What is Renewable Energy Certificate (REC) Mechanism?
Renewable Energy Certificate (REC) mechanism is a market based instrument to promote renewable energy and facilitate compliance for renewable purchase obligations (RPO) under inter-state transaction of RE generation. REC mechanism is aimed at addressing the mismatch between availability of RE resources in state and the requirement of the obligated entities to meet the renewable purchase obligation (RPO).
Renewable energy certificates (RECs) represent the green attribute of electricity generated from renewable energy sources. These attributes are unbundled from the physical electricity and the 2 products formed – the green attribute embodied in the certificate and the commodity electricity – may be sold or traded separately. In other words, REC represent that the amount of energy generated from renewable sources. RECs have now become the currency of renewable energy markets because of their flexibility and the fact that they are not subject to the geographic and physical limitations of commodity electricity.
Under this mechanism, cost of electricity generation from renewable energy sources is segregated in two parts (i) cost of electricity generation equivalent to conventional energy sources and (ii) the cost for environmental attributes. These environmental attributes can be exchanged in the form of Renewable Energy Certificates (REC). Thus, RE generators will have two options (i) either to sell the renewable energy at preferential tariff or ii) to sell electricity generation and environmental attributes associated with RE generations separately.
Categories of Certificates
Though India is having significant potential of RE sources, the contribution from Solar technologies was very low. The major reasons behind such low potential are nascent stage of development for solar technology and its very high cost compared to other RE technologies. Earlier there was no distinction between the solar and non-solar technology in so far as renewable energy source is concerned. There was no separate obligation for obligated utilities to buy power from solar. This emphasized the need for policy and regulatory measures required to promote solar technology. In this context it is necessary to have sustainable regulatory approach for such technology.
The Forum of Regulators in its report on “Policies on Renewables” had also recommended that in order to promote different RE sources and technologies, a part of RPO may be reserved for such RE sources in a nascent stage of development.
Thus, it was proposed that there will be two categories of certificates - one for electricity generation from solar technologies called solar certificates and another for electricity from other renewable energy technologies called non- solar certificates. Both these certificates will be mutually exclusive and cannot be exchanged. The solar certificate shall be sold to the obligated entities to enable them to meet their RPO for solar and non-solar certificate shall be sold to the obligated entities to enable them to meet obligation for purchase from RE sources other than solar.
Thus currently the Renewable Energy Certificates are having 2 categories:
- Solar certificates; include both PV and CSP technologies.
- Non-Solar certificates; include a basket of renewable energy technologies such as wind, biomass, biofuel cogeneration and small-hydro.
Eligibility of Certificates
The Ministry of New and Renewable Energy (MNRE), the nodal ministry for promotion and development of renewable energy in India, has identified and approved a number of renewable energy technologies such as Wind, small hydro, solar, biomass, bagasse based cogeneration, waste to energy etc.
The primary criteria for the entity to be eligible under this mechanism should be that the entity should be engaged in generation of electricity from MNRE approved RE sources and connected to the grid. In addition to this, the eligible entity should also fulfill specific criteria mentioned below to be eligible for registration under the REC mechanism at central agency.
§ The entity should not have any power purchase agreement to sell electricity at preferential tariff determined by the appropriate commission.
§ The agency should have obtained accreditation from State level agency.
§ The electricity generation by such generating company is sold either (i) to a distribution licensee at a price not exceeding the pooled cost of power purchase of such distribution licensee, or (ii) to any other licensee or through power exchange or to an open access consumer at a mutually agreed price.
The pooled cost of purchase considered under the criteria should be the weighted average pooled price at which the distribution licensee has purchased the electricity which includes the cost of self-generation, if any, in the previous year from all the energy suppliers, conventional and non-conventional, long term or short term.
