According to reports, states will now be able to buy renewable energy certificates (RECs) to make up for a portion of their mandatory renewable energy purchases from entrepreneurs who produce power and operate in rural areas. In a recent move, the Forum of Regulators (FoR), a statutory body of electricity regulators, has approved the proposal which policy-makers say will also encourage the expansion of renewable energy projects operating in rural India.
RECs, like carbon credits, are a transfer of an obligation toward green energy — in this case the Renewable Purchase Obligation that each state has to meet under the Electricity Act. So, for instance, if Delhi is mandated to buy 10 per cent of its power from renewable sources but is unable to do so, it can buy RECs in lieu of the deficit. The REC can also be bought by DISCOMS — private companies that distribute power in the states.
The FoR decision is considered significant in the light of the recent failures of the Northern and Eastern grids due to states overdrawing power, leading to the worst power failure in history. The establishment of smaller, ‘off-grid’ projects such as rice-husk or solar power plants is seen as essential both for reducing the burden on the grid as well as to ensure that rural areas have access to electricity. According to a 2011 survey, 40 per cent of India’s population is still without power.
Through recent regulations, the government has already opened up power supply in notified rural areas to private players. Since these projects are small and operate in remote areas, renewable energy is generally the preferred choice. However, since it has limited business potential due to the low paying power of villages, the decision to allow them to sell RECs in the power market is expected to make them viable, said Pramod Deo, chairman of the Central Electricity Regulatory Commission and the Forum of Regulators.
Under the new policy, the CERC will incorporate two models for bringing in off-grid players into the system. The first is one in which the entrepreneur will continue to sell power at mutually agreed prices and will be free to sell RECs on its own at the power exchange to earn extra. Under the second model, the entrepreneur becomes a franchisee of a discom already operating in the state and supplies to the rural consumer at rates determined by the state electricity regulatory commission. The discom covers its cost of production and in return, use the power generated to fulfill its Renewable Purchase Obligation.
Rakesh Shah, advisor for renewable energy in the CERC, says the regulator will now focus on amending its existing REC regulations to incorporate off-grid players and will also introduce regulations to make the process of selling RECs easier for the entrepreneur. “We have to work on finding traders so that the entrepreneurs don’t have to come to the power exchange themselves every time to sell. We are also looking at a net based system,” he said.
According to Shah, there has already been some success in UP and Bihar with power generation models such as rice husk power pants and bio-gas power plants. These projects, however, are yet to be replicated elsewhere, he said.