General Carbon Newsletter

ENERGY & ENVIRONMENTAL COMMODITIES NEWSLETTER APRIL 2012, ISSUE:10

The last few days have produced numerous events that will impact our view of

energy and environmental commodity markets for the days to come. This

mountain of news flow will result in temporary indigestion due to the level of

impact. Some key pieces to chew on

REC - While the volume of REC traded was heartening, prices were much lower

than the ceiling price of 3,900 which was expected given the shortfall in RPO

compliance. A reasonable attempt by DISCOMs or captive/open access

consumers should have resulted in significant demand i.e. price of 3,900. A

price of 2,900 suggests that the fear of penalty does not seem to have caused

the required "fear factor". Softer prices in coming months are now projected.

PAT - On March 30, the Government of India notified the launch of the first

phase of the Perform-Achieve-Trade (PAT) scheme. A total of 478 Designated

Consumers (DCs) are included in the scheme which is viewed as an "Indian

energy efficiency cap-and-trade scheme”. More on this in the article below.

Accelerated Depreciation - Another era in incentive based development of

renewable energy comes to an end in 2012 as the Income Tax department

withdrew accelerated depreciation benefit for wind turbines. Accelerated

depreciation had helped retail investment in the wind sector. While the removal

of benefit will facilitate IPP led growth of the market it will also require revisit in

the sales model of wind turbine suppliers.

Carbon - More negative news on the pricing front as EU emission data shows

Carbon dioxide emissions from most of the plants under compliance fell by 2.4

percent in 2011 from 2010. This drop in emissions reduces demand for EUAs

and CERs. The fall is due to lower power generation and stagnating industrial

production in the EU. Unless some kind of market intervention takes place

carbon prices could fall below current levels.

Best,

Satish Kashyap

REC PROJECT

HIGHLIGHTS

(as on 1st April 2012)

Accredited Projects:451

(2630.148 MW)

Registered Projects: 366

(2318.628 MW)

REC Issuance:

REC Issued: 2,03,819

REC Redeemed: 1,99,737

Closing Balance: 38,545

(Source: Recregistry, India)

REC PRICE WATCH

Mar 2012 Session

IEX: Price (Volume)

Non solar -INR 2,900

(192,354)

Solar - (Not traded)

PXIL: Price (Volume)

Non solar -INR 3,100

(7,383)

Solar - (Not traded)

CER PRICE WATCH

29 February 2012

BlueNext Daily Spot: Price

(Volume)

€ 3.48 (145, 000)

Perform – Achieve-Trade (PAT) launched!

Bureau of Energy Efficiency (BEE) has launched its long awaited initiative to

improve energy efficiency across leading industrial establishments across India,

called Perform-Achieve-Trade or PAT mechanism. With a view to encourage

cost effectiveness in improving industrial energy efficiency, Ministry of Power

has come up with a notification on March 30, 2012. The notification details the

process for preparation and implementation of the PAT scheme and procedure

for issue of Energy Savings Certificate (EsCerts). The notification includes

targets for specific energy consumption for the period from April 2012 to

March 2015 for each designated consumers.

The Perform, Achieve and Trade (PAT) mechanism, which is a market-based

mechanism to make improvements in energy efficiency in energy-intensive

large industries and facilities more cost-effective by certification of energy

savings into a tradable commodity. The identified sectors for which the norms

have been specified are aluminium, chlor alkali, textile, pulp and paper, iron and

steel, fertilizer, cement and thermal power plants.