Based on this, there are 3 categories of project that are eligible for REC:
- Projects with a PPA with a DISCOM at a tariff equivalent to APPC of the DSICOM
- Projects for captive consumption with no concession on transmission/wheeling, no banking facility benefit and no electricity duty waiver
- Projects for sale of electricity to open access consumer/third party at a mutually agreed price
Denomination and issue of Certificates
Central agency would be issuing the REC certificates on the basis of units of electricity generated and injected in to the grid by the eligible entity.
Injection of the electricity by such entities would be based on the information furnished by the authorities constituted under the act to oversee scheduling and dispatch and energy accounting.
In case of entities which are not covered under the existing scheduling and dispatch procedures, issuance of the certificate would be based written communication of the concerned distribution licensee to the concerned State Load Dispatch Centre about the injection of electricity by the corresponding entity.
Each certificate would represent one megawatt hour (1 MWh) of electricity generated from renewable energy sources and injected into the grid.
Dealing in the certificates
The REC certificates can be exchanged only through the power exchange which have been approved by the Commission.
The certificate issued by the Central Agency would be placed in the power exchange for dealing as per the rules and bylaws of the power exchange.
Pricing of Certificates:
A “Renewable Energy Certificate” is a commodity representing the environmental attributes of a unit of renewable energy. As mentioned before, with the introduction of REC mechanism in India, RE based power projects (eligible under REC framework) will comprise of two components: Electricity component and RE attribute in the form of REC. The electricity component under the REC framework can be considered comparable to electricity generated from conventional sources. The renewable energy attribute of electricity generated from RE based projects will be valued separately in the form of REC price.
The price of REC will be as discovered in the power exchange, subject to the floor & forbearance prices determined by CERC. CERC has determined the floor & forbearance price after analysing the sate wise average power purchase cost and the tariff for RE sources determined by the appropriate commission. The forbearance price has been computed in way to not only ensure optimum incentive for the RE technologies but also save the obligated entities purchasing RECs at unrealistic high price. It is should be noted that the REC purchase expense for meeting compliance by distribution licensees should be treated as ‘pass through’ expense in the Annual Revenue Requirement.
Considering the two types of certificates Commission has fixed the separate forbearance price for solar and non-solar REC separately after consultation with Central Agency and the forum of Regulators in the following manner.
Non-Solar floor price
- Difference between the project viability requirement and APPC for different RE technologies across states is taken out in Rs/kWh
- These are arranged in ascending order
- The expected RE generation in a particular state is mapped with the respective difference calculated
- The price at which the target RE generation (of 70000 MUs) is realized is taken as the floor price
- This price which we got from the difference is then rounded off to arrive at the floor price
Non-Solar forbearance price
- The highest difference between the Costs of Generation (RE Tariff) and the APPC has been specified as the forbearance price for non–solar technologies.
- The highest difference has been rounded off to the next hundred’s to arrive at the forbearance price
Solar Floor price
- The difference between the minimum requirement for project viability of Solar PV/Thermal and respective state APPC of previous year (2011-12) is taken out and the highest value among these is considered as floor price.
- The project viability approach covers the cost required to meet viability parameters including O&M, interest, principal repayment etc.
Solar Forbearance price
- This has been derived based on the highest difference between the Solar PV/Thermal tariff for 2011-12 and the APPC of 2011-12 across states.
- The highest difference in price has been rounded off to the next hundred’s (or next ten’s in case of unit price), to arrive at the forbearance price.
History of the Floor & Forbearance prices determined by CERC
| Price | Jun 1, 2010 – Mar 31, 2012 | Apr1, 2012 – Mar 31, 2017 | ||
| Non-Solar REC (Rs/MWh) | Solar REC (Rs/MWh) | Non-Solar REC (Rs/MWh) | Solar REC (Rs/MWh) | |
| Forbearance | 3900 | 17000 | 3300 | 13400 |
| Floor | 1500 | 12000 | 1500 | 9300 |
Validity of Certificates
Eligible entity should apply for Certificates within six (6) months (earlier it was 3 months) after corresponding generation from the eligible RE projects.
Also the certificate would be valid for 720 days (earlier it was 365 days) from the date of issuance of such certificate.
