Europe Compliance market The Renewable Purchase Standards in Europe are driven by commitment to increase the share of Renewable Energy in the electricity mix. Obligated entities can fulfill obligations by purchasing Renewable Energy Certificates (RECs). Compliance certificate schemes in Europe are national, with all countries except Italy having obligations on the percentage of electricity to be consumed from Renewable Energy sources by electricity suppliers. Certificates are issued by Government designated authorities. In UK, The Gas and Electricity Markets Authority is responsible for the implementation and administration of RPS on all licensed electricity suppliers. Size of Compliance certificate market for UK was £1.3 billion (i.e. around Rs. 8,500 Crores) for the year 2010-11 Voluntary market Unlike the Compliance market, Voluntary market in Europe is driven by environment conscious electricity consumers. Voluntary schemes for Renewable Energy Certificates in Europe started in 2001, after liberalization of the electricity sector. Designated competent bodies supervise the issue of “Guarantees of Origin” (GO) which specifies the source, time and place where the electricity is produced. The Association of Issuing Bodies (AIB) was formed to standardize the certification Volume 2 Issue 4 HORIZONS agneya International Markets for Renewable Energy Renewable Energy Certificates (RECs) were introduced in India in 2010 to promote Renewable Energy Sources and to support Renewable Purchase Obligation mechanism. Since trading started in March 2011, the market has taken off well and has matured over the period. Globally, Europe and United States are the biggest markets of Renewable Energy. 25 July, 2012 Compliance Vs Voluntary RE Markets International REC markets are mix of Compliance and Voluntary segments. While Compliance is dominant segment, Voluntary markets provide valuable support to the overall RE market. 0% 50% 100% US EU India Comparative size of Compliance and Voluntary RE segments Compliance Voluntary Source: Hedenstroem, C. (2011). Highlights of EU policies for renewables
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Agneya\'s Newsletter on Renewable Energy Sector and REC market in India
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Europe Compliance market The Renewable Purchase Standards in Europe are driven by commitment to increase the share of Renewable Energy in the electricity mix. Obligated entities can fulfill obligations by purchasing Renewable Energy Certificates (RECs). Compliance certificate schemes in Europe are national, with all countries except Italy having obligations on the percentage of electricity to be consumed from Renewable Energy sources by electricity suppliers. Certificates are issued by Government designated authorities. In UK, The Gas and Electricity Markets Authority is responsible for the implementation and administration of RPS on all licensed electricity suppliers. Size of Compliance certificate market for UK was £1.3 billion (i.e. around Rs. 8,500 Crores) for the year 2010-11 Voluntary market Unlike the Compliance market, Voluntary market in Europe is driven by environment conscious electricity consumers. Voluntary schemes for Renewable Energy Certificates in Europe started in 2001, after liberalization of the electricity sector. Designated competent bodies supervise the issue of “Guarantees of Origin” (GO) which specifies the source, time and place where the electricity is produced. The Association of Issuing Bodies (AIB) was formed to standardize the certification
Volume 2 Issue 4
HORIZONS
agneya
International Markets for Renewable Energy Renewable Energy Certificates (RECs) were introduced in India in 2010 to promote Renewable Energy Sources and to support Renewable Purchase Obligation mechanism. Since trading started in March 2011, the market has taken off well and has matured over the period. Globally, Europe and United States are the biggest markets of Renewable Energy.
25 July, 2012
Compliance Vs Voluntary RE Markets
International REC markets are mix of Compliance and Voluntary segments. While Compliance is dominant segment, Voluntary markets provide valuable support to the overall RE market.
0% 50% 100%
US
EU
India
Comparative size of Compliance and
Voluntary RE segments
Compliance Voluntary
Source: Hedenstroem, C. (2011). Highlights of EU policies for renewables
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Financing
Commercials
Technology
system across member States. There are currently 16 countries with a standardized certificate system and issuing body as a member of AIB.
Voluntary market The drivers for this market are similar to European markets with environmental consciousness and growing awareness amongst the population being the key reasons. Buyers include both Residential and Business consumers. Voluntary RECs are issued and marketed by different issuing bodies. Further, programs such as Green-e Energy have been developed to ensure that no double selling of voluntary certificates occurs. The size of the Voluntary market in US is estimated to be $168 - 285 million.
