Good morning CREW!
Today I am going to talk about the future of Carbon Trading. This is my attempt to educate you. Also i made some bank this week trading the news
LETS SEE THE HEADLINES FIRST
Yes that’s right, you can’t be making steel which ai’t green and competing with others which are green. The article is self-explanatory
Now let’s talk about this new hot topic- “VPPA” (source- jmk-research)
Currently, in India, C&I consumers avail Renewable power mainly through signing “physical power purchase agreements (PPA)” viz. either on-site (rooftop) or off-site (open access). These procurement models require real-time accounting of power generated and consumed. As RE-based power is highly variable in nature, C&I consumers fail to replace all of their consumption using the physical PPA route. To counter this problem, virtual PPA (VPPA) has been explored by various players.
VPPA is a bilateral agreement signed between the power producer (RE generator) and the C&I consumer with no physical delivery of power.
Under VPPA, the power producer sells its electricity on the power exchange (such as IEX, PXIL etc.) at the market price. The consumer only receives the renewable energy attribute (green energy credits) associated with the traded power for a pre-agreed VPPA contract price called the strike price. However, the difference between the strike price and the wholesale market rate forms the basis of the actual price settlement between the consumer and the power producer.
When the market rate is higher than the strike price, the power producer pays the difference to the consumer. Whereas when the market price is lower, the consumer pays the difference. This kind of settlement structure is known as Contracts-for-difference (CfD). The RE generator then transfers the associated green credits to the C&I consumer. The infographic below denotes the operating procedure of a VPPA.
Benefit
VPPA, at the core, is just a long-term financial derivative contract wherein green credits (usually in form of Renewable energy certificates) are traded between the RE generator and consumer. VPPA addresses several challenges that physical PPA’s otherwise face. VPPA creates a very favorable “Win-Win-Win” scenario for C&I consumers, RE power producers and DISCOM respectively.
Why VPPA has failed to take off in India?
Although VPPA is an established RE procurement model in several other countries, it is still stuck in India at the concept stage, owing to primarily a regulatory roadblock. For about a decade, the power regulating authority, the Central Electricity Regulatory Commission (CERC) and the regulatory body for securities and commodity market, the Securities and Exchange Board of India (SEBI), were in a legal dispute with each other. The dispute relates to regulatory jurisdiction over the new market instruments – forward derivative contracts and futures in electricity, of which VPPA is a kind.
However, on 6 October 2021, with the Supreme Court’s intervention, the tussle between the two regulators ended. According to the Supreme Court order, CERC will regulate all physical delivery-based forward contracts while financial derivatives will be handled by SEBI. Thus, any VPPA will be jointly regulated by CERC and SEBI.
Outlook of VPPA market in India
With this clarity between CERC and SEBI, stakeholders expect the Indian VPPA market to make some on-ground progress soon. Lot of opportunities for FII coming in and investing as India is bound to take lead in importing other nations manufacturing
Now let’s talk about how I made some bank
Before this news came out, i was following the only Global carbon trading firm in india - EKI (The company works in the realm of climate change, carbon offset solutions and carbon asset management. The company is today present in 16+ countries and has 3500+ clients across 40+ countries worldwide. As on date, EKI has supplied over 200+ million offsets)
The trade was simple- I just knew about the news earlier. All the reasons why I read so much. Also, this company was down 70% when i bought it, the company has 00 debt and healthy cash flow, only the founder has some fraud cases on him lol. But I obviously cashed out and will re-enter in the 500’s
A simple 55% gain in 20 days lol
I love trading the News! Especially in companies that have a healthy advantage. Will share idea with you guys next time with an NFA disclaimer lmao.
That it for today crew
