The REC market in India which is currently worth Rs. 30 crores, is expected to reach Rs. 100 crores (monthly traded amount) by year end 2012 – a number quoted by one of the top officials at MNRE.
As discussed earlier, the clearance price of the REC certificates has been increasing steadily each month over the past year (the certificates traded at Rs. 2,950 last month). This, along with the exponential increase in the volume traded would definitely help achieve this number. The demand for RECs shows no signs of waning as indicated by the previous trading sessions. The various obligated entities who are required to fulfill their RPO have very little time left to do so (for the current year). Thus it is expected that the volume of REC traded would peak over the course of the next three months.
The Ministry of Heavy Industries and Public Enterprises has directed all central public sector enterprise to procure their energy requirements from renewable sources. These obligated entities would have to fulfill their obligation either by setting up their own renewable power plants or by purchasing REC from one of the two power exchanges – IEX or PXIL. REC certificates, whose prices have started to plateau over the past two months would continue to maintain their slow upward trend, hitting the forebearance price thanks to moves such as this as well as the fact that there remains a pretty significant supply-demand deficit. For instance, in the December 2011 trading session, the number of buy bids were 1.68 times higher than the actual volume traded. This trend in the consistency of REC prices (or more optimistically the constant upward trend) would greatly benefit project developers as it would make things easier for them to achieve financial closure due to increased bankability of the projects (which inturn is a function of guaranteed or predictable revenues).
Various states in the country are expected to increase their renewable purchase obligation to higher values over the course of the next few years. This in turn would help create more demand for RECs thus always ensuring a market for the certficates – atleast for the next five years. While this side of the policy is favourable, the other side wherein the REC prices are fixed up until 2017 might be the achilles’ heel in the grand scheme of things as this adversely affects the bankability of high capex, long term projects.In the interest of promoting the growth of renewables in the country, it is hoped that the REC mechanism would continue to exist beyond 2017 where the price for the certificate as such might come down. However the falling capital costs for renewable energy and the rise in the APPC price of electricity might help counteract this.
The immediate future of the REC mechanism is bright. As to what the long term future will hold ? Well, that remains to be seen.