1. 01.08.2012 Seite 1Page 101.08.2012
The International Experience:
REC Mechanism
Mohit Anand
BRIDGE TO INDIA
New Delhi, July 24th 2012
mohit.anand@bridgetoindia.com
www.bridgetoindia.com
2. 01.08.2012 Seite 2Page 2
0
5000
10000
15000
20000
25000
30000
SolarCapacity Additions till 2011
Top20Countries
Cumulative
CapacityAddition
ofSolartill 2011
(MW)
Capacityaddition
ofSolarin 2011
(MW)
Japan, Australia and UK are countries with the most
robust REC mechanisms globally
Source: BRIDGE TO INDIA market analysis
EPIA; “Global Market Outlook for Photovoltaics till 2016”; May 2012
Australia:
Country with a
Renewable
Energy
Certificate
since 2000
India:
Country with
a Renewable
certificate
since 2010,
with a solar
specific carve
out
Japan: Country
has a New
Energy
Certificate
since April 2003
UK: Country
with a
renewable
Obligation
Certificate
since April 2002
Global Overview
Total number of
countries with an
RPS/Quota
policies: 71
Total Number of
countries with a
tradable REC:: 6
Apart from Ghana
India is the only
developing
country to have a
tradable REC ;
Ghana does not
have an RPS
India unlike Japan,
Italy, UK and most
American states
has a solar carve
out
MW
3. 01.08.2012 Seite 3Page 3
UK has a two year validity of Renewable Obligation
Certificates (ROCs) and a penalty re-cycling mechanism
01.08.2012
REC trading
Price
Two ROCs for 1MWh solar produced
Buyout price INR3,200/ROC (£36.99/MWh)
(2010-11).
Validity 2 years
Volumes
Data specific to solar ROCs is unavailable
Overall 24,884,608 ROCs issued in 2010-11
RPO obligation
Policy formulated in 2000
15.4% RPO till 2015-16
20% renewable RPO till 2020
Solar targets
No solar specific targets in RPO enforcements
22GW of solar power by 2020
Compliance
Implementing body: OFGEMS
Yearly penalties exist but are redistributed to
compliant utilities in the proportion of their share
of total ROCs bought in the country
RPO
implementation
Source: BRIDGE TO INDIA market analysis
4. 01.08.2012 Seite 4Page 4
Japan has defined penalties for non-compliance, quarterly
accounting for compliance and a carry over of obligations
01.08.2012
REC trading
Price
Tradable New Energy Certificates (NEC) with a
forbearance price of JPY11 (INR7.59)
Validity 2 years
Volumes NA
RPO obligation
Policy formulated in 2003
Target to install 16TWh of renewable energy by
2016
Solar targets No solar specific targets in RPO enforcements
Compliance
Penalty of up to JPY1m (INR 0.7m) on interim
and annual basis
There is also a quarterly compliance mechanism
20% carry over of obligation is permissible
RPO
implementation
Source: BRIDGE TO INDIA market analysis
5. 01.08.2012 Seite 5Page 5
Australia has a differentiated non-compliance penalty
enforcement and allows re-cycling of penalties
01.08.2012
REC trading
Price
Solar Credits REC multiplier of around 1.5 for
small solar installations
INR1,378/STC1 and INR1,952/LGC2
Validity 1 Year
Volumes NA
RPO obligation
Policy formulated in 2000
45,000GWh (or 20%) RPO till 2020
Solar targets No solar specific targets in RPO enforcements
Compliance
Monetary as well as civil penalties for severe non-
compliance
Severity based on reasons for non-compliance
Re-cycling of penalties over three years
Carrying forward a part of penalty to the next year
RPO
implementation
1Small-scale technology certificate (STC) 2large-scale generation certificate; 1 LGC = 1MWh of renewable electricity generated above
the power station baseline; Based on BRIDGE TO INDIA market analysis
6. 01.08.2012 Seite 6Page 6
India has separate solar specific obligations and the
states are charged with on-ground implementation
01.08.2012
REC trading
Price
Floor price – INR 9,300/MWh
Forbearance price – INR 13,400/MWh
Trading price (Recent) - INR13,000/MWh
Validity 1 Year
Volumes 336 bids cleared on IEX
RPO obligation
Policy (NAPCC) formulated in 2008
15% renewable RPO till 2020
Solar targets 3% solar RPO till 2020
Compliance
Compliance at forbearance price
States may implement further penalties
RPO
implementation
Source: BRIDGE TO INDIA market analysis
7. 01.08.2012 Seite 7Page 7
Learnings: India needs to incorporate measures to improve RPO
enforcement
01.08.2012
Differential
penalties
Australia segregates
penalties for non-compliance
by measuring the reasons
for non compliance
The higher the risk the more
stringent is the legal action
taken
Enforcement measures can
reflect ground realities of
utilities
Obligated entities are better
place to reach full
compliance in stages
Regulators advise on
regulations to ensure better
compliance
Specific Penalties
Japan has a penalty of up to
JPY1m (INR690,000) for
non compliance
Imposed on an interim and
annual basis
Puts a value on potential
costs for non compliance
Gives certainty on
enforcement to project
investors
Improves the bankability of
projects
Source: BRIDGE TO INDIA market analysis
Relevance for IndiaExamples
8. 01.08.2012 Seite 8Page 8
Learnings: India should incentivise RPO compliance through
REC and increase REC window
01.08.2012
Recycling
penalties
UK has a buy out fund
where non complying
entities deposit a penalty
Complying entities can claim
it after they deposit the
proportionate number of
ROCs*
Australia has a pay back
mechanism of penalties
charged in case of
compliance for 3 years
Complying entities have a
potential income stream
It provides partial off set to
REC costs for utilities
Provides incentives for RPO
compliance through RECs
Long term
validity
Japan’s New Energy
Certificates and UK’s issues
ROCs have a validity of 2
years.
Indian RECs have a validity
of a year
This two year validity
increases the trading
window for developers
Mitigates risks from potential
demand and supply
mismatchesSource: BRIDGE TO INDIA market analysis
*ROC: Renewable Obligation Certificate
Examples Relevance for India
9. 01.08.2012 Seite 9Page 9
Learnings: India has to heighten the price stability and
increase bankability of RECs
01.08.2012
Source: BRIDGE TO INDIA market analysis
Long term
pricing
All other countries with an
REC mechanism are
developed countries
They have robust market
mechanisms in place
Long term pricing increases
the bankability of a project in
the absence of a strong
market mechanism
.
Examples Relevance for India
Quarterly
compliance
Japan checks the
compliance of its obligated
entities on a quarterly basis
Balances the number of
REC purchases made
through out the year
Improves the price stability
of the REC
Improves cash flow available
to developers