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Home News Power Sector News REC market crashes as state distribution utilities fail to meet norms

REC market crashes as state distribution utilities fail to meet norms

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Renewable energyA fledgling market in renewable energy certificates has crashed as state distribution utilities have failed to honour their purchase obligations, putting entrepreneurs and investors in the sunrise sector at risk and portending trouble for the larger cause of environment-friendly power. Prices of these renewable energy certificates, a tradable instrument each representing 1,000 units of power generated from renewable sources and sold to the grid, have dropped 45% in the past year because of paucity of buyers and as sellers keep off awaiting better prices.

State utilities are required to purchase 5% of their electricity generated by renewable sources such as wind, solar, biomass, biofuel and small hydro sectors and supplied to the grid. But with wind and solar plants not evenly spread across the country, they are allowed to meet their obligations by buying certificates from the Indian Energy Exchange (IEX) or the Power Exchange India.

The price of each certificate fell to Rs 1,500 last month compared with Rs 2,700 in October last year. Also, of the 8.51 lakh certificates on offer last month, only 1.32 lakh found buyers.

Experts say this presents entrepreneurs with a tricky situation as these certificates lapse in a year. "If energy certificates are not sold, their incentive for generating power declines," Rajesh K Mediratta, senior VP (business development) at IEX said.

The ill effects of the trend are manifesting in other ways too. Investment flows into the clean energy sector in India have declined. The first three quarters of the calendar year saw venture capital and private equity investments of only $125 million against $337 million in 2011, according to Bloomberg New Energy Finance.

Joy Saxena, director at Simran Wind Project, which has set up about 200 mw of wind energy generation capacity, said the distribution companies were getting away without any penalty. The law stipulates that discoms will be penalised if they do not meet their green energy buying obligation.

"The Central Electricity Regulatory Commission is to implement the penalties through the regional Electricity Regulatory Commissions, and make sure they are levied. However, in the absence of any direction to the regional commissions, the penalty has till now remained on the books," he said. "Our returns from power generation are on the decline due to lack of demand."

Mediratta of IEX also blamed state utilities. "Prices of certificates are falling due to lack of demand although supplies are on the higher side, pushing prices downwards. Distribution utilities are not buying enough certificates to fulfil their obligations," he said.

But despite all this, some investors remain optimistic. "I don't think all electricity boards will decide to stop purchasing green energy," says Sanjeev Aggarwal, senior managing director at Helion Ventures, which counts solar power producer Azure Power among its portfolio firms.

Source- Economic Times


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