Renewable Energy Certificate Mechanism Launched to Boost Green Energy in India
Union Power Minister, Shri Sushil Kumar Shinde, among others, launching the Renewable Energy Certificate (REC) Mechanism, a national level scheme to promote green energy
A large part of India’s renewable energy potential is concentrated in few states in the country and some of these states have already achieved comparatively high levels of renewable electricity purchase as share of their total electricity consumption. After having met their Renewable Purchase Obligation (RPO), these states are now mostly reluctant to buy energy from renewable sources after having met their RPO as mandated by the State Electricity Regulatory Commission (SERC). This is hampering the growth of the renewable sector in an upward manner since the electricity from renewable energy is at present more expensive than conventional electricity.
States who have already fulfilled the required RPO mandate are therefore not willing to invest more in renewable based electricity any further. For example, Tamil Nadu has more than 10% of total electricity from renewable sources of energy but still has untapped wind energy potential. On the other hand, states like Bihar and Delhi have very little RPO but are required, by the National Electricity Policy (NEC), to enhance the share of renewable electricity in their total electricity consumption.
To address this mismatch, the Electricity Regulatory Commissions have collectively evolved a Renewable Energy Certificate (REC) mechanism under which the green electricity is to be split into two components, i.e. electricity and the green attribute. The electricity component can be sold to local distribution utilities at a price of conventional electricity and the green attribute is converted into REC which the generator can sell to the utilities of states like Delhi. Such a utility can help a state with little RPO to fulfill its renewable purchase obligations by purchasing RECs, and simultaneously will help states with more RPOs to realize it to the maximum potential in an economical manner.
The REC Mechanism was recently launched by Shri Sushilkumar Shinde, Union Minister of Power at a function in New Delhi. Shri P Uma Shankar, Secretary (Power); Shri Deepak Gupta, Secretary (MNRE); and Shri S.K. Chaturvedi, Chairman & Managing Director, Power Grid Corporation of India Limited also attended the function. The Regulatory framework for REC mechanism has been notified by Central Electricity Regulatory Commission (CERC) and the REC mechanism is itself supported by the Ministry of New and Renewable Energy (MNRE) and the Ministry of Power.
“Renewable Energy Certificate is a market based instrument which enables the obligated entities to meet their RPO. Pertinently, the renewable purchase obligation is the obligation mandated by the SERC under the Electricity Act, to purchase a minimum level of renewable energy out of the total consumption in the area of a distribution licensee. The REC mechanism also aims at encouraging competition and eventually mainstreaming renewable energy sources”, the Minister informed in his speech.
REC mechanism is expected to bring new investments in renewable energy projects and help introducing market based competition in the renewable energy sector. Its USP is that the RE generator can sell the electricity component locally at the price of conventional electricity and trade the environmental attribute in the form of REC separately. The REC mechanism is being seen as one of the pioneering efforts in any developing country for mainstreaming the renewable generation through market mechanism. In the long run, it is hoped that the RE generators would learn to find market avenues for sale of electricity component through DISCOMs, traders, power exchanges and even open access consumers.
Salient features of the REC mechanism are as follows:
- The RE generators will have two options – either to sell the renewable energy at preferential tariff fixed by the concerned Electricity Regulatory Commission or to sell the electricity component and environmental attributes separately.
- On choosing the second option, the generator can sell the ‘electricity component’ to either the local distribution company at its average power purchase cost, the traders, open consumers or to the power exchanges at a mutually agreed/market determined price. In addition, the ‘environmental attributes’ can be exchanged in the form of the REC.
- The Central Agency (the National Load Despatch Centre has been designated as Central Agency) will issue the REC to RE generators.
- One REC will be equivalent to 1 MWh of electricity injected into the grid.
- The REC will be exchanged only in the Power Exchanges approved by CERC within the band of a minimum and a maximum price to be determined by CERC. CERC has already notified the price band.
- The distribution companies, Open Access consumer, Captive Power Plants (CPPs) will have the option of purchasing the REC to meet their Renewable Purchase Obligations (RPO).
- There will also be compliance auditors to ensure compliance of the requirements of REC by the participants of the scheme.
- Voluntary Purchasers like NGOs, the Corporate Sector, Individual Purchasers etc. may also purchase REC in order to meet their Corporate Social Responsibility or to support the environment.