India May Start Trading of Renewable-Energy Credits in May

Jan. 22 (Bloomberg) -- India may let power companies start trading renewable-energy credits in May as part of a plan to create a multibillion-dollar market and encourage reductions in greenhouse-gas emissions.

“We’ll be moving toward completely market-driven renewable energy development with this,” Pramod Deo, chairman of the Central Electricity Regulatory Commission, the power regulator, told Bloomberg News in an interview in Mumbai yesterday.

India, the world´s fourth-largest emitter, aims to boost the development of solar, wind and other clean-energy projects by requiring power distributors such as billionaire Anil Ambani’sReliance Infrastructure Ltd, Tata Power Co. and their state counterparts to ensure a portion of the electricity they carry comes from renewable sources.

If their supply of green energy falls short, distributors must buy certificates from other producers with surpluses, an incentive for clean-energy production and a more stable market. Similar rules exist in some U.S. and Australian states, and in the U.K.

“By April or May, we should have the Renewable Energy Certificate mechanism in place,” Deo said.

Surplus renewable power generated in one state could be bought as a credit by a distributor and sold to a company elsewhere that’s unable to buy enough clean power locally.

“This will become one of the most progressive regimes as far as renewable energy is concerned,” said Vinod Kala, managing director of Emergent Ventures India, a New Delhi-based carbon-consulting company that estimates trade in renewable energy credits, or RECs, could increase to as much as $10 billion by 2020.

No Treaty

“Without a market-based mechanism, renewable energy would have required a large amount of subsidies. This way you can let the market bear the financial burden rather than government,” he said. “A proper forward trade of RECs will also let you better assess the financial feasibility of renewable energy projects.”

India has refused to accept binding targets on greenhouse gases, saying they might hamper industrial growth. Without a global climate treaty governing developing countries, it is moving ahead with efforts to combat climate change by setting up a domestic market for trading emissions credits.

The latest development follows plans to set up a parallel system for trading credits from energy-saving projects, which is expected to grow into a $16 billion market in five years, Ajay Mathur, director-general of India’s Bureau of Energy Efficiency, said last week.

Power Exchanges

The renewable and energy-savings credits will both trade on the country’s two power exchanges, creating a domestic market that may rival India’s $4 billion-$6 billion international trade in carbon credits under the government’s projections, said Pranav Nahar, managing director of Evolution Markets, a New Delhi-based carbon finance company.

India is the second-largest generator of carbon credits in the United Nations Clean Development Mechanism, the world’s second-biggest greenhouse-gas trading market. Certified Emissions Credits, or CERs, issued for pollution-cutting projects in India are sold to businesses in Europe and elsewhere seeking to meet either mandatory or voluntary limits.

“It will take at least one year for liquid trade to begin” in renewable energy and energy-saving credits, said Nahar. In time, they will likely be traded interchangeably with CERs, he said.