Operational Framework of REC Mechanism
Step 1. Accreditation
Through this process State Nodal Agency (SNA) authorizes or endorses the RE Generator and recommends it for registration.
- Eligible Generator can get accredited not before 6 months prior to the proposed date of commissioning.
- Accreditation Certificate valid for 5 years from the date of accreditation.
- Separate applications for separate RE generation projects
- Minimum capacity of RE generation project to be 250 kW.
Step 2. Registration
Through this process, NLDC (Central Agency) registers their Generator as ‘Eligible Entity’ for its RE Generation Project.
- Eligible Generator can get registered not before 3 months prior to the proposed date of commissioning.
- Registration can only be done after receipt of the ‘Certificate of Accreditation’ for the RE Generation Project from the concerned State Agency.
- Registration is valid for 5 years from the date of Registration.
Step 3. Issuance of REC
- The electricity generated from RE project is injected into the grid and sold to either a distribution licensee or open access consumer with whom it has contract or sold through the power exchange. The metering of quantum of Renewable Energy injected into the grid is approved by or recorded through energy accounting by SLDC.
- Eligible RE Generator to apply to NLDC to issue the RE certificates equivalent to the amount of electricity injected into the grid as certified by the SLDC. The application to be filed within three months from the date of renewable energy generated.
- Application can be made on a fortnightly basis, i.e., on the 1st day of the month or on 15th day of the month.
- NLDC to issue RECs to Eligible RE Generator within 15 days as per SLDC and State Agency’s generation report.
- RECs to be sold within 720 days of issuance or else they will lapse.
Step 4. REC Trading at Exchange Platform
Once the RECs are issued to the RE Generator (Eligible Entity), sale/purchase of RECs amongst Eligible RE Generators and Obligated entities to be undertaken only through Power Exchanges.
- Trading through Closed double-sided auction on the last Wednesday of every month.
- Call of bids from 13:00 Hrs to 15:00 Hrs on the auction day(T-day).
- PXs to intimates details of maximum sale bids placed by each Eligible RE Generator to NLDC by 15:30 Hrs .
- NLDC to check availability of RECs with the eligible entity by 16:00 Hrs.
- Post-confirmation from NLDC, PXs to determine Market Clearing Price and Market Clearing Volume and send the details final cleared trades to NLDC for extinguishing of RECs sold in the records of NLDC by 17:00 Hrs.
Step 5. Surrender/Redeeming of RECs
The Obligated Entities purchase RECs through PXs and to surrender to SERC or other agency as specified by SERCs as to meet their RPO. NLDC (REC Registry) to maintain record of RECs sold and purchased.
Step 6. Compliance Reporting
Compliance Auditors to monitor and report the compliance of REC Regulations.
Roles and Responsibilities of Various Institutions
1. Ministry of New and Renewable Energy (MNRE)
MNRE, being the nodal agency for promotion of renewable energy in the country is primarily expected to facilitate the development of REC mechanism in India. Some of the activities which MNRE is expected to perform are listed below:
2. Forum of Regulators (FOR)
FOR is expected to evolve consensus on following issues:
- Standard Regulations under Section 86(1)(e) incorporating REC covering:
- Institutional structure for REC Mechanism
- Operating Framework for REC Mechanism
- Methodology for pricing of electricity component
- Methodology for pricing of REC component
- Enforcement Principles for non-compliance of RPO
- Generation accreditation process
- Structure & Rules of the Monitoring Committee
- Development of standard methodology for energy accounting process
- Assessment of market for REC
- Review and comment on the Regulations developed by the CERC for REC Registry and REC Exchange Platform
- Periodic review of the development and implementation of REC mechanism
- Seek inputs from time to time from the MNRE and other stakeholders
- Resolve any issue which may crop up during implementation in any State
3. Central Electricity Regulatory Commission (CERC)
CERC is expected to develop and implement:
- Institutional and Regulatory Mechanism for REC Registry
- Regulation for REC Exchange Platform
- Principles for determination of tariff for RE Technologies which may be used by SERCs for determination of pricing of RE in the State
