The Central Electricity Regulatory Commission (CERC) has issued a proposal for establishing forbearance and floor prices for renewable energy certificates (RECs).
RECs are a market instrument to meet renewable purchase obligations and a source of revenue for projects registered under the REC framework. So, an alignment of REC prices with the market is a must. Various state electricity regulatory commissions have prescribed generic tariffs for non-solar renewable technologies, and wind projects have been awarded based on competitive bidding during this period. These reflect the market scenario prevailing in different states, which have been considered to determine the non-solar REC forbearance price and floor price. The average bid tariff discovered (during January 2017 and March 2020) has been considered to establish the solar REC forbearance price and floor price noted the CERC.
The proposed forbearance price is ₹1,000 (~$13.20) each for solar and non-solar renewable energy certificates for 2020, against the 2017’s prices of ₹2,400 (~$31.68)/MWh and ₹3,000 (~$39.60) respectively.
The forbearance price is derived based on the highest difference between the cost of generation of renewable technologies or tariff and the average power purchase cost (APPC) of the financial year for the respective states. The floor price is determined based on the difference between the project viability requirement and APPC determined for different renewable energy technologies across the states.
The Commission has invited comments and suggestions from the stakeholders by April 20, 2020. “There has been a decline in the tariff discovered through competitive bidding for both solar and wind projects. Given the prevalent market conditions, REC prices necessitate a review to balance the interest of eligible and obligated entities,” states the CERC.
As per the CERC’s proposal, the proposed forbearance price has come down by 58%, and 67% in the case of solar and non-solar RECs, respectively.
In its proposal, the Commission has marked the floor price as zero for 2020 against the prices of 2017, which were ₹1,000 (~$13.20) each for both solar and non-solar.
“Based on the analysis, it is evident that the market has matured, and to encourage the sale of RECs and promote trade, the floor price is no longer required,” states the CERC.
The Commission has also proposed that the forbearance and floor prices will apply to RECs issued after April 1, 2017. For solar RECs issued before April 1, 2017, the eligible entities will have an option to adopt the proposed forbearance price and floor price or to continue as per the order issued in March 2017.
In May 2018, it was reported that the non-solar renewable energy certificates issued on or after April 1, 2017, will be sold at a floor price of ₹1,000 (~$14.809)/REC.
Referring to the order issued in 2017, the CERC added that the forbearance and floor prices of non-solar RECs were based on the generic tariff for non-solar renewable technologies for the financial year (FY) 2016-17 or the tariff order prevalent at the time of notification of the order.
In March 2017, Mercom had reported that the CERC issued forbearance and floor prices for RECs. The forbearance price of solar RECs was then quoted as ₹2,400 (~$36.91)/MWh and the floor price as ₹1,000 (~$14.962)/MWh. The forbearance price for non-solar RECs was quoted as ₹3,000 (~$46.14)/MWh and the floor price as ₹1,000 (~$14.962)/MWh.
The forbearance price and floor price of solar RECs were based on solar tariff discovered through competitive bidding and published by the Ministry of New and Renewable Energy (MNRE) up to February 2017.
According to the CERC, the recent trend of results of competitive bidding for solar projects showed that the average bid tariff discovered in auctions from January 2019 to March 2020 is ₹2.47 (~$0.03)/kWh.
The Commission also added that the tariffs for wind projects have also declined considerably after 2017. It observed that the recent trends of the results of competitive bidding show that the average bid tariff discovered in auctions for wind projects was ₹2.85 (~$0.03)/ kWh during 2019-2020. The tariff of solar and wind projects has declined mainly due to the prevalent market forces and change in project cost.
“These developments underscore the need to review forbearance price and floor price for the RECs,” CERC noted.
As of March 27, 2020, nearly 989 projects (solar and non-solar technologies) have been registered under the REC framework.
Anjana is a news editor at Mercom India. Before joining Mercom, she held roles of senior editor, district correspondent, and sub-editor for The Times of India, Biospectrum and The Sunday Guardian. Before that, she worked at the Deccan Herald and the Asianlite as chief sub-editor and news editor. She has also contributed to The Quint, Hindustan Times, The New Indian Express, Reader’s Digest (UK edition), IndiaSe (Singapore-based magazine) and Asiaville. Anjana holds a Master’s degree in Geography from North Bengal University, and a diploma in mass communication and journalism from Guru Ghasidas University, Bhopal.