The REC Mechanism in India

The REC Mechanism in India

An Introduction

Renewable Energy Certificates (RECs) are a market-based instrument to promote RE power. The REC is a policy instrument which provides evidence that an electricity generator has produced a certain quantum of power from a renewable energy source such as wind, solar, biomass, waste to energy etc.

An REC is created when one megawatt hour of electricity is generated from an eligible renewable energy resource. It represents the entire benefit of renewable energy based electricity over electricity from non-renewable resources. The renewable energy certificates are a good option for addressing the constraints related to the site specific nature of many renewables.

The potential of various RE sources in India, excluding solar energy, is shown in Figure 1.

Figure 1: India’s Technical Potential of Renewable Power in MW

Though currently renewable energy meets only 9 per cent of the total power requirement of the country, efforts are being made by the Union government to encourage trade in the RE sector as well as facilitate greater grid integration of such technologies.

As on 31 December 2009, India’s installed capacity of grid-interactive renewable power (including solar) stood at 15,681.43 MW, with wind power being the major contributor having an installed capacity of 10,915 MW. While small hydro accounted for 2558.92 MW installed capacity, cogeneration-bagasse was at 1302 MW. The break-up of the figure is as follows:

India’s Installed Capacity of Renewable Power in MW up to 31 Dec 2009

Grid-interactive renewable power

  • Wind 10,915 MW
  • Small hydro (up to 25 MW) 2558.92 MW
  • Biomass power (agro residues) 834.5MW
  • Cogeneration-bagasse 1302MW
  • Waste to power 65.01MW
  • Solar 6 MW

To support the growth and development of renewable energy technologies across country, favourable tariff policies have been devised by the different State Electricity Regulatory Commissions (SERCs). The tariffs for various renewable energy technologies across different States in India are summarised in Table 1.

Table 1: RE Tariff for Different Sates according to RE technologies:

State Wind SHP Biomass Bagasse
Andhra Pradesh 3.50 2.6 4.15 3.29
Gujarat 3.56 - 3.08 3
Himachal Pradesh - 2.87 - -
Haryana 4.08 3.67 4 3.74
Karnataka 3.70 2.8 3.1 3.06
Madhya Pradesh - 3.39 2.82
Maharashtra 3.5 3 4.28 3.05
Rajasthan 3.83/4.03 - 4.36 -
Tamil Nadu 3.39 - 4.5 4.38
West Bengal 4 3.6 4 2.55

Source: MNRE website

The Union government in the National Action Plan for Climate Change (NAPCC) has formulated a target implementation scenario in respect of Renewable Energy Certificate Potential Market Assessment. According to the assessment, the total energy requirement for FY 2010-11 is estimated at 906.32 billion units. If 6 per cent of this has to come from renewable energy, according to the NAPCC target, the figure will come to 54.38 billion units. In order to achieve this, the country will need to add 11.96 billion units of renewable power. When compared to the current scenario, the potential for harnessing renewable energy looks immense with renewable energy availability being 47.96 billion units.

A detailed table on the REC Potential Market Assessment as envisaged under the NAPCC target implementation scenario is presented below in Table 2

Table 2: REC Potential Market Assessment

Source: MNRE

The present development of renewable power generation, especially the wind power, is limited to the States which have the renewable resource. In case of wind power the development is mainly in the States of Tamil Nadu, Gujarat, Maharashtra, Karnataka, Rajasthan and Madhya Pradesh as there is high wind potential. As per Section 86 (1) (e) of the Electricity Act, 2003, SERCs have to specify a percentage of total electricity consumption to come from renewable energy sources. Many of the States which do not have or have a little renewable energy potential have specified a very low percentage for renewables. To overcome this imbalance and to optimally utilise the renewable energy potential a “Renewable Energy Certificate” (REC) Mechanism is being developed. Under this mechanism the States which have limited renewable energy potential can meet the obligation by procuring the REC generated from projects in other States. The States which have high renewable energy potential and already have high renewable energy percentage can further develop the renewable energy projects without affecting the consumer prices of electricity in the State.

