core sector communique

Green Energy gets Boost with Launching of Renewable Energy Certificate Mechanism

Shri Sushilkumar Shinde, Union Minister of Power, has launched the Renewable Energy Certificate (REC) mechanism here today. “Renewable Energy Certificate is a market based instrument which enables the obligated entities to meet their Renewable Purchase Obligation (RPO). Pertinently, the renewable purchase obligation is the obligation mandated by the State Electricity Regulatory Commission (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 said. 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.

Renewable energy resources are widely dispersed and are concentrated mostly in States which have already achieved high level of RPO. These States are generally reluctant to buy energy from such sources beyond their obligation mandated by SERC. This has been stymieing the growth of the sector. REC mechanism addresses this concern. Under this mechanism, 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 other constraint facing the renewable segment is the inability of RE resource deficient States to fulfill their RPO. With the implementation of the REC Scheme, such States will not be constrained to look at only the locally available RE sources for fulfilling their RPO. As per the vision of the Electricity Act and the Policy, the RPO can now be fixed keeping in view availability of RE sources in the country as a whole. They will be able to meet their RPO by purchasing the RECs in the Power Exchanges approved by Central Electricity Regulatory Commission (CERC).

The REC mechanism is being seen as one of the pioneering efforts in any developing country for mainstreaming the renewable generation through market mechanism. Over the period, RE generator would learn to find Market Avenues for sale of electricity component through DISCOMs, traders, power exchanges, open access consumers. Eventually, this will reduce their dependence on Government support and they will learn to live on their own.

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.