General Carbon Newsletter

ENERGY & ENVIRONMENTAL COMMODITIES NEWSLETTER MAY 2012, ISSUE:11

Notice awaited!

The price of REC in the April trading session left many a questions

unanswered. While volume available for the trading was lower, the traded

quantity was even lower at 89,199. General Carbon prepared an assessment

of the supply and demand for RECs, which reinforced the belief that we

would be in deficit of our RPO targets in 2013, as well. While a deficit in

achieving RPO would indicate strong demand of RECs, the market is

awaiting signals on compliance and enforcement which could take close to

six months. Most DISCOMs in the southern and western states indicate that

they will be able to achieve their RPO target, while some in Karnataka feel

that they may even exceed their target. The view of DISCOMs that are going

to fall short on their RPO targets and their plans are eagerly awaited.

The carbon market continued to remain in disarray. Set aside discussions

seem to have been “set-aside” for now. We continue to see historic low

prices, amazingly large issuances, record registrations coupled with strong

project and PoA inflow. The EB meeting in early May decided not to conclude

on credits for efficient coal projects, which reduces any hope of registration

by December 2012 for supercritical coal projects.

Demands to extend accelerated depreciation benefits for wind turbines as

well as GBI extension were covered by media, however no official word on

the same. Power markets witnessed regular action during the month with

nothing major to report. Traction on energy efficiency is increasing with

renewed focus due to PAT targets.

Best,

Satish Kashyap

REC PROJECT

HIGHLIGHTS

(as on 1st May 2012)

Accredited Projects:493

(2822.398 MW)

Registered Projects: 388

(2424.933 MW)

REC Issuance:

REC Issued: 1,22,369

REC Redeemed: 71,226

Closing Balance: 89,688

(Source: Recregistry, India)

REC PRICE WATCH

Apr 2012 Session

IEX: Price (Volume)

Non solar -INR 2,201

(62,277)

Solar - (Not traded)

PXIL: Price (Volume)

Non solar -INR 2,201

(8,949)

Solar - (Not traded)

CER PRICE WATCH

30 May 2012

BlueNext Daily Spot: Price

(Volume)

€ 3.63 (30,000)

Impact of PAT and RPO on emission reduction by India

What is the combined impact of PAT and RPO in effecting India’s emission

reductions till 2020? Is there need for other initiatives to help India achieve its

emission reduction target under the National Action Plan on Climate Change

(NAPCC)?

As per the interim report titled “Low Carbon Strategies for Inclusive Growth,

Planning Commission of India, 2011”, India’s target to reduce emission

intensity by 20-25% by 2020 will require reduction of 733 million ton CO2e

(MTCO2). As per the report, various emission reduction options are identified

and the resulting quantum of annual emission reductions under scenario

titled “determined effort” is 376.5 MTCO2. Hence to achieve 20-25% emission

intensity decrease (from 2005 levels) by 2020 requires aggressive effort and

new emission reduction options need to identified and deployed.

Effort-wise allocation of annual emission reduction is:

Estimated emission reduction from sectors in 2020

MTCO2

%

CO2 savings from Energy Efficiency from Demand side 96 25%

Savings from Supply side change in generation efficiency and mix 85 23%

Savings from freight modal shift 14 4%

Passenger transport modal shift 17 5%

Vehicle fuel efficiency norms 11 3%

Commercial buildings sector (compliance to ECBC, ratings) 60 16%

Steel Sector 36 10%

Cement sector 57 15%

Oil & gas 0 0%

Forestry under national mission 43 11%

376 100%

Two key efforts to drive the emission reduction are the Perform Achieve and

Trade (PAT) scheme and the Renewable Purchase Obligation (RPO)

mechanism. The Demand Side EE measures (PAT), Supply Side measures

(PAT, RPO), measures in Steel and Cement cover about 66% of emission

reductions.

