According to reports, several companies are looking at entering the green energy sector after the government made it mandatory for consumers of thermal power to source a certain percentage of their requirement from renewable sources such as wind, solar, hydro and bagasse.
Under the clause of Renewable Energy Purchase Obligation introduced this fiscal, power consumers — electricity distributors and industries procuring thermal power for running their units —are required to source a certain percentage of their total requirement from green energy producers.
The purchase obligation varies from state to state, rising as high as 10% of the total power sourced, with failure to comply invoking a penalty.
Also, the government allows the producers of green energy to sell Renewable Energy Certificate (REC) to companies, which cannot purchase green power but have to fulfil the stipulation of its
This has brought a windfall to the green energy makers, which are reaping twin benefits of selling power as well as RECs.
Under the mechanism, the renewable energy makers can sell their power to independent entities or to state electricity distribution companies (Discoms) at mutually agreed prices. The Discoms or industries can also buy the green power at a fixed feed-in tariff, or average pool price (APP is the average of the prices of thermal, hydel, solar power, etc).
It’s only when a green energy producer sells power to a discom at APP rates that it can be issued RECs (by the discom).
The green energy provider can then sell the RECs to companies (such as cement and plastic which consume thermal power), or trade it on power exchanges like the Indian Energy Exchange (IEX).
Due to a huge demand-supply mismatch, the price of RECs has spiked several fold, benefiting the power producers which issue them.
According to IEX data, total traded volume of the RECs rose from a mere 260 in April 2011 to 96,154 in November and experts said the numbers are set to grow only exponentially.
“There is an increasing trend to trade in RECs and we have seen the participation increase every month from April,” said a senior IEX official.
The booming REC market has also come as a saviour for the ailing sugar industry which makes power from baggase, a residue in sugar production.
Due to the demand, cogeneration sugar mills such Dalmia Sugars, DCM Shriram, Balrampur Chini and Shree Renuka Sugars are fetching a good premium for their certificates.
The prices of tradable RECs have shot up from Rs1.5 per unit to Rs2.9 per unit within the last one month, indicating a huge premium commanded by these companies.
LY Desai, managing director, Greenergy Renewables Pvt Ltd, a services company in the segment, said the REC market is luring many non-renewable power producers to enter green energy as it gives them an opportunity to diversify their portfolio.
It also fulfils the green energy requirement of their sister concerns through internal power purchase agreements, while exploiting the REC trade at the same time, he said.
The growing REC market has led to several private power companies sharpening their focus on renewable energy, which earlier was being pursued just as an opportunity to diversify.