REC and Green Energy in India..................

Renewable Energy Certificate (REC) is awarded to developers generating power from renewable energy sources like windmills, biomass and solar plants, and not getting higher regulatory tariff by Govt. It provides sufficiently attractive returns, justifying their investments in renewable energy sector. However, for this to work, a key parallel activity is the development of a robust market for renewable energy certificates and here is where action is needed urgently now.

REC had started taking shape in year 2011 and green shoots are growing well. It is recognised the world over that the REC market is a key component for the renewable energy industry to develop at a healthy pace. The REC is basically a tradable unit given to a producer of renewable power, who opts not to sell the power for a preferential tariff.

The producer that owns a windmill farm; will get the REC even if it sells the power to a part-owner of the wind farm at a negotiated price; provided it does not get the benefit of any other incentives or higher tariff from Govt. The RECs, which are based on generation, are sold through the power exchanges, within a prescribed price band.

Those who buy them are the ‘obligated entities’, or the power distribution companies or bulk consumers of power, which are mandated by law to buy either green power at high prices in the market, or to buy the RECs instead from third party producers.

Urgent action is imperative if only because more and more RE power capacities are coming into the REC regime. Income from RECs can be substantial. The stock market does not as yet have either a sufficient understanding or awareness of the RECs, as is reflected in the low prices of renewable energy company stocks; but when the awareness builds up, valuations will rise, enabling companies to raise more funds for further investments in renewables. But fundamental to all these are measures to deepen the REC market.

Enforcement is largely in the hands of State electricity regulators and a lot depends on how strict they are in making the obligated entities discharge their Renewable Purchase Obligation (RPO). Industry watchers have noted that obligated entities in some States still question the application of the RPO to them, in the hope of wriggling out the burden by another few years.

Obviously, the first step is to tell them that there is no wriggling out. An effective way of sending this signal is to ask for a ‘compliance undertaking’ at the beginning of each financial year, stating that the utilities must meet its obligations. A corollary of this is making compliance quarterly, against annual. Otherwise, the market will tend to get skewed, with most of the activity happening at the year-end. The supply side of the market has been fairly well taken care of. But the demand side is still a niggling issue and the question ‘what if there are no takers for the RECs’ is still weighing on the minds of many.

contact:

CA Yogesh
Director
BWPM Co.

visit us at : www.Yogesh-CA.blogspot.com