:27 50 5000
B2 20-08-2010 13:43:25 100 6000
B3 20-08-2010 13:44:18 20 6500
B4 20-08-2010 13:44:43 30 7000
Market Price of RECs from 2012-17

Price

Non Solar REC (Rs/Mwh)

Solar REC (Rs/Mwh)

Forbearance Price

3,300

13400

Floor Price

1,500

9300
Prices Discovered at Exchanges
Months IEX(Rs/REC) PXIL(Rs/REC)
October11 2700 3000
November11 2900 2800
December11 2950 2950
January12 3051 3051
February12 3066 3051

Calculations involved in the Estimation.


1. Capacity in MW to Generation in MU Conversion



Capacity in MW X 24 Hours X 365 Days X C.U.F`

Generation = --------------------------------------------------------------- Million Units

1000

Example: Installed capacity= 100 MW , Capacity utilization Factor = 25%

100 MW X 24 X 365 X 0.25`

Generation = ---------------------------------------------- = 219 Million Units

1000


2. Generation into Number of RECs conversion.-
Number of RECs = Generation in Million Units X 1000 ( 1 REC = 1 MWh of electricity
generated)

3. Compounding
Where FV= Future value

FV = PV X (1 + CAGR) n

PV = Present value or Base years Value
CAGR = Compounded Annual Growth Rate in Percentage
n = Number of years for which the compounding has to be done or the difference
between the base year and the future year

Example: Value in 2010 = 73765
CAGR = 8.9%
Value in 2012 = ?
Value in 2012 = 73765 X (1 + 0.089) 2

= 87480

4. CAGR Determination from observed growth.

CAGR (%) = [{ V2 / V1} ^ { 1 / ( Y2 Y1) } 1] X 100

Example: Value in 2009 = 45

Value in 2012 = 214

CAGR = ?

CAGR = [ { 214 / 45 } ^ { 1 / ( 2012 2009) } 1 ] X 1000

= 68.16 %


5. RE Liquidity

Liquidity = RE Availability RE Requirement

Note: Liquidity in negative denotes deficit

Liquidity in Positive denotes Surplus.




Source States 2010(in
Lakhs)
2011(in Lakhs) 2012(in Lakhs)
Wind
Tamilnadu 8.13 10.92 10.92
Gujarat 1.18 2.27 3.64
Maharashtra 0.46 1 1.67
Rajasthan 0.36 0.93 1.63
Sub Total 10.13 15.12 17.86
Biomass
Tamilnadu 0.24 0.47 0.75
Chattisgarh 0.2 0.39 0.62
Rajasthan 0.12 0.24 0.36
Andhra Pradesh 0.11 0.22 0.35
Maharashtra 0.1 0.22 0.36
Sub Total 0.78 1.55 2.44
Co-gen
Tamilnadu 0.24 0.51 0.83
Andhra Pradesh 0.22 0.38 0.57
Maharashtra 0.15 0.35 0.58
Uttar Pradesh 0.44 0.77 1.17
Sub Total 1.06 2.01 3.15
Total 11.97 18.67 23.46
Volumes of RECs
Conclusion
Flexibility for obligatory entities to meet RPO
requirements
States having negligible or very low RE
potential can also set and meet targets for
RPO compliance
REC trade through Power Exchanges would
result into a better price discovery and
increased liquidity
Improved cash flow for RE producers
The success of REC mechanism lies in the effective
implementation of the processes involved in it .
The most vital components of the mechanism are Renewable
Energy Accounting in field level perspective

Appropriate policy measures in regulatory perspective

Adherence to compliance in operational perspective
The market development of REC Mechanism primarily depends
upon the degree of awareness about the mechanism
Conclusi
on