Indian renewable energy saw a new landmark with the first trades of RECs taking place on the exchange. In an exclusive interview with Renewable Markets India, Mr. Rajesh Mediratta, Vice President- Indian Energy Exchange, India’s largest power exchange shares his views on the REC trades and its impact on the future of renewable energy in India.

We are exited and aware that IEX has launched its REC trade platform. How has the response been?

The first REC trading session was carried out on 23^rd February,2011. However, by that time no RECs were issued to any of the generators. The purpose was to send the signals that the REC framework is in place and REC trading platform is available. The generators should take advantage of early movers and end-of-Financial Year when purchasers will be looking for RECs for fulfilling RPO of FY10-11.  And signals were rightly taken by the RE generators and two RE generators could get their RECs issued in Month of March,11. Total RECs issud were 532(Non-solar) and 0(Solar).

Second trading session of REC trading took place 30^th March,11 i.e. last Wednesday of March,11.  Total purchase Bids of 70,377 Non Solar REC & 30,001 Solar REC were received. Out of 532 Non-solar RECs issues, only 150 certificates were offered for sale on IEX about 234 RECs were offered on other exchange and 108 certificates remained un-offered. This session saw overwhelming participation from buyers, this being the last for this financial year where entities could fulfill their renewable obligation.  The price discovered on the exchange was at maximum price i.e. Rs 3900/REC equivalent to Rs 3.90 per Kwh energy injected. There was good demand for solar RECs also but since no solar RECs have yet been issued by NLDC, no trade could take place.

What are the long term and short term objectives of IEX with regards to RECs?

The long-term objective of this mechanism is encouraging merchant based RE capacity. The cost-plus regime should give way to market-based regime which is the trend all across the globe in both conventional and renewable power segments alike.   In cost-plus regime, there are inhibiting factors which would hamper growth in long term. The limitations of in-firm renewable power to flow across State boundaries and the cost to be borne by the incumbent States’ consumers only have forced the conceptualization of these markets across globe. Few States having good RE potential should not asked to bear the cost of still costlier RE power. The RECs increases the shelf-life of RE power, it allows creating more liquid RE power market which gives the best market-based price signals. The IT-enabled power exchanges have already created one common national electricity market. The benefits are already reaching to end-consumers and potential merchant generators alike. Similar growth is achievable through IT-enabled national-level REC markets created on the exchange.

What is the current status of REC projects in India? What volume do you expect coming in on the REC markets?

About 53  RE projects have been accredited by State Agencies. They are from the States of Gujarat, Maharashtra, Chhattisgarh,Haryana and Rajasthan. Total capacity accredited is 284 MW.

Registered REC-eligible  projects are 51 and having capacity  156MW as on 31^st March,11.

Currently, total RE capacity installed in India is about 18.8GW. About 70% of total capacity is from Wind sources.

It is expected that earlier capacity due for re-signing under preferential tariff will come under REC and plants selling under Third Party Sale and for own consumption will be immediately part of REC mechanism. Out of new capacity addition at least 40% is expected to be as merchant RE generation.

Special dispensation has also been made in IEGC for scheduling of RE infirm power. The special provision involves sharing of risk of upto 30% deviation in schedules by all the States. Deviation in schedules beyond 30% will have to be borne by generator itself. This provision will be effective from 1^st Jan,2012.

What are the current hindrances in the REC framework? How will it affect the market liquidity?

The major hindrance faced by Solar generators is the bankability of RECs and assurance of floor price trajectory over longer period. The other issue is apprehension in the minds of REC generators is the enforceability of RPOs. The RE Generators expect serious implementation of RPOs otherwise a mechanism without teeth will not be able to stand and markets would not survive over long periods. Another  serious issue being raised by generators is very low level of RPOs in the State with low potential which donot give incentives to generators to put plants in high-potential regions in the country.

We know IEX has been very successful in the electricity markets. Do you see a similar growth story in REC markets?

Of course. All elements of successful electricity markets are available in REC markets also.  High number of buyers and sellers, diversified markets(bio-mass, small hydro, bagasse, rice husk, waste-to electricity plants  have potential across the country. Diversified portfolio of renewable potential and demand across States. All consumers of electricity are part of IEX today and trading electricity and they are potential buyers for RECs, therefore, REC Sellers have already converged on IEX. Presence of large number of buyers and sellers will create a more liquid and competitive market. The essential ingredients of successful REC markets are all available on IEX.

Further, transparent, robust trading platform supported by state-of-the-art  technology from NASDAQOMX are the pillars for such markets. The neutral and closed double-sided auctions offered has helped us establish as preferred trading platform with more than 80% market share maintained in last 1000 days of operations. We have very large base of now 925 registered participants with more than 650 industrial consumers. Day-Ahead markets have doubled in FY 2010-11. The daily average transactions have grown from about 18000MWh to 40,000MWh. The registered participants have grown from 250 to 925 in a year.

Could you give a brief overview of your services in the Indian electricity markets?

IEX has already offering following market instruments for transacting electricity.

1) Day-ahead market

2) Day-ahead contingency

3) Intra-day

4) Daily

5) Weekly

IEX has sought approval for monthly contracts also from CERC which is under process. The other new market segment expected in FY 2011-12 is Energy Efficiency Certificates(Escerts) under PAT scheme of BEE.