RECs as a tool to fulfill CSR mandate

07th August,2014 New Delhi

Shruti BhatiaVice President-Policy and

Communication

In this presentation

Introduction to REC Mechanism

CSR through Voluntary REC Market

International Scenario

About IEX

Introduction to

REC Mechanism

What are RECs?Separating green attribute from electricity

Un-bundled Green Power

Seller (RE power)REC(Green Attributes)

Electricity

REC(Green Attributes) Buyer (RPO Compliance)

Electricity

Bundled Green Power

Seller (RE power) Buyer (RPO Compliance)

Issues•Uneven RE resource distribution•Schedulability•Uncertainty•Transmission Loss & Charge

Solution•No geographic barriers

• Reduced transaction cost

•More shelf life: Flexibility in meeting the RPODiscoms, Power

exchanges , Bilateral Contracts

14th Jan 2010 : CERC REC Regulation

29th Sept 2010 : 1st Amendment (Clarification on eligibility condition of renewable based CPPs

23rd Feb 2011 : Launch of REC Trading on Exchanges

30th May 2012 : 1st Solar REC Traded

28th Mar 2014 : Trade reaches its maximum (3,69,053) RECs

10 July 2013 : 2nd Amendment to CERCs REC Regulation proposes clarification on various issues

Evolution of REC Market in India

Salient Features of REC Mechanism

Participation Voluntary

REC Denomination 1 REC = 1 MWh

Validity 730 Days after issuance (As per CERC order dated 11th Feb’2013)

Categories 1. Solar REC 2. Non-Solar REC

Trading Platform Power Exchanges only

Banking/Borrowing Not Allowed

Transfer Type Single transfer only, repeated trade of the same certificate is not possible

Floor Price (2012-17)* Solar: Rs 9,300/MWhNon Solar: Rs 1,500/MWh

Forbearance Price (2012-17)* Solar: Rs 13,400/MWhNon Solar: Rs 3,300/MWh

Penalty for Non-compliance ‘Forbearance’ Price (Maximum Price)

Price Guarantee Through ‘Floor’ Price (Minimum Price)

*Reference :CERC in its order dated 23rd August, 2011 revised the floor & forbearance price for the period April, 2012 to March,2017

REC Market Participants: Sellers/Eligible Entity

ELIGIBILITY CRITERIA

Self consumption

No promotional Banking/Wheeling

ELIGIBLE

Sale through: Open Access/Bilateral

Sale at Mutually agreed price

ELIGIBLE

PPAs with distribution

licensee

PPA at APPC

ELIGIBLE

PPA at state regulated tariff

NOT ELIGIBLE

REC Market Participants : Buyers

Obligated Entities • Distribution Companies • Open Access Consumers• Industries consuming Captive Power

Voluntary Entities • Corporates under CSR• Individuals

REC Mechanism

Procedure for ACCREDITION (Through State nodal Agency)

Procedure for REGISTRATION (Through Central Agency NLDC)

Procedure for ISSUANCE (Through Central Agency NLDC)

Procedure for TRADING & REDEMPTION(Through PXs)

Trading at IEX

Trading Day Last Wednesday of every Month

Market Clearing Closed Double sided auction

Trading Time 1300-1500 Hrs

By 1530 Hrs Verification by Central agency for Valid REC by cleared seller at IEX

By 1600 Hrs Central agency confirms REC

By 1630 Hrs IEX finalizes trade

By 1700 Hrs Buyer & Sellers informed to Central Agency

By 1800 Hrs Invoice raised (proof of REC trade)

100

REC

Buy

@ R

s 33

00BUY SELLA 100 REC @

Rs 3300A 100 REC

@ Rs 1500B 600 REC @

Rs 2200B 200 REC

@ Rs 1700C 200 REC @

Rs 1700C 300 REC

@ Rs 2000Total 900 RECs

Total: 600 RECs

3300

200 REC buy @ 1700

No of REC

Pric

e in

Rs/

REC

2200

600

600 REC buy @ Rs2200

200 REC sell @ Rs 1700 300 REC sell @ Rs 2000

100

REC

Sell

@ R

s 15

00

Cleared volume : 600 RECs MCP: Rs 2200/REC

Non Solar Market : Increasing demand-supply mismatch

Apr '12

Jun '12

Aug'12

Oct '12

Dec '12

Feb '13

Apr '13

Jun'13

Aug'13

Oct'13

Dec'13

Feb'14

Apr'14

June'140

5

10

15

20

25

30

35

40

0

500

1000

1500

2000

2500

3000

Sell bid Buy Bid Traded PRICE

No

of R

EC (i

n la

cs)

