Last sparks in non-solar RECs
Regulated prices stifle market
The market for renewable energy certificates (RECs), in a downturn for years, could end soon. While trading of solar RECs has been stalled for a year, non-solar ones will last be traded on Wednesday — the regulated price band has rendered the market unviable.
Close to 3.9 million non-solar RECs will be traded this week and if all are sold, it will mark the end of trading. The industries dependent on these certificates for meeting their renewable power obligations are worried about the implications if the market ceases to exist. There are around 1,200 projects under the REC mechanism, with total capacity of 5,383 megawatt. The trouble began in March 2017, when the Central Electricity Regulatory Commission (CERC) reduced REC prices to a historic low, to match prevailing rates. The floor price of a solar REC was reduced to ~1 a unit and forbearance price to ~2.4 a unit from ~3.5 and ~5.8, respectively. For non-solar (wind power and others), the floor price was reduced to ~1 a unit and forbearance at ~3 a unit. It was earlier ~1.5-3.5 a unit.
The order was challenged by REC-generating companies in the Supreme Court (SC) and in the Appellate Tribunal of Electricity (Aptel), a quasi-judicial body. REC generators had said such lowering of prices would never clear the unsold stock of close to 10 million RECs. They asked Aptel to suggest means to clear the existing stock. The SC, in a separate case, allowed trading of non-solar RECs with the earlier prices. Aptel is yet to give a decision in the matter, which has led to a backlog.
The non-solar ones where trading was allowed in the past four months saw good response; the total of RECs traded were 1.2 to 5.2 million. The last tranche of 3.9 million will be traded next week and cleared in one go, said a market expert. “There was an overall improvement in the renewable purchase obligation (RPO), which led to turnaround in non-solar RECs. After more than five years, demand for RECs exceeded supply. However, due to huge backlog, RECs were sold at the floor price,” said a trader. Against an annual demand of 14 million RECs, there were 4.8 million non-solar RECs.
With no clarity on solar RECs and non-solar ones going off-market, purchasers and sellers of these certificates such as distribution companies, thermal power producers, and open-access consumers, would have to look at an alternative mechanism to meet the RPO.
Sector experts said thermal captive power producers of 65 gigawatt (Gw) would need close to 20 million RECs, while open-access consumers would need 7.5 million annually. Additionally, there is 272 Gw of thermal power capacity, which needs to meet the RPO.
“The existing 32 Gw of wind power capacity cannot meet the requirement of REC demand of 337 Gw. There will be immense shortfall in the coming years,” said a renewable power expert.