The Key Driver for RECs
In addition to FiT-based programs, the Central Electricity Regulatory Commission (CERC) has introduced Renewable Purchase Obligations (RPOs) for renewable electricity which are fixed by the state electricity commissions (SERCs). RPOs are minimum percentage purchase targets of RE power in their total power requirement of the distribution companies; they create demand for the RECs.Hence, mandated by SERCs for power utilities, the RPOs are the key driver for implementation of REC mechanism in India.
There is, however, another dimension to the RE potential in India – it is not uniformly distributed across different Indian States. States like Rajasthan, Gujarat, and Tamil Nadu have significant RE potential and they can set high limits for their RPOs. Other States such as Delhi do not possess enough RE potential; they naturally prescribe low ROPs and still find it difficult to meet the target. This RE potential disparity makes it difficult for all states to comply with the mandatory RPO’s and hence gives rise to the concept of Renewable Energy Certificates.
Another issue is the high cost of RE generation, which discourages the local distribution licensees from purchasing RE generation beyond the RPO level mandated by the State Commission. This deters further development of RE resources even if there is sufficient potential. The facility of REC trading at national level circumvents this barrier.
What REC is NOT
The concept of REC must be clearly understood one should also know what it is not. For instance
- REC is NOT an incentive mechanism: it only enables the sale / purchase of the renewable component across the state boundaries.
- It does NOT represent fiscal attributes such as “Accelerated Depreciation”: it should be clearly distinguished from the “Production Tax Credits.”
- Although REC represents environmental attribute, it is NOT related to carbon credits. The two mechanisms are independent of each other.