Pric

e in

Rs/

REC

Solar Market: Increasing demand-supply mismatchM

ay '1

2

June

'12

July

'12

Aug

'12

Sept

'12

Oct

'12

Nov

'12

Dec

'12

Jan'

13

Feb

'13

Mar

'13

Apr

'13

May

'13

Jun'

13

July

'13

Aug

'13

Sept

'13

Oct

'13

Nov

'13

Dec

'13

Jan'

14

Feb'

14

Mar

'14

Apr

'14

May

'14

June

'140

0.2

0.4

0.6

0.8

1

1.2

1.4

1.6

1.8

2

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

Sell Bid Buy Bid Traded PRICE

No

of R

EC's

Pric

e in

Rs/

REC

CSR through Voluntary REC Markets

CSR through Voluntary REC MarketCompanies Act 2013 provisions effective from 01.04.14:

• Section 135 provides: 2% of PAT towards CSR for Companies with Net worth > 500 Cr or Turnover of over 1,000 Cr or Net profit > 5 Cr

• Schedule (VII) : Activities which may be included by companies in their Corporate Social responsibility Policies

i. eradicating hunger, poverty and malnutrition, promoting preventive health care and sanitation and making available safe drinking water;

ii. promoting education, including special education and employment enhancing vocation skills especially among children, women, elderly, and the differently abled and livelihood enhancement projects;

iii. promoting gender equality, empowering women, setting up homes and hostels for women and orphans; setting up old age homes, day care centres and such other facilities for senior citizens and measures for reducing inequalities faced by socially and economically backward groups;

iv. ensuring environmental sustainability, ecological balance, protection of flora and fauna, animal welfare, agroforestry, conservation of natural resources and maintaining quality of soil, air and water;

v. protection of national heritage, art and culture including restoration of buildings and sites of historical importance and works of art; setting up public libraries; promotion and development of traditional and handicrafts:

vi. measures for the benefit of armed forces veterans, war widows and their dependents;

vii. training to promote rural sports, nationally recognised sports, paralympic sports and Olympic sports;

viii. contribution to the Prime Minister's National Relief Fund or any other fund set up by the Central Government for socio-economic development and relief and welfare of the Scheduled Castes, the Scheduled Tribes, other backward classes, minorities and women;

ix. contributions or funds provided to technology incubators located within academic institutions which are approved by the Central Government

x. rural development projects

CSR through Voluntary REC Market

• MOCA notification dated 18.06.2014 regarding Section 135 of Companies Act 2013-” Liberal interpretation of Schedule VII (iv)”

Schedule VII (iv) Ensuring environmental sustainability, ecological balance ……

• 5 PSUs have availed about 36,000 RECs through IEX to meet their respective CSR Obligation

POSOCO (1603) REC (32800) IREDA (200)

SPMCIL (1334) RINL (200)

CSR through Voluntary REC Market

Voluntary REC Market potential (in Rs Cr)

No of REC @

Floor Price

REC Market

Size

10 %for REC

CSR Budge

t@ 2%

PATOfET

5002009/10/11

326,637 6,532 65310%Solar

6670,000

90%Non Solar

58739 Lakh

Voluntary REC market has potential to absorb over 50 % of REC issued in a year

Free Participation for Voluntary Client at IEX

To promote Voluntary purchase of RECs by individuals, corporates, PSUs, IEX has waived off registration fees from Voluntary Clients

REC v/s setting up a RE Project for CSR

Setting up a RE Project

Feasibility Study

Approvals, No Objection Certificates from Nodal

Agencies

Huge Investments:• Land Acquisition• Technology• Rs 4.5 to 6.85 Crores per

MW for a Wind Farm

Evacuation of Power:PPAs/Third Party

Arrangements

Buying RECs

RECs is not just a paper, it represents the power produced by a RE generator somewhere in the

country

No approvals required, anybody can buy

More Flexibility: Based on CSR commitment buy 1 REC for Rs 1500

or 1 lakh for 15 Crore

Pre- Develop

ment Phase

Development Phase

Post Develop

ment Phase

Why RECs for CSR

• RECs have several advantages as an instrument:

