Distribution: Unlocking India’s potential

A number of steps have been taken to promote the electricity sector in India – EA 2003, unbundling of SEBs, policy and tariff support to RE sources etc. Generation capacity in the country has reached from 100 GW in 2001 to 200 GW in 2012. At the same time however, demand has grown faster than supply. This gap is expected to persist as further addition in thermal generation is limited by coal extraction capacity.

This highlights the role of RE in bridging the energy deficit. However, for RE to be able to deliver benefits, an efficient distribution system needs to be in place. The importance of distribution is often lost in the discussion about need to increase generation capacity. A 15% reduction in losses as envisaged by the Ministry of Power recently will mean effective addition of 30,000 MW of capacity - more than half the capacity addition of 53 GW in the 11th five year plan.

HORIZONS

agneya

Renewable Energy: Achievement and Bottlenecks

26 September, 2012

The C in AT&C

Source: World Development Indicators database

While AT&C losses in developed countries are small, they mainly comprise of technical losses. In developed countries commercial losses are practically non-existent. In India however, lack of metering, payment default and theft contribute to “commercial losses”, usually clubbed with T&D losses.

0% 10% 20% 30%

India

Brazil

US

China

AT & C losses

Volume 2 Issue 6

0% 50% 100%

2002

2007

2012

Hydro Thermal Nuclear RES

Source: Ministry of Power

Over the years, RE has grown steadily to become an important part of the country’s energy mix. Wind energy has achieved substantial size while solar energy is beginning to accelerate. For further growth however, major improvements in the country’s distribution capabilities are required.

2

Financing

Commercials

Technology

Distribution: Backbone of commercial models

The REC Mechanism introduced last year provided RE generators a significant alternative to selling to cash strapped State Utilities. The non-solar REC market however has been muted of late. While generators have enthusiastically opted for this mechanism, the corresponding demand is yet to reach expected levels. This is due to slow implementation of RPO mechanism of which distribution companies are key constituents.

Solar Tariffs in India

Recently concluded bidding process for solar power in various States as well as under JNNSM resulted in surprisingly low tariffs.

However, investors have opted for projects under these policies due to lower risk of default from distribution companies. This is because investors have taken into account risk of payment default under other commercial mechanisms.

The REC mechanism however, is providing a major boost to solar energy especially through the captive route.

6.5 11.5

Odisha State policy

JNNSM Phase I Batch

II

Kar State policy

Maha PT FY12

CERC PT FY12

Guj PT FY12

Tariff in (Rs./ Unit)

Lower value Higher value

One of the important reasons for poor financial condition of Utilities is delayed tariff hikes. Actual cost of power taking into account increased fuel prices is not passed to consumers to avoid tariff shocks.

Discoms in developed countries have higher share of infirm renewable energy in their energy mix. In India, discoms are unable to manage the grid with increasing share of renewable energy injected into the grid. Financial sustainability is a prerequisite for discoms to implement technological developments.

Source: SERC Tariff orders, News articles

3.7

4.23

3.56

4.11

3.5

3.5

3.39

4.04

5.13

5.01

4.4

4.94

Kar PT

Kar REC

Guj PT

Guj REC

AP PT

AP REC

TN PT

TN REC

Wind tariffs (Rs./ Unit)

Bailout, not Reform

Regulators aim to transition to a process of competitive bidding for deciding the renewable energy tariff in the States. To achieve this, a competitive distribution sector able to provide open access is important. The Government has found a temporary solution to the problems of distribution companies by reducing the debt servicing burden on the discoms. In the long run however, such financial engineering will have limited impact on the sector. A calibrated plan of increase in tariffs is required to ensure viability as well as higher efficiency.

