The Renewable Energy Certificates (RECs) market which has been battling low demand will now be traded at record low prices. Upholding the earlier order of the Central Electricity Regulatory Commission (CERC), the Appellate Tribunal of Electricity (APTEL) has allowed the new price regime. This is expected to hurt the REC suppliers as low prices will leave no room for profit.
The CERC order last year had set the floor price of Solar REC to Rs 1/unit and forbearance price to Rs 2.5/unit. It was earlier Rs 3.5/unit and Rs 5.8/unit, respectively. Whereas for the non-solar (wind power and others), the floor price was reduced to Rs 1/unit and forbearance at Rs 2.9/unit. It was earlier in the range of Rs 1.5-3.5/unit. CERC lowered the prices in wake of the tariff of solar and wind going down in competitive bidding.
The order was challenged by REC generating companies in the Supreme Court and in Appellate Tribunal of Electricity (APTEL). The petitioners had submitted that lowering the prices would never clear the unsold stock of close to 10 million RECs.
“In view of the growing competition and induction of latest technologies, more and more generators are participating in the auctions/bids with considerable reduced cost of generation. Thus, the Central Commission in specifying REC prices, has shifted to bid discovered prices in place of earlier generic tariff fixed by it when the RE sector specially solar was in infancy stage,” APTEL said in its order
In the past one year, the trading of Solar RECs was stalled while the existing inventory of non-solar was being cleared at earlier price.
Last month, close to 3.9 million and the last batch of non-solar RECs were traded. While a small was left to sold, all the RECs have now been rendered undervalued now.
REConnect which tracks the REC market said the order will have an adverse impact on the market and does not bode well for future investment. “We believe that this order will have a significant adverse impact on projects and investors that have invested in REC projects. An immediate impact will be that such project will have to bear heavy losses on the existing inventory of RECs – the losses will be particularly heavy for solar projects,” it said.
With no clarity on whether the prices of the RECs will keep coming down every year with falling tariffs, sellers of these certificates are anticipating losses.
Sector experts said thermal captive industry of 65 GW would need close to 20 million RECs while open access consumers would need 7.5 million RECs annually. There is also 272 GW of thermal power capacity which needs to meet RPO.
“The existing 32 GW of wind power capacity cannot meet requirement of REC demand of 337 GW. There will be immense shortfall in the coming years,” said a renewable power expert.