- Develop criteria for eligibility of RE technologies for inclusion in REC mechanism in consultation with MNRE and FOR
- Approve RE technologies for inclusion in REC mechanism, in consultation with MNRE
4. State Electricity Regulatory Commissions (SERCs)
SERCs will carry out following activities:
- Adopt Standard Regulation developed by FOR after taking into account state specific issues
- Determination of RE Technology specific tariffs
- Determine the Tariff Rate for procurement of electricity component of RE
- Specify the RPS percentage and eligibility for RE procurement
- Specify enforcement mechanism for different Stakeholders for non-compliance
- Amend State Grid code to enable SLDC to take up energy accounting
- Amend Regulations under Section 86(1)(b) to account for acquisition of RECs
- Adopt with suitable modifications, regulations for monitoring committees
- Design Contractual framework between SLDC/ Distribution Company, RE Generator and Monitoring Committee for energy accounting
- Design Contractual framework between SLDC/ Distribution Company, Obligated entities and Monitoring Committee for energy accounting
5. State Load Dispatch Centre (SLDC)
Energy Accounting would be the backbone of the proposed REC mechanism and the mandate for this important task under the Act is with SLDC. SLDCs to undertake following functions:
- Accounting of renewable energy fed into the grid (electricity generated)
- Accounting of renewable energy procurement by the Obligated Entities
- Issuance of power generation certificate to REC registry
- Accounting of total energy procurement by all obligated entities
6. Monitoring Committee
The Monitoring Committee is expected to undertake following activities:
- The Primary Responsibility of the Monitoring Committee would be to monitor the compliance of the RPO by all obligated entities.
- Accreditation of eligible RE generators in the State
- Act as a repository of all information pertaining to renewable energy in the State
- Maintain database of Obligated Entities in the State
- Monitoring the compliance of Market rules by all stakeholders
- Reporting of non-compliance, breach of rules to the concerned SERC
- Enter into tripartite agreement with SLDC/ Distribution Company & RE Generator for energy accounting
- Enter into tripartite agreement with SLDC/ Distribution Company, Obligated entities for energy accounting
7. REC Registry
The REC Registry will also have to perform following tasks:
- Registration of eligible RE generators
- Registration of REC buyers which could be any person, obligated entity, trader or individual buyer who wishes to buy RECs to be carbon neutral
- Issuance of RECs to RE generators
- Redemption of RECs on receipt of redemption request
- Track transactions involving sell and purchase of RECs
- Provide requisite information to Monitoring Committee of each State on redemption of RECs by buyers
- Automatically redeem RECs if the life of the RECs is over
8. REC Exchange Platform
REC Exchange Platform is expected to provide REC buyers and sellers a fair and transparent platform for sell and purchase of REC. REC Exchange Platform is expected to undertake the following tasks:
- Development of hardware and software in accordance with CERC Regulations
- Facilitate exchange of RECs amongst interested parties in accordance with CERC Regulations
- Periodic reporting to the CERC regarding REC trades
- Recovery of costs from participants on the Platform
Summary/Salient Features of REC Mechanism
| Parameter | Description |
| Objectives |
|
| REC Categories | Solar & Non-Solar RECs |
| Denomination | 1 REC = 1 MWh |
| Shelf life of REC | 720 days |
| REC issuing authority | NLDC shall issue REC to generator based on the energy injection report prepared by SLDC |
| Trading platform | Power exchange under the guidance of CERC |
| Transfer type | Single transfer only, repeated trade of the same certificate is not possible |
| Banking and borrowing | Not allowed |
| Trading calendar | Last Wednesday of the month |
| Trading period | 1pm – 3pm on the day of auction |
| Trading methodology | Close bid double sided auction for each type of certificate separately |
| Penalty for non-compliance | Forbearance Price (may vary depending on SERC) |
| Minimum bid volume | 1 certificate (equivalent to 1MWh of energy injected) |
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