A total of 478 Designated Consumers (DCs) will be included under the PAT

scheme. The largest number of DCs are from power sector (144) followed by

the textile sector (90) and the cement sector (85). Some prominent Designated

Consumers include NTPC, Raymond, Ambuja Cement, Essar Steel, Tata

Chemicals Limited, Hindalco etc. An indication of the level of savings targeted

is listed below:

Sector & Entity Baseline (MTOE)

Target (MTOE)

Savings (MTOE)

% reduction

Power - NTPC 5,03,74,800 4,99,35,020 4,39,780 1%

Textile - Raymond 27,365 25,802 1,562 6%

Cement - Ambuja Cement

2,72,029 2,61,331 10,697 4%

Iron and Steel- Essar Steel

20,22,914 19,13,196 1,09,717 5%

Fertilizers - Tata Chemicals

2,96,739 2,93,418 3,321 1%

Aluminium - Hindalco

90,792 87,025 3,767 4%

Kshitija Rangnekar

Energy Market

News

Tamil Nadu’s new

solar energy policy

to add 3,000 MW

Tamil Nadu will soon

come out with a new

policy on solar power

to generate 3,000

MW by 2015-16

which is more than

33 percent of the

Indian target.

Gujarat cuts solar

PV tariff by 17.3 %,

raises solar thermal

tariff by 39%

The GERC has

announced the solar

power tariffs for

projects

commissioned after

January 2012.

…levelised tariff for

ground-mounted

solar PV projects has

been reduced by

17.3 % …..

CERC moots harsh

penalties for failure

to adhere to grid

discipline.

A move by the Central Electricity

Regulatory

Commission (CERC)

to notify

amendments in

Indian Electricity Grid

Code and

unscheduled

What can we learn from Australia’s REC experience

Australia's renewable energy target aims to ramp up renewable energy

purchase towards a target of 20% renewable by 2020 based on an REC

scheme launched in 2001. RECs are awarded to generators for every MWh of

renewable power produced in excess of a regulatory baseline established by

the Office of Renewable Energy Regulator. REC value is determined by supply

and demand and no floor or forbearance price has been fixed. Prices of A$45 -

A$50 are seen as necessary to support the development of new wind projects in

Australia. The development of the market since 2001 can be clubbed into three

phases

Phase I – From 2001 to 2006

Phase II - From 2006 to 2010

Phase III - From 2011 onwards

Phase I – From 2001 to 2006

During Phase I prices of REC were expected to rise above A$45/REC, as most

RECs were expected to be generated from sugarcane residue. However, the

actual supply of RECs came from solar water heater, wind mills and hydro

power which generated two times the annual demand of RECs in 2005. REC

prices crashed in 2005 to around half of initial forecasts.

(Source: Green Energy Markets (2009); www.rec-registry.gov.au)

Phase II - From 2006 to 2011

After prices crashed in 2005, the REC market was revived in 2006-2007 when

State Governments announced their own renewable energy targets and overall

target was increased from 9500 GWh to 45,000 GWh. Accordingly, REC prices

jumped to around A$50 by April 2008. However, by October 2009, prices had

again dipped to A$30. This dip was due to the oversupply created by solar

interchange (UI)

regulations with

effect from April 2 will

push electricity

supply companies

(Escoms)

WB, MP rejects new

interpretation of

open access.

The Centre’s new

interpretation of open

access in the

Electricity Act, 2003

that distribution

companies need not

provide power at

regulated tariffs to

industrial consumers,

has led to a chaotic

situation with certain

states such as

Rajasthan asking

such consumers to

make their own

arrangements. .

Govt explains logic

behind climate

diplomacy

For the first time, the

government has set

down the framework

and reasoning behind

its stance on future

climate talks in a

policy document - the

Economic Survey.

No new gas – based

power plant to be

set up till 2015-16 :

CEA

The Central

water heating RECs in 2008 & 2009.

Also, Solar PV had generated very few RECs in first few years but sales of solar

PV jumped when the price of solar PV systems halved in 2009. It had an

amplified effect on the overall REC system because of the multiplier. From

almost nil in 2007, solar PV generated more than 50% of RECs in 2010.

