Changes To The Renewable Energy Certificates(RECs) Price Band

(This post originally appeared on EAI Blog – http://www.eai.in/blog/2011/06/changes-to-the-renewable-energy-certificatesrecs-price-band.html. It was contributed by Madhavan Nampoothiri, Founder & Director of RESolve Energy Consultants on 23 June 2011.)
The Central Electricity Regulatory Commission (CERC) is inviting comments and suggestions for the revision of the price band for the Renewable Energy Certificates (RECs) traded at the power exchanges. The hearing is scheduled for 14.07.2011 and comments/suggestions can be sent by the stakeholders by 05.07.2011. Given below are the details of the proposed revised price band and the existing price band. The new prices will be effective from 01.04.2012.

Non-Solar REC Solar REC
Proposed price(Effective 01.04.2012) Current price Proposed % price reduction Proposed price(Effective 01.04.2012) Current price Proposed % price reduction
Forbearance Price(Rs/MWh) 3480 3900 11% 13690 17000 19%
Floor Price(Rs/MWh) 1400 1500 7% 9880 12000 18%

 
Background:
Trading of Renewable Energy Certificates (RECs) based on the Renewable Energy Obligations (RPOs) started in India in March 2011. REC trading takes place on the last Wednesday of every month and the RECs are traded as either Solar REC or Non-Solar RECs. More details are available here.
The price band in which the RECs will be traded is set by the (CERC) and the current price is valid for the financial year 2011-12. It is in this context that the CERC is proposing a downward revision of the REC pricing with effect from April 2012. This is in line with the practice in countries, including Germany, where the Feed-in-Tariffs (F-i-T) for Solar Energy and other Renewables are reduced periodically. This periodic reduction, also known as digression, is done to make sure that the subsidy (in the form of FiT) is in line with the falling prices of the renewable energy systems.
Impact:
The obvious impact will be that Renewable Energy generators will be able to realize lower cash flows for the electricity they generate. More importantly, the uncertainty caused by the unknown periodic digression of RECs will make it very difficult for a project developer to estimate the viability of a REC based renewable Energy project over a 15-20 year life time of the project.
More details about the proposed reduction can be found here.