When Oil & Natural Gas Corp. set up 34 wind turbines on a blustery inlet in western India to power oil-drilling equipment, it expected the project to earn United Nations carbon credits that could be turned into cash.
Two years after the windmills whirred into service, India’s largest oil explorer is still waiting for its first rupee for cutting carbon-dioxide emissions through the wind-power project. A.K. Hazarika, onshore director for ONGC, has a back-up plan that may be more lucrative: an Indian renewable-energy trading program that starts in March.
India, the world’s second-largest producer of UN credits for carbon-reduction, is a test case for alternatives that may generate more profit than the four-year-old UN program that’s supported by 192 nations. The domestic program is attracting interest from some of India’s largest industrial companies.
“If the market takes off, renewable-energy trading will clearly be more beneficial” than the UN’s Clean Development Mechanism credits, said Vibhav Nuwal, director of REConnect Energy Solutions Pvt., an adviser to companies seeking the new Indian renewable-energy certificates. The domestic program is simpler and will attract some of the same projects, he said.
Indian companies generating clean power will earn tradable renewable-energy certificates. The so-called RECs will be worth at least twice what they can get on average for selling a UN carbon credit, said Nuwal, a former carbon broker. Registration is under way and trading may begin after March, he said.
Billionaire Jindals
JSW Energy Ltd., the utility controlled by the billionaire Jindal family that Forbes magazine ranked as India’s fifth- richest, said it’s planning to capitalize on the program. So has London-traded Greenko Group Plc, a developer of hydropower and biomass plants, as well as Orient Green Power Co., backed by Hong Kong private equity firm Olympus Capital Holdings Asia.
Eligible companies will also be able to register, earn and sell RECs in about five months compared with delays of as much as three years in the UN program, Nuwal said.
UN Spokesman David Abbass said in an e-mail that domestic programs “need not diminish the usefulness” of the Clean Development Mechanism and the challenge was for environmental markets to “all pull in the same direction.”
ONGC’s wind farm at Surajbari, in Gujarat state, was built by Suzlon Energy Ltd. and is one of the company’s six that is eligible to earn UN credits. It took a year just to register, Hazarika said. The UN has yet to issue the wind farm any credits for avoiding carbon emissions, according to Bloomberg data.
‘Faster returns’
“Returns will definitely come faster through the Indian program than what we’ll get from the CDM,” ONGC’s Hazarika said in a phone interview. “We’re definitely looking at RECs.”
Companies will be able to sell a REC for at least 1,500 rupees a megawatt-hour of renewable power they generate, according to the floor price set by regulators.
In comparison, companies have earned on average 590 rupees ($12.95) a megawatt-hour from selling UN permits called Certified Emission Reductions issued for avoiding emissions, according to a REConnect analysis.
Selling RECs may add up to 140 basis points on returns for Indian wind projects and may add 300 basis points if both UN credits and RECs are sold, according to an April report by Bloomberg New Energy Finance.
Regulators in India have said they may let companies earn both RECs and CERs, making it the first country where companies can potentially earn both types of credits for a single project, according to Bloomberg New Energy Finance.
Chile, which has 42 UN-registered projects, is drafting legislation for a renewable certificate trading program. The U.K. already has one.
Challenge to UN
If RECs become too profitable, however, they could undermine UN eligibility. That’s because UN rules allow only those projects that can prove they wouldn’t have been profitable without emission credits, Nuwal said. The rule is designed to weed out projects that would have been built anyway.
India is the top supplier after China in the UN carbon market, which generated $20 billion worth of trades in 2009, according to World Bank. Companies and countries facing carbon-emissions caps buy CERs to offset their regulated emissions.
The future of the UN market is jeopardized by the inability of countries’ to agree on a global treaty to limit emissions. Participants have also complained about the rising costs of administrative delays.
JSW Energy, which won 4 million UN credits for using waste gases siphoned from a steel plant to produce electricity, will focus on earning RECs for a 240-megawatt hydropower plant being built in northern Himachal Pradesh state, Vice Chairman N.K. Jain said by telephone.
Complaints on delays
Greenko, which has registered more renewable energy projects with the UN than any other company in India, said in its latest annual report it faced delays in UN issuances of CERs and planned to diversify its income through RECs.
Soham Renewable Energy India Pvt., a developer of hydropower plants backed by New York-based hedge fund D.E. Shaw & Co., earned about $1 million from selling UN credits to Japan’s Chubu Electric Power Co. Those returns were “dreadfully slow” in coming, says Vice Chairman Sanjith Shetty.
“You actually spend a lot of money before you see money,” said Shetty by telephone from Bangalore. “If there’s an alternative that cuts short the process, that would be welcome.”
