The energy which is produced from the sources that are naturally replenished like sun, wind, bio gas and biomass among other sources, is called Renewable energy. The Renewable Energy Certificate is a trading market instrument which validates that the holder of the certificate has generated certain amount of electricity from the renewable source. One Renewable certificate is equivalent to 1 MWhr of electricity produced from the renewable energy. The generator receives the REC once s/he has fed the electricity into the grid.
(1) Cost components of electricity
Actually, the cost of electricity produced from the renewable energy source is divided into two components:
(2) What is RPO?
The Renewable Repurchase Obligation (RPO) is the minimum percentage of the total electricity that the power distribution companies either purchase from renewable energy sources or purchase equivalent RECs. The RPO percentage for the states is determined by State Electricity Regulatory Commission in consensus with Central Electricity Regulatory Commission.
(3) Why REC Mechanism is needed?
India, because of its large geographical area and diverse climate, the renewable energy potential is not uniformly distributed. Some of its states have high potential for the renewable energy while others have less. This non-uniformity results in uneven unit cost of production of electricity from renewable source. The states which are rich in renewable source like the state Rajasthan is having abundance of solar energy, have lower cost of production while lesser renewable energy rich state will be having higher cost of production. Also, the unit cost of production of electricity is higher than from the conventional sources. Therefore, in order to address this mismatch and to motivate the RE generators, the REC mechanism is introduced which one hand promotes & facilitates the generation of electricity in the states having higher potential for renewable energy and on the other hand encourages the distribution companies to fulfill their obligations by purchasing RECs from the RE generators.
The revenue for the RE generator under REC scheme is as follows:
The RE generators using only grid connected RE technology (so that the electricity can be fed into the grid), which is approved under MNRE, are eligible under this mechanism. The REC once issued remains valid for Seven Hundred and Thirty Days from the date of issuance.
In order to participate in the REC mechanism, the eligible RE generators have to get the accreditation with the state agency and must be registered with the central agency. The RE generators already having PPA on the preferential tariff are not eligible to participate in the mechanism. Please refer the following sites for details:
(5) Types of REC
(6) The Trading and Pricing of RECs
The RECs can be traded as a commodity in the open market through two power exchanges like IEX and PXIL. The RECs are traded within Minimum price (Floor Price) and the Maximum price (Forbearance Price) which is determined and set by the Central Electricity Regulatory Commission (CERC).
The Floor Price and the Forbearance Price determined by CERC which is valid up to FY 2016-17 are as follows:
The Renewable energy certificates are traded to promote the use of renewable sources and to accelerate & fulfil the process of RPO obligations of power distribution companies. The REC mechanism motivates the setting up of RE power generation facilities in areas having higher potential of renewable sources and creating equivalent RECs which can be traded in the open market and can be bought by the distribution companies to fulfil their Renewable Purchase obligations.
The wide participation in REC market is the key to cost reduction in Renewable Energy projects and growth of renewable energy market in India.