Brief overview of REC mechanism

1.    Overview

The journey started with the announcement of national action plan for climate change (NAPCC) by Hon. Prime Minister of India on June 30, 2008. To complete the target of 15% renewable energy proportion in the total energy mix by 2020 it was needed strong policy reforms and regulatory framework and of course investors attractive financial structure. These conditions were derived REC mechanism in India. A mechanism to trade green energy in very cost effective manner.

     To reach the goal of 15% RE by 2020, demand was created by enforcing the RPOs on distribution utilities and to supply that demand REC mechanism was introduced to purchase renewable energy to fulfill those RPOs. As REC is not the only way to do so but it helps to reach there RPOs not only to those part of the nation which are lagging in renewable resources but also for those stares which are enrich by renewable sources. Though the per unit cost of most of the renewable sources are decreasing and expecting grid parity within near future it is still expensive to spend on its R&D, production and regulations. This reason could have been prevented to generate surplus renewable power in those states which has abundant in renewable sources. But the REC mechanism had a solution to this problem. It encourages every state which has surplus renewable sources to generate green electricity and trade it to the deficient state.

2.    Background  

     

   Renewable Energy Certificate mechanism is a market-based mechanism to promote renewable energy and facilitate renewable energy purchase obligations amongst various stakeholders. it had been used in many developed countries like U.K, Australia, Nederland, Japan, U.S to keep balance between supply and demand of the Renewable sources. But in India, conditions were different, basically India is a very huge country also it needs for electricity is far different than those developed nations, after completing 65 years of independence many villages are still unelectrified. Policy structure and regulatory framework is quite different for each states, institutional framework like CERC, SERC, LDC are very alienated and diverse in nature. So all these thing were kept in to the consideration while structuring the customized REC mechanism for India.

   To find out the best solution for Indian condition ABPS infra followed consulting approach rather than regular approach, in which it had consulted by SERCs, SLDCs, State Transmission Utilities (STUs), State Nodal Agencies (SNAs), distribution licensees, RE generators and their associations, CERC, Regional Load Dispatch Centers and Regional Power Committees (RPCs) of the identified states. REC mechanism had to be made in such a way that it should not disturb existing policies regarding to the renewable energies. The evaluation of the features of the REC schemes was carried out in the context of the legal and regulatory framework prevalent in the electricity sector in few countries. Interplay of REC mechanism with other policy instruments for promotion of RE sources was also studied. Section 86 (1) (e) do not express any restriction on the State Commission’s ability to recognize (or take into account) procurement of electricity generated from renewable energy sources outside the State by a person / distribution licensee within the State, so as to fulfill its statutory renewable purchase obligations.

3.    Key considerations

 In other countries REC mechanism is primarily used as an incentive mechanism for improving the financial viability of the renewable energy projects. But in India it is not considered as a fiscal incentive based mechanism.

denomination of REC, eligibility of RE technologies, eligibility of RE generators, pricing of electricity component, pricing of REC component, REC registry, transfer/exchange mechanism, shelf-life, sunset date, etc were taken in to account while designing REC framework.

Primarily Grid connected RE project of capacity 250kw were eligible to account for REC to make it more commercially viable. Shelf life of the REC was decided to 12 months to prevent the threads of artificial shortage in the expectation of extra value for their REC. The shelf life of more than one year may threaten the liquidity and viability of REC market in the short term. But after 1 year of working it is extended to the 24 months. (On 11 Feb 2013 by CERC)

Energy accounting, issuance of REC and monitoring of RPO compliance are critical processes for successful implementation of the REC mechanism. Existing framework + {new institutions such as REC Registry, Exchange platform at national level and Monitoring Committee structure at State level} were essential to operationalise the proposed REC mechanism.

                                                                                 ,,,,,,,,,,,,,,,,,,, to be countinued