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Oversupply, depressed demand dampens REC trading

According to reports, a 40 per cent drop in demand for renewable energy certificates (REC) in the trading session of November, over the previous month, has caused disappointment in the renewable power industry.

Against the 12,30,061 non-solar RECs offered for sale, only 1,32,352 (10.7 per cent) were bought. These were also bought at the floor price of Rs 1,500 a REC.

RECs are generation-based ‘certificates’ awarded (electronically, in demat form) to those who generate electricity from renewable sources such as wind, biomass, hydro and solar, if they opt not to sell the electricity at a preferentially higher tariff.

These certificates are trade-able on the exchanges and are bought by ‘obligated entities’, who are either specified consumers or electricity distribution companies.

These obligated entities may either required to purchase a certain quantum of either green power or RECs. Trading happens on the last Wednesday of each month.

Within the obligation, there is a small slice carved out for solar-RECs, or RECs from solar power generators.

The 40 per cent fall in demand reflects the lack of interest on the part of the obligated entities to buy the RECs. This, in turn, is due to tepid enforcement of the obligations, market observers say.

The non-solar prices have remained at floor price (IEX)/near to floor price (PXIL) in a fourth consecutive month.

“With the pro-rata allocation coming into effect at both the exchanges from Oct-2012, REC sellers could not sell their entire lot of RECs even at floor price. For every 100 RECs at floor price, sellers could sell only about 8.5 RECs at IEX and about 25 RECs at PXIL,” says Vishal Pandya, Director, REConnect, a consultancy that helps companies get and trade RECs.

“With existing set of buyers completing major part of their requirements, and no new buyers appearing in near term horizon, the market condition looks very gloomy. The confidence of all the investors on the mechanism completely looks shattered and probably every investor would be thinking on how much they should trust Indian regulatory framework,” says Pandya.

As regards solar RECs, 733 of them were sold for Rs 12,720 each (average) on the Indian Energy Exchange and another 486 for Rs 12,100 on the Power Exchange of India.

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