Source: SERC orders, Lower REC price taken at Rs. 1.5/ unit and higher REC price taken at Rs. 2.4/ unit (Average of 1.5 & 3.3)

REC Trade Sep 2012 Buy Bids Sell Bids Volume Traded Clearing Price

Rs. per REC

Non-Solar IEX 239,364 664,641 239,364 1,500

PXIL 25,082 46,530 25,082 1,500

Solar IEX 1,317 1,094 735 12,500

PXIL 525 527 425 12,900

46

96 106 112

172

206 200

71

169

236

158

274 264

-

500

1,000

1,500

2,000

2,500

3,000

3,500

-

50

100

150

200

250

300

Sep 2011

Oct 2011

Nov 2011

Dec 2011

Jan 2012

Feb 2012

Mar 2012

Apr 2012

May 2012

Jun 2012

Jul 2012

Aug 2012

Sep-12

IEX and PXIL Whole Volume Trade in Thousands Price at IEX (RHS) Price at PXIL (RHS)

REC Market in September 2012

Non-Solar prices wait for demand to catch up

The REC market in September 2012 recorded the highest volume of REC issuance ever resulting in the highest closing balance in the REC trade, Demand however remained subdued. Price realization remained at floor level of Rs. 1,500 with all the buy bids cleared at both IEX and PXIL. Even if we consider that only 20% of the RPO compliance is done through RECs, annual demand of RECs for FY 2012-13 should be more than 1 Crore. This demand is not yet reflected in the REC market as only less than 12 lakh RECs have been traded till September. This shows that while regulators have provided support to RE through RPO, more effort on enforcement is required.

REC Inventory

Source: REC Registry

Solar RECs cross 1000 milestone

While non-solar RECs market has been muted, solar RECs have been picking up steadily for the last few trading sessions.

Solar REC witnessed a surge in trading this month. With 1,160 certificates traded, the volume this month more than tripled volume of last trading session. The trade also saw a healthy price realization at Rs. 12,500 per certificate at IEX. Value of trade more than tripled and exceeded Rs.1.4 Crores in this trading session.

5,98,642

8,51,628

5,17,432

2,64,446

REC Inventory Sep 2012

3

Source: IEX and PXIL

113172

384

271

14993

158

73

335

106

250

62107

0

500

1000

1500

2000

2500

3000

3500

0

100

200

300

400

500

600Capacity Registered, MW

Cum. Registered till Date(RHS) Registered

State-wise Registered Capacity, April 2012 to date

State MW Tamil Nadu 329 Maharashtra 253 Gujarat 135 Karnataka 126 Rajasthan 27 Madhya Pradesh 22 Uttar Pradesh 20 Chhattisgarh 12 Odisha 5 Himachal Pradesh 4 Punjab 0 Uttarakhand 0 Kerala 0 J&K 0 Haryana 0 Total 933

Source-wise Registered Capacity, April 2012 to date

Source MW Wind 731 Biomass 97 Bio-fuel cogen 81 Solar PV 18 Small Hydro 6 Total 933

4

In total, 107 MW of capacity was registered in September. With this addition, the capacity registered in this financial year has touched 933 MW. Total trade value of solar and non-solar RECs exceeded Rs. 40 Crore in this trading session.

agneya

Agneya is promoted by alumni of IIM Ahmedabad and IIM Bangalore. We provide services in the following areas –

Renewable Energy – advising clients on the best possible portfolio of renewable energy (wind, solar, bio) across tariff regimes, technology options, electricity sales structuring and availing incentives like REC and GBI.

Renewable Energy Regulations – advising clients on regulatory aspects of electricity market, options for realizing the maximum value from their energy assets and minimizing costs related to regulatory compliance including addressing RPO.

Carbon & Energy – measuring carbon footprint, current/future energy profiling, and setting up energy management systems to assess risks and opportunities related to energy security and climate change.

Sustainability – building robust long term foundations for business i.e. managing economic, environmental and social aspects of business. These include establishing sustainability management framework and reporting as per GRI guidelines. For further information on Renewable Energy Certificates or other services, please contact us at – E-mail – rahul@agneya.in | Phone – +91-20-41203800, +91-88 06 07 07 83 | Website – www.agneya.in

Source: REC Registry

Source: REC Registry