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Solar developers want REC scheme tweaked

According to reports, though the ‘renewable energy certificate’ scheme has been around for over six months, very few developers of solar power projects have opted for the REC scheme in preference to a higher feed-in tariff.

So far, only 8 MW of capacity (of Jain Irrigation) has been put under the REC mechanism, although Reliance Power and Mahagenco have said they would opt for trade-able certificate route.

(Under this mechanism, producers of renewable energy get trade-able generation-based certificates if they do not opt for the preferential feed-in tariff. The certificates could be bought by specified ‘obligated entities’.

These obligated entities may either produce their own green power, or buy the (expensive) green power from the market, or who buy the renewable energy certificates.

A sliver of the ‘obligation’ is earmarked for solar. The REC mechanism fixes minimum and maximum prices for the certificates, which are substantially higher for solar RECs than for the rest.

For 2012-17, the floor and ceiling prices per REC, as notified by the Central Electricity Regulatory Commission are: Rs 1,500 and Rs 3,300 for non-solar, and Rs 9,300 and Rs 13,400 for solar.)

Although the price band for solar REC is high, there does not seem to be much enthusiasm on the part of solar developers.

(At least, not as yet. There is talk of some more projects coming under REC, but as of now there is only 8 MW).

Solar project developers want the scheme tweaked for to suit solar projects’ special needs.

One common demand is for extension of the period for which the minimum and maximum prices are valid. Today, it is five years (up to 2017), but that is not good enough.

“Price risk emanates from the fact that floor and forbearance prices are fixed only for the next control period of five years, while the life of a solar plant can be 35-40 years,” points out Mr Pashupathy Gopalan, Managing Director, SunEdison.

Making matters worse is the fact that the certificate’s life is only one year – it then expires.

Responding to a question by Business Line, Mr Inderpreet Wadhwa, CEO, Azure Power says: “RECs for solar carry a lot of additionality , almost over 80 per cent of the revenue to come from REC. Currently, there is limited visibility in the tenure for the floor price of RECs – limited to just about five years.

No lender will be able to finance this type of financial product where the floor price will be uncertain after five years.”

Apart from the ‘control period’, solar developers are also very concerned about the enforcement of the obligations, which is the remit of the various State electricity regulatory commissions.

It is early days and it remains to be seen as to how those who do not meet the obligation are dealt with. The ‘obligation’ indeed creates a big demand for solar RECs (or solar power).

“The required capacity addition in solar energy to fulfil the RPO obligation (0.25 per cent of total obligation) of various states is about 750 MW for this financial year,” says Mr Vineeth Vijayaraghavan, who runs the online newsletter, Panchabuta. “This is anticipated to grow to about 12.8 GW (RPO Obligation at 1 per cent) and to 38GW (RPO Obligation at 3 per cent) by 2020, according to the amendment of the Tariff Policy as per the proposal of the National Solar Mission strategy,” Mr Vijayaraghavan notes.

The market is there, provided the obligation is enforced strictly.

SunEdison also wants allotment of higher number of RECs to old projects in order to compensate for the higher capital cost, (against the backdrop of falling solar plant equipment prices) .

Also, “allowing banking of RECs for few years to mitigate the liquidity risk,” says Mr Gopalan.

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