(Source: Redding Energy Management (1999); www.rec-registry.gov.au)

Wind power which was expected to increase capacity by 500 MW to 1000 MW

per year did not even start. In December 2010, due to large volumes of RECs

flowing from solar PV, the government reduced the Solar REC Multiplier from

five times to four times and further phased down by one each year until the

multiplier is phased out by July 2013.

Current:

Since January 2011, the REC market was separated into two parts – the Large

scale Renewable Energy Target (LRET) and the Small scale Renewable Energy

Scheme (SRES). Under SRES, Small-scale Technology Certificates (STCs) can

be sold through the STC Clearing House for a fixed price of A$40. The LRET

covers large-scale renewable energy projects and aims to deliver the 2020

target of 41,000 GWh of Australia's energy through renewable resources.

The experience from Australia shows the impact of inability to predict supply of

REC. Clearly, analysts and developers have been unable to predict REC pricing

and supply due to a range of market variations. While many of these factors are

specific to Australia, Indian renewable energy developers could do well by

learning from them.

Krishna Kuya

Electricity Authority

(CEA) has said no

new gas-based

power plants will be

set up in the country

till 2015-16, as the

natural gas output is

expected to fall

considerably…

India's natural gas

production is likely to

fall by 35 per cent to

27.64 million metric

standard cubic metre

per day (mmscmd) in

the next fiscal and

may further dip by

another 12 per cent

to 24.22 mmscmd in

2013-14.

Coimbatore - Rs 900

cr loss due to one

day power holiday

About 40,000

industries in and

around Coimbatore

suffered Rs 900 crore

production loss today

on the first day of

implementing the

power holiday

announced by the

Tamil Nadu

government to tide

over the severe

power crisis, industry

bodies said.

Rs. 10.7 lakh Crore

Coal Scam Rocks

Parliament

Parliament was

rocked by reports of

an alleged coal scam

Power Price Trend

(Source: IEX website)

REC Price Trend

(Source: PXIL and IEX websites)

to the tune of Rs 10.7

lakh crore with the

Opposition forcing

adjournment of both

the Houses till noon.

As soon as the Lok

Sabha met for the

day, JD-U members

were on their feet

demanding

immediate discussion

on a report of the

Comptroller and

Auditor General on

allocation of 155 coal

acreages between

2004 and 2009 to

some 100

companies.

Renewable Energy

RPO enforcement

key to growth of

solar energy in India

Encouraging domestic

manufacturing is one

of the objectives of the

National Solar

Mission. It is there in

the Mission document.

The way we are

looking at expanding

solar power, we feel

that solar is going to

play a very vital role in

the energy scenario in

the country. No

country of the size of

India can afford to be

dependent upon only

imported equipment.

We would like the

Indian industry to

Market Updates

Environmental Market News

BLY – Work on Compact Fluoroscent Lamps distribution comes to a

standstill.

In a highly ambitious energy saving effort, the Bureau of Energy Efficiency (BEE),

a statutory body under the Union Power Ministry, launched a project in February

2009 to replace 400 million incandescent lamps (ICLs) - the conventional 'light

bulbs' - with compact fluorescent lamps (CFLs) across the country.

Indian airlines not submitting emission details to EU

India's airlines are not submitting emission details to the European Union (EU) as

it had directed, Civil Aviation Minister Ajit Singh. "Though the European Union

has directed Indian carriers to submit emission details of their aircraft by March

31, 2012, no Indian carrier is submitting them in view of the position of the

government," the minister said in a written reply to the Rajya Sabha.

come up and supply

the requirements of

such a large

programme.

India now ranks fifth

in wind energy

"India now ranks fifth

in wind power. We

generate 17,000 MW

power from wind

turbines. By 2013, we

target 1300 MW of

solar power under

Jawaharlal Nehru

National Solar

Mission", said Farooq

Abdullah.

EDITOR

Rameez Shaikh

rameez.shaikh@general-

carbon.com

Kshitija Rangnekar

kshitija.r@general-

carbon.com

GENERAL CARBON