Under the REC Mechanism, Renewable Energy Certificates will be issued by the National Load Despatch Centre, appointed as the Central Agency by CERC for the purpose of REC Mechanism implementation. The certificates will be issued only to RE generators with capacity untied in power purchase agreement. According to the Mechanism, the purchase of REC would be considered as purchase of renewable energy.

In this context the Central Electricity Regulatory Commission (CERC) has issued the CERC (Terms and Conditions for recognition and issuance of REC for Renewable Energy Generation) Regulations 2010. In addition, the Forum of Regulators (FOR) has developed model REC Regulations which can be issued by the SERCs. These regulations provide an operational framework for implementation of RECs in India. These Regulations define the agencies that would be responsible for undertaking different functions from accreditation and registration of projects, issuance and redemption of RECs, to maintaining the registry of RECs etc.

Figure 3: Steps involved in the REC Mechanism

The main agencies which are important in the REC Mechanism are

Central Agency: The functions of the Central Agency will be to undertake: registration of eligible entities; issuance of certificates; maintain and settling accounts in respect of certificates repository of transactions in certificates; and, such other functions incidental to the implementation of renewable energy certificate mechanism as may be assigned by the Commission from time to time.

However, the Central Electricity Regulatory Commission will have the authority to issue directions to the Central agency in regard to the discharge of its functions and the Central Agency will always act in accordance with the directions issues by CERC.

State Agency: The functions of the State Agency will be to comply with the directions issued by host SERC; scrutinise and verify the documents prior to the accreditation; provide recommendation for registration and reasons for rejection (in case of rejection of the application); issue extension of the validity of existing accredited renewable projects; and revoke the accreditation and communicate regarding the accreditation to Central Agency, concerned SLDC and host distribution company.

State Load Despatch Centre (SLDC): The functions of SLDC will be to comply with the directives issued by the Indian Electricity Grid Code (IEGC) and State Grid Code (SGC) for accounting renewable power injected into the grid; maintaining the records of meter readings and communicating the power injection report for each accredited projects of the registered eligible entity, if connected to transmission network, within the State to Central Agency on a monthly basis; establishing protocol for receipt of information and maintaining the record of meter readings (in case eligible entity is connected to distribution utility) and communicating with State Agency regarding the power injected into the grid by each accredited RE project of eligible entity within the State.

Under the REC Mechanism, only RE technologies, as recognised by MNRE, will be eligible.

The operational framework as per the FOR Model Regulations is as follows

Accreditation:

  • By State Agency (SNA)
  • Verification of application and project
  • Only accredited generators can receive REC

Registration of accredited generators:

  • By central agency, that is, NLDC
  • Registry to be regulated by CERC under Section 66 of the Electricity Act 2003

Issuance of RECs:

  • Central agency to issue REC, based on information from SLDC about injection of RE into the grid
  • Eligible RE generator will receive a certificate for a specified quantity of electricity generated

Exchange of RECs:

  • On power exchanges approved by CERC

Validity of RECs:

  • The certificate once issued shall remain valid for 365 days from the date of issuance.

Proposed Pricing of RECs:

  • Electricity Component Price = Average Power Purchase Cost (PPC) of utility in previous financial year; REC component price = Notional Price (Rs 1.5 /kWh)
  • Forbearance price for exchange of RECs to be decided by SERCs based on the recommendation of FOR

According to the REC Mechanism, new renewable energy generators would have two options – Selling the electricity at preferential tariff determined by the respective SERC or selling only the electricity component to distribution utilities and selling the REC component through market mechanism. This conceptual framework of the REC Mechanism is shown in Figure 4.

Figure 4: Conceptual framework of the REC Mechanism

For the purpose, the REC Mechanism details such as denomination of an REC, eligible technologies, eligible renewable energy generators, pricing methodology for the electricity component as well as the renewable energy component, structure of the operational mechanism for certification of REC and the REC registry are under development.