The PAT scheme covers only seven industrial sectors and 478 designated

consumers contributing to ~100 million tCO2e emission. PAT’s contribution

to emission reduction works out to 14% when calculated against the required

annual emission reduction target of 733 MTCO2 of emission reduction.

Energy Market

News

West Bengal plans

policy on

Renewable energy

The West Bengal

government is

mulling a new policy

on renewable

energy. We are

planning to bring a

policy on renewable

energy sources, said

an official from the

dept of power.

M&B the first

company to get

solar REC

registration

BSE listed M & B

Switchgear has

become India’s first

solar developer to

get itself registered

by NLDC for solar

renewable energy

certificates. The

company has

commissioned a 1.5

MW solar plant,

which is expected to

generate 1,500 REC.

Similarly, in the case of RPO, if the targets communicated by all the states

are met, then RPO can contribute to 6% when calculated against the

required annual emission reduction target of 733 MTCO2 of emission

reduction.

Hence, PAT and RPO are covering about 20% of the required emission

reductions to meet the goal of 733 MTCO2 of emission reduction. At present

RPO and PAT are the only rigorous tractable mechanisms to achieve and

track emission reduction. Given that 80% of the target is to be achieved by

other means, we are likely to see more new mechanisms as well as

enhancement in scope of existing mechanisms (increase in obligated entities

under PAT and RPO etc.) going forward. The majority of emission reductions

(the balance 80%) are therefore in effect left to initiatives which are yet to be

detailed.

Pravin Jadhav

Gujarat has 749GW

of renewable

energy potential:

TERI

Gujarat’s overall

integrated renewable

energy potential is

estimated to be

748.77GW. The

overall renewable

energy potential in

Gujarat is very high,

considering if all the

identified suitable

lands can be made

available.

Orissa demands

subsidy for

DISCOMs to buy

solar power

The state consumers

are unwilling to pay

for high cost solar

power. The

government of India

should subsidise

solar power

purchase by

DISCOMs.

National Solar

Mission completes

89% of allotted

capacity

The National Solar

Mission, which aims

to install 20,000MW

What a EUR 4 price means to additionality?

Many experts were hoping that CER prices would return to EUR 12 – 15

towards the end of the compliance period (December 2012) and prevent a

flashback of near zero price witnessed during the end of the previous

compliance phase. With European economies in recession, increased supply

of the CERs due to improvement of CDM processes and reduced demand

due to lower industrial output in Europe has led to a downward trend in CER

prices.

Additionality is an essential concept for any carbon credit (offset). The

concept of additionality addresses the question of whether the project would

have happened anyway, even in the absence of revenue from carbon credits.

Only carbon credits from projects that are "additional to" the business-as-

usual scenario represent a net environmental benefit.

Most project developers have demonstrated additionality by proving that

projects are not financially viable without revenue from carbon offsets. In

other words, the revenue from the carbon offsets is a decisive reason for

implementing a project. Investment additionality is most often proved by

demonstrating that project returns (IRR or NPV) is lower than the industry

benchmark.

The increase in IRR due to carbon credit revenue varies based on project

type

Wind, Biomass & Hydro projects

o Revenue increase from CERs at EUR 4 results in ~ 6% increase

in revenue and 1-2% increase in IRR

o Revenue increase from CERs at EUR 14 results in ~ 21%

increase in revenue and 4-5% increase in IRR

Landfill gas and biogas projects

o Revenue increase from CERs at EUR 4 results in ~ 30% increase

in revenue and 5-6% increase in IRR

o Revenue increase from CERs at EUR 14 results in ~ 60%

increase in revenue and 12-15% increase in IRR

Cookstove project (assuming 2 CERs/ stove/ year)

o Revenue from CERs at EUR 4 results in EUR 8 per cookstove

per year

o Revenue from CERs at EUR 14 results in EUR 28 per cookstove

per year

capacity of solar

energy by 2020, has

commissioned 89%

of its allotted

capacity in its first

stage.

