Few takers for renewable energy certificates despite policy push

A report shows that almost all the demand for renewable energy certificates comes from obligated entities such as discoms (60%) and captive power plants or open access consumers (nearly 40%), with negligible participation from voluntary buyers

Rituraj Baruah
Updated28 Jun 2022
REC is an instrument to promote renewable energy. Bloomberg
REC is an instrument to promote renewable energy. Bloomberg

Despite a massive policy push for renewable energy, there is negligible participation of voluntary buyers for renewable energy certificates (REC).

An Intellecap report shows that almost all the demand for renewable energy certificates comes from obligated entities such as discoms (60%) and captive power plants or open access consumers (nearly 40%), with negligible participation from voluntary buyers. 

Renewable Energy Certificate (REC) mechanism is a market-based instrument to promote renewable energy and facilitate compliance of renewable purchase obligations (RPO). RECs are traded in the India Energy Exchange (IEX) and Power Exchange India Ltd (PXIL) at a price within the forbearance and floor price determined by the Central Electricity Regulatory Commission (CERC).

It showed that by May 2021, 59 million RECs worth 9,266 crore ($1.24 Bn) were sold on India’s two power exchanges since its launch a decade ago.

 “In totality, 80% of RECs issued have been redeemed through the power exchanges by buyers, while 4% issued RECs have been retained. The remaining have either been revoked or carried forward to the next cycle,” it said.

Non-solar RECs constitute 83% of the issuances, of which wind energy (38%) and biomass (15%) are the leading sectors, while share of solar PV is 17%, it said.

The report showed that in FY2020, only 5.3 million RECs were bought against an expected demand of 72.5 million RECs from 27 non-compliant discoms that did not meet their RPO targets. There was a shortfall in demand amounting to 67.2 million RECs.

 “This was mainly due to poor enforcement of penalties in case of non-compliance to RPOs. A failure to meet RPOs attracts a penalty defined by the state electricity regulatory commission (SERC),” said the report, adding that these discretionary powers given to SERCs to specify penalty charges have led to obligated entities being allowed to carry forward their RPOs to next year despite availability of RECs in the market, causing a shortfall in demand in the given year’s (FY20) market.

On the carbon markets, the Intellecap report said that carbon markets have proven to be one of the most effective drivers of reducing emissions and offer the lowest cost emission reductions. Many leading Indian corporates have made commitments to become carbon neutral and some have set up net zero targets.

The market will provide flexibility to entities in hard to abate sectors and with high reduction costs to supplement their own reduction efforts with credits from the carbon market, it said, adding that they will incentivize entities with low reduction costs to reduce emissions beyond their mandate.

Trading in the carbon market could reduce the overall cost of emission reductions at the societal level in India, said the report.

Santosh Singh, Managing Director for Clean Energy, Climate Change & Agriculture at Intellecap said that although carbon trading is underway among several corporates in India it is largely on a voluntary basis. He noted that work is underway to frame norms for a compliance-based carbon market which would streamline the trading and make it mandatory.

 “Carbon markets will also be critical in supporting the India’s NDCs and commitments made at CoP26 which include achieving target of net zero emissions by 2070 and reducing its total projected carbon emissions by one billion tons between now and 2030,“ he said.

It would also help reduce carbon intensity of its economy by 45% by 2030, increase non-fossil energy capacity to 500 GW by 2030, and fulfil 50% of its energy requirements from renewable energy sources by 2030 as targeted by the government, Singh added.

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