India RE Markets and impact of REC Mechanism

8/7/2019 India RE Markets and impact of REC Mechanism

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IndiaRenewableEnergyMarketsandImpactofRECMechanismYasirAltafandPramodKSingh

14%

80%

2% 4%GenerationMix

23%

64%

3%10%

CapacityMix

Hydro Thermal Nuclear Renewable

Figure3:REcapacitymixandenergymixasofSeptember2010

at 17 GW, representing 10 percent of the total installed capacity. However, RE

generation is less than 4 percent of the total generation (Figure 3). Tax holidays,accelerated depreciation, and customs exemption given to the developers

resulted in capacity installation, but there was no additional monetary incentive to

generate from these plants. This led to little contribution of RE sources to the

total electricity mix.

Under the RPO, states fixed a percentage of electricity that their power

distribution companies (DISCOMS) need to buy from RE sources. The minimum

RPO level varied across the states with the available RE potential in the state.Some states defined resource wise target common for all DISCOMS, whereas

others had different targets for different DISCOMS. However, the RPO has not

been able toachieve the level of capacity addition when compared to the vast

technical potential available in the country. The main shortcomings in the state

level RPO scheme were the following.

o Higher RE potential states such as Rajasthan, Karnataka, and TamilNadu had no incentives to look beyond their RPO targets.

o States such as Delhi, Punjab, and Haryana could not apply RPO due tothe non-availability of RE sources.

o Limited flexibility to market participants to buy and sell renewablepower.

o No financial liability or penalty for non-fulfillment of the RPO. OnlyMaharashtra and Rajasthan have shortfall clause in place but it gets

rendered ineffective since mandatory purchase of RE energy issubjected to availability of RE based power

Hence, there was a need for a mechanism that could facilitate inter-state

exchange of power generated from RE sources

SellingEntities

REGenerators

Power

BilateralPrice

ExchangePrice

AveragePowerCost

ExchangePrice

ObligatedEntities:DISCOMS

OpenAccessCustomer

CaptiveUser

RECPower+REC

ObligatedEntities:DISCOMS

OpenAccessCustomer

CaptiveUser

AnyCustomer

Feedintariffs

Figure4:ModesforREtransactionsunderRECregulations


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In the initial years of REC scheme, easier to implement and low cost RE sources are expected to lead capacity additions. However, less endowed and more costly

technologies would be taken up in the later years. In light of these possible developments, the REC prices would therefore increase in future as the scheme progresses not

only due to the increased renewable energy targets in the later years and but also due to the exhaustion of cheaper and easier to implement resources in the initial year.

Figure7:Keychallengesfacingthedevelopersimmediatelyandintheforeseeablefuture


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Transmission

capacity

Entry and exit

decisions,

Capacity builds

POWER WORLD

TM

GE-PSLFTM

IPM

Power

Markets

Environment

Markets

Fuel

Markets

Transmission

interface limits

Illustrative outputs:

REC price forecasts

RE Capacity additions

Target off-taker states for power & RECs

Capacity under short and long termcontracts

Plant dispatch analysis

Load Flow and Congestion Analysis

Transmission Losses

Transmission flows, congestion

Grid impact on dispatch

Asset value

Figure10:

ICFs

customized

suite

of

modeling

tools

and

integrated

analysis

providesforrobustindustryassessment

Although, the effectiveness of REC mechanism for mobilizing new investments

into the RE sector would be tested, but global experience suggests that REC can

be a facilitator in development of new renewable potential. Regulators will have a

greater role to play to ensure renewable development by proper implementation

and monitoring of the REC system, as envisaged. A larger role for RE with

supporting REC markets will definitely help India achieves the objectives of theenergy security and emission reductions in the longer term.

India RE Markets and impact of REC Mechanism

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