CERC proposes draft amendments to REC guidelines

Following the announcement that the validty of the RECs would be extended beyond their present 365 day window, the Central Electricity Regulatory Commission (CERC) has now released a second set of (draft) amendments to their REC guidelines. These amendments – as can be seen from the draft documents published by CERC are more clarifications of the existing regulations rather than sweeping regulatory changes. Some of the proposed changes/clarifications are highlighted below

  • REC and Reverse Bidding/Tendering – CERC has clarified that the projects which have signed a PPA through any state tendering mechanisms (reverse bidding) would be ineligible for procuring RECs. There should be no ambiguity in this for two reasons – the state utilities usually initiate the tenders with the purpose of fulfilling their RPO which obviously makes the developer inelgible for RECs to prevent double accounting. Secondly the developer already takes into consideration all the costs/risks associated with the project while proposing a tariff and as such there is no need for REC to bridge the tariff gap (which is the intention of the REC mechanism in the first place).
  • Bagasse based cogeneration – there has been specific changes with respect to bagasse based cogeneration powerplants which have been setup for captive consumption. It has now been proposed that the entire connected load capacity as assessed by the distribution licensee would be considered for the issuance of RECs as opposed to the capacity for which the PPA has been signed. Please note that the PPAs (in this particular case) are usually signed for sale of excess electricity after captive consumption.
  • APPC – Previously, the guidelines were worded in such a way which brought in significant ambiguity as it stated that the PPA should be signed at a price not exceeding the APPC price which suggested that the tariff could be BELOW the APPC price. The guidelines now clarify that the PPA would have to be signed at a price equal to the APPC price which was prevelant the previous year.
  • Electricity duty and captive generators – presently, many states have waived the electricity duty for captive power generation irrespective of whether the generators use fossil fuels or RE based systems. This duty is a state specific price component. REC guidelines currently state that any generator availing ANY subsidy INCLUDING electricity duty waiver is ineligible for claiming RECs. However, CERC has now proposed to remove the electricity duty exemption as a disqualification criterion as the quantum of contribution to final tariff is quite miniscule. The other criteria for disqualification such as concessional wheeling/banking would still be in force.
  • Time period for availing RECs – current regulations state that there is a three month time window after approval from the SLDC to get the required clearance from the central agency. However since the receipt of information from the SLDC sometimes takes more than three months to reach the central agency, it has been proposed to extend the window to six months. In addition to this, currently the application for receipt of the certificates can be made only on the 1st and 15th of each month. This has been revised to the 10th, 20th and last day of each month.
  • No cap on minimum capacity – previously, it was proposed that RE power plants with a capacity of 250 kW and above would only be eligible for certificates under the REC mechanism (subject to approval by MNRE) even though the CERC guidelines do not dictate a minimum requirement. CERC has clarified that there is no minimum capacity and that ANY RE generator would be eligible to claim REC provided they satisfy the prescribed criteria.
  • Retention of RECs – as per current regulations, RE generators who have setup captive power plants to fulfill their REC requirement would have to procure RECs from the exchange even though their generation is eligible for RECs. This generates significant overheads due to transaction costs associated with procuring the certificates, listing them and then procuring them again from the exchanges. CERC has now clarified that all RECs generated through a RE captive power plant can be retained by the developer (to fulfill their obligations) thereby reducing the overheads which is subject to verification by the SNA.
  • Shelf-life of RECs – as reported earlier, RECs would now have a shelf-life of two years as opposed to one year and the regulations would be amended accordingly.
  • Date of issuance – any powerplant setup under the REC mechanism would be eligible for RECs from the date of commercial operation or from the date of registration of such plant by the Central Agency whichever is later.

The proposed regulatory changes are a welcome move and should greatly assist the captive generators in particular who are looking to setup power plants for fulfillment of their respective RPO. The draft guidelines can be accessed in its entirety here.
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