REC scheme falters, just 4% of renewable capacity registered

The REC scheme was launched in 2010 as a market instrument to facilitate compliance with RPO targets.

In a decade since the launch of the so-called Renewable Energy Certificate (REC) scheme, it continues to be hampered by lax renewable purchase obligation (RPO) compliance by discoms and frequent regulatory changes. A mere 4,526 MW or 4% of the installed renewable energy capacity stands registered under the scheme as of December 24, 2021.

The REC scheme was launched in 2010 as a market instrument to facilitate compliance with RPO targets. Buyers of conventional power such as discoms and corporate entities who fall short of meeting their RPO targets can buy RECs on the exchanges from RE power producers registered under the scheme to meet their obligations.

According to a report by RE consultancy firm Bridge To India, the registered capacity had seen upticks in 2016 and 2019 after a sharp increase in RPO targets. The report states that wind and solar power account for 58% and 21% share, respectively, of the total registered capacity. States with attractive renewable resources such as Tamil Nadu, Maharashtra, Rajasthan and Gujarat account for 73% share of total registered capacity.

However, due to high pricing and regulatory uncertainty, project developers have largely been reluctant to register projects under the scheme. “Around 401 projects with a total capacity of 2,073 MW were deregistered by March 2018 as the developers deemed it more viable to sell renewable power rather than unbundled ‘brown’ power and RECs,” Vinay Rustagi, MD of Bridge To India, said.

Data from the Indian Energy Exchange for December 2021 corroborate that sell bids were much lower compared with demand from buyers. Average buy bids for solar RECs were 843,375 when the sell bids stood lower at 689,889. The total volumes cleared for solar REC were a meagre 254,980 at a price of `2,211/REC. In the non-solar segment, the sell bids were comparatively much higher compared to the demand.

Rajesh Mediratta, CEO and MD of IGX, told FE: “Developers are not keen to set projects under the REC category as lenders decline to commit long-term funds. Unlike PPA projects, lenders are not sure of pricing of power under REC, which keeps changing due to regulatory flip flops.”

In November, APTEL reversed the central electricity regulator’s decision to reduce the floor price and the forbearance price of solar and non-solar RECs citing “incorrect procedures” adopted by CERC.

Buying interest from consumers has also remained well below expectations since direct procurement of renewable power is significantly cheaper than the combined cost of procuring conventional power and buying RECs.

Sanjeev Aggarwal, CEO & MD of Amplus Solar, told FE buyers prefer to buy REC in a bipartite agreement where the prices are more economical and similar to international RECs. “We have sold RECs to interested buyers at much lower rates prevalent on IEX,” Aggarwal said.

Multinational companies prefer to buy international RECs that come at a price of 70/REC compared with2,200/REC on exchanges.

Trading volume has also been affected by low RPO targets in some states, lax enforcement by regulators and virtually non-existent voluntary market. Discoms account for 60% share in total trading so far. Despite a much higher share of conventional power procurement, their share is relatively low because of ad hoc RPO waivers provided by state regulators.

As per the Bridge To India report, in FY20, only four major states (Andhra Pradesh, Karnataka, Rajasthan and Telangana) are estimated to have generated more solar power than their respective RPO targets. Similarly, only five major states (Andhra Pradesh, Gujarat, Karnataka, Tamil Nadu and West Bengal) are estimated to have generated more non-solar renewable power than their respective RPO targets.

Experts believe going ahead, the government needs to lay out a clear RPO trajectory until 2030 and seek consistency between national and state RPO targets.

“The government should merge solar, non-solar and hydro power RPO targets into one consolidated target and allow more technologies including solar-wind hybrid, rooftop solar, battery storage, pumped hydro and green hydrogen to participate in the scheme. Besides state government should ensure no waiver or carry forward of RPO targets are provided to discoms,” the report noted.

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