Forbearance is the highest difference in the CERC-suggested price and the price discovered through the market. The floor price is the lowest optimal cost to run a project.
“Due to a reduction in the capital cost of solar projects, tariffs have declined considerably. The average bid tariff in auctions in January 2016-February 2017 has been Rs 4.65 /kWh,” said the CERC in its draft order on February 28.
Solar power prices fell to Rs 3.33 per unit in a recent project auction in Madhya Pradesh. Wind power prices also declined to Rs 3.46 per unit in the first auction of projects last week.
“The reduction in the REC floor price has been long overdue. This will encourage distribution companies to buy RECs to meet their obligations,” said R K Mediratta, director, business development, Indian Energy Exchange (IEX).
The market for RECs, launched in 2010, crashed last year with more than 10 million certificates remaining unsold. The prices discovered in trading last month were Rs 1.5/unit for non-solar and Rs 3.5 for solar RECs.
The renewable energy purchase obligation notified under the National Tariff Policy requires distribution companies, open-access consumers and captive power producers to meet a part of their energy needs through green power. Utilities that are unable to fulfil their obligation can buy RECs, which represent 1 Mw-hour of power produced from a renewable energy source. The RECs are traded on power exchanges.
The Centre was earlier considering shutting the REC market. This led to a mass purchase of RECs by utilities to meet their targets. The sale of RECs spiked to a record 1.25 million in January.
“This change rewards non-compliant companies, which can now comply at a much lower cost. It will exert further pressure on distressed projects,” said Vibhav Nuval, co-founder and director, REConnect Energy, a renewable energy trade facilitating agency.