international experience in rec mechanismmr

01.08.2012 Seite 1 01.08.2012

The International Experience:

REC Mechanism

Mohit Anand

BRIDGE TO INDIA

New Delhi, July 24th 2012

[email protected]

www.bridgetoindia.com

01.08.2012 Seite 2

0

5000

10000

15000

20000

25000

30000

Solar Capacity Additions till 2011Top 20 Countries

Cumulative Capacity Addition

of Solar till 2011 (MW)

Capacity addition of Solar in 2011

(MW)

Japan, Australia and UK are countries with the most

robust REC mechanisms globally

Source: BRIDGE TO INDIA market analysis

EPIA; “Global Market Outlook for Photovoltaics till 2016”; May 2012

Australia:

Country with a

Renewable

Energy

Certificate

since 2000

India:

Country with

a Renewable

certificate

since 2010,

with a solar

specific carve

out

Japan: Country

has a New

Energy

Certificate

since April 2003

UK: Country

with a

renewable

Obligation

Certificate

since April 2002

Global Overview

Total number of

countries with an

RPS/Quota

policies: 71

Total Number of

countries with a

tradable REC:: 6

Apart from Ghana

India is the only

developing

country to have a

tradable REC ;

Ghana does not

have an RPS

India unlike Japan,

Italy, UK and most

American states

has a solar carve

out

MW

01.08.2012 Seite 3

UK has a two year validity of Renewable Obligation

Certificates (ROCs) and a penalty re-cycling mechanism

01.08.2012

REC trading

Price

Two ROCs for 1MWh solar produced

Buyout price INR3,200/ROC (£36.99/MWh)

(2010-11).

Validity 2 years

Volumes Data specific to solar ROCs is unavailable

Overall 24,884,608 ROCs issued in 2010-11

RPO obligation

Policy formulated in 2000

15.4% RPO till 2015-16

20% renewable RPO till 2020

Solar targets No solar specific targets in RPO enforcements

22GW of solar power by 2020

Compliance

Implementing body: OFGEMS

Yearly penalties exist but are redistributed to

compliant utilities in the proportion of their share

of total ROCs bought in the country

RPO

implementation


01.08.2012 Seite 4

Japan has defined penalties for non-compliance, quarterly

accounting for compliance and a carry over of obligations

01.08.2012

REC trading

Price Tradable New Energy Certificates (NEC) with a

forbearance price of JPY11 (INR7.59)

Validity 2 years

Volumes NA

RPO obligation

Policy formulated in 2003

Target to install 16TWh of renewable energy by

2016


Compliance

Penalty of up to JPY1m (INR 0.7m) on interim

and annual basis

There is also a quarterly compliance mechanism

20% carry over of obligation is permissible

RPO

implementation


01.08.2012 Seite 5

Australia has a differentiated non-compliance penalty

enforcement and allows re-cycling of penalties

01.08.2012

REC trading

Price

Solar Credits REC multiplier of around 1.5 for

small solar installations

INR1,378/STC1 and INR1,952/LGC2

Validity 1 Year

Volumes NA

RPO obligation Policy formulated in 2000

45,000GWh (or 20%) RPO till 2020


Compliance

Monetary as well as civil penalties for severe non-

compliance

Severity based on reasons for non-compliance

Re-cycling of penalties over three years

Carrying forward a part of penalty to the next year

RPO

implementation

1Small-scale technology certificate (STC) 2large-scale generation certificate; 1 LGC = 1MWh of renewable electricity generated above the power station baseline; Based on BRIDGE TO INDIA market analysis

01.08.2012 Seite 6

India has separate solar specific obligations and the

states are charged with on-ground implementation

01.08.2012

REC trading

Price

Floor price – INR 9,300/MWh

Forbearance price – INR 13,400/MWh

Trading price (Recent) - INR13,000/MWh

Validity 1 Year

Volumes 336 bids cleared on IEX

RPO obligation Policy (NAPCC) formulated in 2008

15% renewable RPO till 2020

Solar targets 3% solar RPO till 2020

Compliance Compliance at forbearance price

States may implement further penalties

RPO

implementation


01.08.2012 Seite 7

Learnings: India needs to incorporate measures to improve RPO

enforcement

01.08.2012

Differential

penalties

Australia segregates

penalties for non-compliance

by measuring the reasons

for non compliance

The higher the risk the more

stringent is the legal action

taken

Enforcement measures can

reflect ground realities of

utilities

Obligated entities are better

place to reach full

compliance in stages

Regulators advise on

regulations to ensure better

compliance

Specific Penalties

Japan has a penalty of up to

JPY1m (INR690,000) for

non compliance

Imposed on an interim and

annual basis

Puts a value on potential

costs for non compliance

Gives certainty on

enforcement to project

investors

Improves the bankability of

projects


Relevance for India Examples

01.08.2012 Seite 8

Learnings: India should incentivise RPO compliance through

REC and increase REC window

01.08.2012

Recycling

penalties

UK has a buy out fund

where non complying

entities deposit a penalty

Complying entities can claim

it after they deposit the

proportionate number of

ROCs*

Australia has a pay back

mechanism of penalties

charged in case of

compliance for 3 years

Complying entities have a

potential income stream

It provides partial off set to

REC costs for utilities

Provides incentives for RPO

compliance through RECs

Long term

validity

Japan’s New Energy

Certificates and UK’s issues

ROCs have a validity of 2

years.

Indian RECs have a validity

of a year

This two year validity

increases the trading

window for developers

Mitigates risks from potential

demand and supply

mismatches Source: BRIDGE TO INDIA market analysis

*ROC: Renewable Obligation Certificate

Examples Relevance for India

01.08.2012 Seite 9

Learnings: India has to heighten the price stability and

increase bankability of RECs

01.08.2012


Long term

pricing

All other countries with an

REC mechanism are

developed countries

They have robust market

mechanisms in place

Long term pricing increases

the bankability of a project in

the absence of a strong

market mechanism

.

Examples Relevance for India

Quarterly

compliance

Japan checks the

compliance of its obligated

entities on a quarterly basis

Balances the number of

REC purchases made

through out the year

Improves the price stability

of the REC

Improves cash flow available

to developers

01.08.2012 Seite 10 01.08.2012

Thank You

international experience in rec mechanismmr

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