Dr. Deo recently said, “RECs can provide a greater push to RE electricity by way of removing bottlenecks like higher costs, uneven distribution of RE resources across India, and scheduling or despatchability of RE electricity, in procurement of RE electricity by utilities”.

Sources:

http://www.financialexpress.com/news/new-mechanism-to-improve-viability-of-renewable-energy/422262/

http://mnes.nic.in/pdf/MNRE_REC_Report.pdf

http://www.iitk.ac.in

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8 Responses to The REC Mechanism in India

  1. PRAVEEN KULKARNI says:

    IN KARNATAKA WE HAVE INDEPENDENT POWER PROJECT OF 15 MW(WIND MILLS). PRODUCTION HAS ALREADY ON FROM LAST ONE YEAR. WE ARE SELLING POWER TO PVT. PARTY UNDER OPEN ACCESS. PL. CONFIRM :

    1. WHETHER WE ARE ELIGIBLE FOR REC.
    2. WHAT IS THE SELLING PRICE OF EACH REC
    3. IS THERE ANY AGENCIES WHO CAN HELP US IN THIS PROCESS.
    4. INCASE THE COMPANIES FAIL TO ACHIECVE RPO WHAT IS THE EXTENT OF PENALTY THEY HAVE TO PAY TO THE GOVERNMENT.

    • anaghabhambri says:

      Dear Mr Kulkarni,

      I have gone through your query.

      1. RECs are issued only to RE generators with capacity untied in power purchase agreement.

      2. The notional price of an REC is Rs. 1.5/kWh

      3. For assistance and further information you can contact the Karnataka State Electricity Regulatory Commission. The address and email ID are given below:

      *KARNATAKA ELECTRICITY REGULATORY COMMISSION*

      * 6th & 7th Floor, Mahalaxmi Chambers, * *# 9/2, M.G.Road, Bangalore – 560 001* * Ph: +91-080-25320213, 214, 25320339, 25323765 Fax:080-25320338, **

      Email:kerc35@bsnl.in

      4. Since the penalty is decided by the State regulatory commission only, it will be difficult to tell you offhand how much will it be in your case.

      In case you need more information, please write to Mr. Manish K. Singh, Secretary, Indian Wind Energy Association. His email id is: ksmanish@gmail.com

      Best regards, Anagha *

    • abhical says:

      Dear Mr Kulkarni

      Greetings!

      I have gone through your queries.

      For your knowledge we are Energy and climate change consultants who facilitates Renewable energy project owners in registering their projects under the rec mechanism.

      Our working model is very convenient for the clients as we work on the profit sharing model and charge only when the REC’s gained are redempted.

      Hope to hear from you.

      Regards
      Abhical Kaistha
      abhisbscetian@gmail.com

      • ramakrishna says:

        Mr. Abhical,
        We are a company generating solar power.
        I would like to know more about your service in regards REC’s.
        Kindly give me your company details to start up a talk.

        Regards,
        K.Ramakrishna.
        rk@krkpower.com
        K.K.RAO GROUP.

  2. Ashish says:

    Thank you for this excellent article!

  3. It’s really a great and helpful piece of info. I am glad that you
    shared this helpful information with us. Please keep us informed like this.

    Thanks for sharing.

  4. we want to start a solar plant of 5 mw capacity in rajasthan.Can we register for rec?How can we do it?What is the current per unit rate for rec?Do reply me at princybhansali@gmail.com

  5. The wind project received initial BLM approval in October.
    Increasing price of non-renewable energy sources, growing
    energy consumption especially from emerging countries, pro-wind regulatory environment for wind projects and increase in utility scale wind energy generation farms have put the world at 159 GW
    installed capacity at the end of 2009. So, if you want a lot of power from your “wind turbine,” it is a good idea to make the blades capture lots of wind.

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