• RECs are measurable and it is easy to verify which specific project they are coming fromMeasurable

• RECs are issued by government appointed agency, and the process and eligibility criterion are objective and transparentTransparent

• RECs are de-linked from physical power, which makes the consumption of green power easier to manageEffortless

• Both Solar and Non Solar RECs currently traded at the floor priceCost effective

Buy RECs to go green

Meet your CSR obligation

Green Building/office/organisation

Buy RECs equivalent to energy consumption for an event

Make your home green with RECs equivalent to your electricity consumption

Off set carbon footprints at individual level

International Scenario

• As per Global Consumer Study 2012 by TNSGallup and Vestas on

24,000 consumers in 20 countries: – 74% consumers would have a better perception of a product if it

were produced using renewable energy– In India, 74% consumers ready to pay mote for products

produced using renewable energy.

Consumers demand ‘green’ products

Enhanced efforts by companies globally to ‘Go Green’

* Source Newsweek 2014 Green Ranking

INDIAN COMPANIES RANKING IN THE Newsweek Green Ranking 2014

Company Name Sector Rank Green

Score

Reliance Industries Energy 185 45.70%

Tata Consultancy Services

IT 212 42.00%

Oil & Natural Gas Energy 217 41.70%

Infosys IT 299 33.30%

ITC Consumer 368 24.60%

HDFC Bank Financials 380 22.80%

Coal India Energy 445 13.30%

Global Ranking Company Name Sector Green Score

Unilever Food & Beverages 66.00%L'Oreal Cosmetics 65.50%

Ericsson Information Technology 64.00%MetLife Insurance 62.20%Siemens Capital Goods 61.10%

Johnson & Johnson Health Care 60.10%National Grid Utilities, UK 60.00%

Hewlett-Packard Information Technology 59.60%Samsung Electronics Information Technology 57.30%Rolls-Royce Holdings Capital Goods 56.90%

Apple Information Technology 56.90%Toyota Motor Automobiles 54.90%

BP Energy 54.40%Microsoft Information Technology 52.80%

Volkswagen Automobiles 52.80%Vodafone Group Telecomm 49.20%

Colgate-Palmolive Consumer Staples 48.20%Oil & Natural Gas Energy 41.70%

Google Information Technology 23.70%

RECs are popular way to go greeninternationally

Company Name Details

Intel •Purchased 2.5 b kWh of RE and REC•88% of total electricity consumed

Citi •Purchased over 56m kWh of RECs in 2008

HSBC •Purchased 276m kWh of RECs in US•Over 96% of North America electricity offset by RECs purchase

Yahoo! •Purchased 1.6m kWh of RE & REC’s in 2010•Uses 28% of RE power in its US operation

Apple •11.5 m kWh of RE and REC purchased•98% of total US consumption

About IEX

Company Snapshot

96% Market Share ~80,000MWh average daily trade

3000+ Participants 2100+ Industries

Competition

LiquidityTransparency

Key statistics: REC Market at IEX

Portfolios

State Utilities

Generators

Buyers

Cleared Volume

15 States I 5 UTs

660

>3 million RECsHighest: 3,69,053

RECs

1663

IEX Data as on 3rd July 2014

2100+

IEX, 67%

PXIL, 33%

REC Market Share (as on 31st Mar’14)

IEX Market SegmentsDelivery-based Contracts

Day-Ahead Marketsince June,08

Closed , Double-sided Auction 10-12 am biddingEach 15-min block , 0.1 MW min NOC required

Term-Ahead Marketsince Sep,09

Day-Ahead Contingency – Another window 3-5pm

Intra-Day - for the same day starting 2 pm

Daily- for rolling seven days (delivery starting after 4 days)

Weekly- for 1 week (Monday-Sunday)

Renewable Energy Certificatessince Feb,11

Next… Energy Saving Certificates

Green Attributes as CertificatesSellers : RE generators not under feed in tariffsBuyers: Obligated entities1MWh equivalent to 1 REC

Auction Continuous

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