USA Compliance market Most States in US have independent targets for increasing the share of Renewable Energy in the electricity mix. Thirty-nine of the fifty States have binding RPS in US. Most of the States allow the use of RECs for fulfilling RPOs. Independent bodies issue RECs which are independently audited by Utility Commissions. RECs have associated attributes such as energy facility (e.g. wind or biomass), technology of origin, and the generation date. Prices of REC vary as per attributes and issuing body. Most States allow RECs generated in their respective States only for fulfilling the RPS, with tracking systems to ensure that RECs are exhausted after use.
Options for Buying Renewable Energy
Various options are available to consumers including residential consumers to buy Renewable Energy: 1) Utilities offering Green
Energy to electricity consumers. Consumers can pay premium for purchasing Renewable Energy for either full or partial consumption of Renewable Energy.
2) Consumers can choose to switch electricity supplier if their current provider does not offer green energy option. Electricity supplier can either purchase RECs or buy Renewable energy from Generators
3) Consumers can buy green energy from the market through companies, brokers selling unbundled RECs
5.4
10.419.8
Share of Market Sector in Total Voluntary Sales
(US), Million MWh
Utility Green Pricing
Competitive Markets
Unbundled REC Markets
Source: NREL, Oct 2011
India – An evolving framework for REC markets The REC market in India is new, with pricing capped by the government. The role of the Government in pricing, however, is expected to reduce as the market matures. Compliance REC markets are still in the process of stabilizing – the process for registration needs to be streamlined in order to make it easier for larger number of buyers/sellers to participate. Introduction of Voluntary market mechanism meanwhile, has the potential of further boosting REC market in the country.
3950
3300
55
350
35
300
US
EU
Energy Markets in Europe and US (TWh/annum)
Conventional energy market Compliance RE market Voluntary RE market
Source: Hedenstroem, C. (2011). Highlights of EU policies for renewables
IEX and PXIL Whole Volume Trade in Thousands Price at IEX (RHS) Price at PXIL (RHS)
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REC Market in July 2012
Lean trading session for RECs
After strong showing in the first three trading sessions of this financial year, the REC market slowed down in July. The first quarter was expected to present Obligated Entities with the opportunity to fulfill their commitments at a lower price as the market tends to pick up gradually after April. With the initial rush for purchases over, the market is settling down for a lean period. It must be noted however, that REC price of Rs. 2000 in July is still 29% higher than same session last year, even after lowering of forbearance price from Rs. 3900 to Rs. 3300.
REC Inventory
Source: REC Registry
Opportunity for Obligated Entities
With highest ever balance of RECs accumulated with developers and Wind season on, it is expected that supply will exceed demand by a wide margin in next trading session. Hence, it is a good opportunity for Obligated Entities to fulfill RPO by buying RECs at lower prices.
1,73,777
3,49,526
3,33,969 1,58,220
REC Inventory July 2012
agneya
273 287
113172
384
271
149
93
158
73
335
106172
0
500
1000
1500
2000
2500
3000
0
100
200
300
400
500
600
Capacity Registered, MW
Cum. Registered till Date(RHS) Registered
State-wise Registered Capacity, April 2012 to date
State MW Tamil Nadu 257 Maharashtra 197 Gujarat 106 Karnataka 69 Madhya Pradesh 21 Uttar Pradesh 13 Chhattisgarh 12 Rajasthan 8 Himachal Pradesh 3 Punjab 0 Uttarakhand 0 Kerala 0 J&K 0 Haryana 0 Total 686
Source-wise Registered Capacity, April 2012 to date
Source MW Wind 532 Biomass 82 Bio-fuel cogen 50 Solar PV 18 Small Hydro 4 Total 686
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Although trade value in this session fell by 44% of last trading session to Rs.31.86 Crore, still this is 14 times of the trade value during July last year.
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 – [email protected] | Phone – +91-20-41203800, +91-88 06 07 07 83 | Website – www.agneya.in