TANGEDCO wants

penalty for misuse

TANGEDCO has

filed a petition before

TNERC seeking

approval for levying

excess demand and

energy charges on

HT, LT, LTCT

industrial services

consumers who are

not complying with

the revised

restrictions and

control measures.

India seeks Kyoto

type agreement

after 2020

Giving European

Union thumbs down,

India has proposed

that global climate

treaty after 2020

should be similar to

existing treaty Kyoto

Protocal stipulating

mandatory emission

cuts for the

developed world and

voluntary mitigation

action for the

Thus, lower CER prices will not help many projects alleviate the benchmark,

but only increase returns marginally. Considering a typical example of a wind

energy project, if IRR without CDM is 8%, at 4 Euro CER price, the IRR can

at best increase to 9.5%. Typically wind projects in India have benchmarks

from 12-13.5% (bank lending rates/ WACC). Thus, most registered projects

from India had used CER rate assumption from 10-15 Euro to meet this

benchmark. Thus, at 4 Euro CER price, these projects will not get benchmark

returns to make them financially viable.

For Landfill and Biogas projects, there would be no impact since the IRR is

already high.

This is again different in community based projects. The carbon markets have

been highly volatile and this is where the Bachat Lamp Yojana scheme

flounders. When the scheme was launched, CER price was 12 Euro (around

Rs 780). Investors were upbeat. But CER price touched an all-time low last

year. This has resulted in the dip in number of buyers and thus the project is

on standstill.

Kshitija Rangnekar

developing world.

Government

prepares first

energy policy draft

At a time when the

entire world is

focussing on the

non-conventional or

renewable sources of

energy, it took the

eco-friendly Bengal

government 10

months to prepare a

final draft of this

seems little bothered

about it.

Renewable Energy

Wind Energy units

seek to restore

depreciation

benefits

With the Union

Government

removing the

accelerated

depreciation benefit

for investors in wind

mill projects from

April 1, 2012,

investment in the

wind energy sector

will not be attractive

to the small captive

investors.

Power Price Trend

(Source: IEX website)

REC Price Trend

(Source: PXIL and IEX websites)

Power Min issues

directives to CERC

on open access

In yet another push

for granting open

access to all

electricity consumers

with power

requirement of 1 Mw

and above, the power

ministry, exercising

its power under

section 107 of the

Electricity Act, 2003,

has issued directives

to the Central

Electricity Regulatory

Commission (CERC)

stating that regulators

have no jurisdiction to

decide energy

charges for such

consumers.

Industries can now

purchase power

from open market

The government has

now invoked special

powers under the

Electricity Act and

directed the Central

and State regulators

to implement a long-

pending reform to

allow industrial

consumers to buy

cheaper power from

the open market.

Market Updates

Environmental Market News

Unique scheme for energy efficiency

The PAT scheme requires notified industries to invest in energy efficiency

and reduce at least 5% of input energy cost for self and public good. The

savings in the first three years of the scheme are estimated at 0.8 million

tonnes of oil equivalent of energy or approximately 9000MW of avoided

thermal power capacity, without compromising on the industrial output.

Government to make the vehicular fuel efficiency labels mandatory

As an extension of the Energy Conservation Act and a pollution control

exercise, the Government of India has cleared the proposal for fuel efficiency

labels to be made mandatory on new cars. The labels have to be approved

by an appointed government agency and car companies are expected to

improve their averages over time.

The First Multi-Technology Project to credit water treatment and

efficient cook stoves

Impact Carbon and The Paradigm Project announced today that a project in

Kenya has issued Gold Standard Voluntary Emission Reductions generated

by both water filters that reduce the need to boil drinking water with dirty fuels

and by energy saving cook stoves as part of the same project.

EDITOR

Rameez Shaikh

rameez.shaikh@general-

carbon.com

Kshitija Rangnekar

kshitija.r@general-

carbon.com

GENERAL CARBON