Indian Renewable Energy Certificates fetch maximum price in first sale

Budget

India's 2011-12 General Budget was announced in early March. It included a strong emphasis on reductions in customs and excise duties to encourage the adoption of clean technology, including the elimination of customs duty on components used in the manufacture of solar cells or modules.

However, the renewables sector has expressed its disappointment at the lack of "aggression" and support for renewable energy in the annual budget. There are claims that the piecemeal solar incentives ignore a large number of other components and fail to address the continued reliance on imported engineering services. There was general support, however, for the budget's provisions to double the cap on foreign investment in corporate bonds to US$40 billion (€28.4 billion) and allow companies to issue tax-free bonds to finance infrastructure projects. It is hoped such measures will help support the financing of large-scale renewables projects.

Grid

There was disappointment for clean energy companies that the budget did not address the "inadequate" transmission grid, which many argue is holding up investments and delaying projects. India suffers from a chronic electricity shortage, aggravated by the lack of a robust nationwide electricity grid, making it difficult to fully harness renewable energy potential.

However, the Finance Ministry has announced it is considering using part of the US$555 million (€393.7 million) Clean Energy Fund--funded by a coal tax launched as part of last year's budget--to finance new electricity transmission lines to help distribute power from clean energy projects, specifically in states which severely lack the necessary infrastructure.

Incentives

India began trading its Renewable Energy Certificates (RECs) in late March, signalling a key milestone in the development of the country's market mechanism for renewable incentives. Trading commenced on the Indian Energy Exchange (IEX) and Power Exchange India (PXIL), and a total of 532 (non-solar) RECs were issued, of which 424 were sold on 30 March. RECs sold on the IEX fetched the ceiling price of 3,900 rupiah (€60.9), while credits achieved 2,225 rupiah (€34.7) on the PXIL. Demand for solar RECs was high, but there were no sell-side bids in the initial trading. Regulators have set a price range of 12,000-17,000 rupiah (€187–€265) per REC for solar projects.

However, analysts are already predicting a dip in trading if obligated entities put off participation until the end of the annual R0 period; the slowdown in trading during April already supports this view.

Solar

In Q1, developers of the 37 projects contributing 620MW towards Phase 1 of India's National Solar Mission (NSM) signed their respective PPAs with the Government. The NSM aims to add 20GW of solar capacity by 2022, and 1GW by 2013 under Phase 1. This positive development is likely to dispel fears that PPAs would not be signed, given the low tariffs quoted in the bids.

The fact that the agreements fall within the first anniversary of launching the NSM reinforces the timely execution of Phase I and signifies the government's commitment towards development of solar power. The government is also soon expected to initiate the process for a further allocation of 296MW of grid–connected solar PV power projects.

India is to impose fines on delayed solar projects, after five out of six plants failed to launch in early 2011 as planned. Penalties in the PPAs will therefore be executed at 10,000 rupiah (€156) a day per MW for the first 60 days and 15,000 rupiah (€234) thereafter.

Wind

The latest wind statistics from Global Wind Energy Council (GWEC) showed that 2.1GW of wind capacity was added during 2010, taking total installed capacity to around 13GW--making India the 5th-biggest wind power producer in the world. The World Institute for Sustainable Energy in India estimates wind power potential could be as high as 100GW if larger turbines are deployed and access to land is improved, although grid weakness is likely to prevent full exploitation of this resource in the short to medium term.

Major renewables companies continue to be attracted to India's wind market. Suzlon has signed a memorandum of understanding with the Gujarat State Government to invest 60 billion rupiah (€0.94b) to develop 1GW of wind capacity over the next three years. Suzlon also announced it will be launching new turbines for low wind-speed zones across India. In April, Siemens announced plans to build its first wind turbine plant in India in a bid to generate better margins in a fast-growing market.

Geothermal 

Interest in India's geothermal potential has increased in recent months in anticipation of a new national policy. The government has identified at least 10.6GW of power that could be generated from heat trapped underground and the constant supply is an advantage over more intermittent renewable sources. In Q1, energy solutions provider, Thermax, secured a contract to set up the first-ever geothermal power plant, and the government is also planning a 100MW project in Reasi and other areas.

This article is from the "Renewable energy country attractiveness indices" (CAI) report, first published in May 2011, and reproduced with permission from Ernst & Young. Please contact Sanjay Chakrabarti and Sudipta Das if you would like more information on this report.

By : Sanjay Chakrabarti and Sudipta Das, Ernst & Young