CERC Proposes New Forbearance and Withdrawal Of Floor Price for the RECs

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Central Electricity Regulatory Commission (CERC), has issued a proposal regarding the Determination of Forbearance and Floor Price for the REC framework states “It as necessary given the current situation of demand-supply of the REC market”.

The commission stated that while determining the floor price and forbearance price shall be guided inter- alia by the following principles: (a)Variation in cost of generation of different renewable energy technologies falling under the solar and non-solar category, across States in the country; (b)Variation in the Pooled Cost of Purchase across States in the country; (c) Expected electricity generation from renewable energy sources including:- i. expected renewable energy capacity under preferential tariff ii. expected renewable energy capacity under the mechanism of certificates; (d) Renewable Purchase obligation targets set by State Commissions.

In the period, January 2019 to March 2020, tariff discovered through competitive bidding was Rs. 2.74/kWh and that for wind projects was Rs. 2.85/kWh. Accordingly, CERC has proposed to reduce prices. Forbearance price is reduced up to Rs. 1000/MWh for both solar and non-solar RECs. Further, CERC states that to promote the sale of RECs, the floor price is no longer required. 

The Commission has followed a two-way approach for the determination of forbearance price and a floor price of Non-solar RECs. The forbearance price has been derived based on the highest difference between the cost of generation of RE technologies/ RE tariff and the average power purchase cost of 2018-19 for the respective States. The floor price has been determined to keep in view the basic minimum requirements for ensuring the viability of RE projects set up to meet the RE targets. This viability requirement has been observed as approx. 70% of the levelised tariff prescribed for each non-solar RE technology or 70% of the average bid discovered tariff for solar auctions.

The floor price is determined based on the difference between the project viability requirement and APPC determined for different RE Technologies across states. The floor price of solar RECs has been calculated based on the project viability approach. The project viability approach covers the cost required to meet viability parameters including O&M, interest on the loan, interest on working capital, and depreciation. The highest difference between the minimum requirements for project viability i.e. 70% of the average bid discovered tariff and respective state APPC of 2018- 19 has been considered as the floor price. The approach reflects the current market dynamics and the prices discovered through bidding processes. 

The REC framework has been in force for about ten years. As of 27.03.2020, a total of 989 projects (Solar and Non-solar technologies) have been registered under the REC framework. The share of each non-solar RE technology in the REC framework has been analyzed for the determination of the forbearance price and floor price of Non-solar RECs. It is expected that the projects coming up for registration under the REC framework shall be on similar lines.

It is also proposed that the forbearance price and floor price shall apply to RECs issued after 01.04.2017. For Solar RECs issued before 01.04.2017, the eligible entities shall have an option to adopt the above forbearance price and floor price or to continue. For Non-solar RECs issued before 01.04.2017, the trading shall take place following the Commission’s letter dated 28.05.2018 which shall be subject to the final decision of the Supreme Court.

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