The inter-state electricity regulator, the Central Electricity Regulatory Commission, suggested a lowering of the price band of traded renewable energy certificates (RECs) a few weeks ago. Renewable energy producers, who account for around 9% of the total power generation in the country, are up in arms and say this will reduce the incentive to invest and build new plants. After all, why should the regulator meddle with a market where the buyer can walk away if the price is not right, they argue?
Not entirely true. Regulation sustains the green power market. State regulators insist that power utilities buy a minimum volume of green power, which is more expensive than the average purchase cost. For example, Delhi, which does not have any “green” generation capacity such as biomass or small hydel plants, is forced to purchase green power from the market. But it has a choice, one that emanates from a market created only a year back: it can directly negotiate and buy power from a hydel producer in, say, neighbouring Uttaranchal at Rs 3.50 per unit. Or else, hop into the power exchange. Here, the same producer can “shear” his produce into electrons and RECs and sell them both separately. Those merely in need of electrons pay less and don’t need to pick up RECs—states facing electricity shortages, but have a sizeable green capacity of their own such as Tamil Nadu. However, other states such as Delhi need both: they often prefer a direct deal where the “bundle” proves cheaper. So, by attempting to reduce the price bands, the regulator is trying to shepherd such deals into the power exchange. This is an overbearing attempt at market regulation.
To broaden the market and allow more buyers and sellers, the government must take a cue from the recent developments in Australia. There, the top 500 polluters will be taxed heavily starting mid-2012. To mitigate this Bill, among other measures, companies would need to purchase carbon credits. Being the third largest pollutant (in absolute terms) in the world after the US and China, a dose of government regulation in India will send customers such as coal miners scurrying for RECs. As regards to the power regulator, least regulation is the best regulation.
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