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India to launch Renewable Energy Certificate (REC) mechanism: Expected to bring new investments in renewable energy

According to this release, from the Press Information Bureau, Government of India, Shri Sushilkumar Shinde, Union Minister of Power and Dr. Farooq Abdullah, Union Minister of New and Renewable Energy, will be launching Renewable Energy Certificate (REC) Mechanism here today. Shri Uma Shankar, Secretary (Power); Shri Deepak Gupta, Secretary (MNRE); and Dr. Pramod Deo, Chairperson, CERC will also be attending the launching function.

The Regulatory framework for REC mechanism has been notified by CERC and the REC mechanism is being supported by MNRE and the Ministry of Power. REC mechanism is expected to bring new investments in renewable energy projects and help introducing market based competition in renewable energy sector.

Although India is abundantly gifted with variety of renewable energy (RE) sources, not all States are endowed with same level of renewable energy sources. While some States have very high renewable energy potential, some States have very little renewable energy potential. The Electricity Act 2003 (EA 2003) stimulated the development of RE based power generation by mandating State Electricity Regulatory Commissions (SERC) with the function of RE promotion within the State. Under EA 2003, the SERCs set targets for distribution companies to purchase certain percentage of their total power requirement from renewable energy sources. This target is termed as Renewable Purchase Obligation (RPO).

However, there are certain limitations of State specific approach when RE development strategies are to be deployed at national level.

Existing legal framework under EA 2003 puts responsibility for promotion of renewable energy on SERCs. As a result, the regulations developed by the SERCs differ from each other on many counts. Further, these regulations do not recognize purchase of renewable energy from outside the State for the purpose of fulfilment of RPO target set by the SERC for the distribution utility in the State.

The requirement of scheduling and prohibitive long term open access charges poses major barrier for RE abundant States to undertake inter-State sale of their surplus RE based power to the States which do not have sufficient RE based power.

Consequently, the States with lower RE potential have to keep their RPO target at lower level. In addition, the unit cost of the RE based non-firm power is higher than the conventional power sources.

As a result, while RE abundant States have no motivation to produce RE based power more than that required to satisfy the RPO mandate within the State. On the other hand, RE scarce States are not able to procure RE generation from other States.

The proposed REC mechanism will enable and recognize the inter-State RE transactions is critically required for further promotion and development of RE sources. Such a mechanism will also enable all the SERCs to raise their States’ RPO targets even if necessary resources are not available in their own State. While effective implementation of inter-state transactions would be primary objective for the REC.

Renewable Energy Certificate (REC) mechanism is a market-based instrument to promote renewable energy and facilitate renewable energy purchase obligations amongst various stakeholders.

One REC will be issued to the RE generator for one MWh electrical energy fed into the grid. The RE generator may sell electricity to the distribution company and associated RECs to the distribution company or any other obligated entity.

The RE generator may sell RECs to the entities with RPO target in the State or outside the State.

The entities with RPO target, such as distribution companies and other entities which are required to purchase Renewable Energy can purchase the REC.

The purchase of RECs will be deemed as a purchase of power generated from renewable sources and accordingly will be
allowed for compliance the RPO target. The REC mechanism will enable Obligated Entities in any State to procure RECs generated in any of the States in India and surrender the same to satisfy its RPO target.

The biggest challenge in the success of the REC is the involvement of various stakeholders such as State Electricity Regulatory Commissions, State Utilities, RE developers etc.

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