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Poor enforcement of purchase obligation leading to unsold renewable energy certificates in India

According to reports, more than 50,000 renewable energy certificates (RECs) remained unsold even at the floor prices in the trading in RECs on Wednesday. Vishal Pandya, Director, REConnect, a consultancy that operates in the REC trading area, said this was due to lack of enforcement of the ‘renewable purchase obligations’ (RPO).

Pandya was speaking at a conference on ‘Dependability of REC Mechanism, RPO and Power Trading in solar industry’ organised by the Energy and Fuel Users’ Association (ENFUSE). He said the fear is that in the next months’ trading session, the situation would get worse because those who are buying the certificates are close to completing their obligations.

RECs are generation-based ‘certificates’ awarded (electronically, in demat form) to those who generate electricity from renewable sources such as wind, biomass, hydro and solar, if they opt not to sell the electricity at a preferentially higher tariff. These certificates are tradeable on the exchanges and are bought by ‘obligated entities’, who are either specified consumers or electricity distribution companies. These obligated entities may either be required to purchase a certain quantum of either green power or RECs. Trading happens on the last Wednesday of each month.

On Wednesday, which was the REC trading day for August, a record 2,73,893 RECs were traded on the country’s two power exchanges, but at the floor price (Rs 1,500) fixed by the Central Electricity Regulatory Commission. Even at this price, supply far outstripped demand.

The major reason for the lack of demand is the fact that none of the State-owned electricity distribution companies has come forward to buy any RECs, ever since the monthly REC trading started in February 2011, even though they are ‘obligated’ by law to buy. Some (like Punjab) have secured approval to carry-forward their approval to the following year, while some have appealed to the Courts against the very applicability of the RPO to them.

Speaking at the conference, Vish Iyer, Head-Business Development, Solar Business, Larsen & Toubro, said large-scale plants cost less to build. He said the cost differential between a 5 MW photo voltaic plant and a 100 MW one was about 15 per cent “which is significant.”

Iyer said there was scope for reducing the cost of inverters. He said a number of developers were interested in setting up solar plants in Tamil Nadu and were waiting for the State Government to announce its feed-in tariffs. After the success of the wind sector in the State “they feel it will work here,” Iyer said.

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