REC scheme falters, only 4% renewable capacity registered

In the decade since the launch of the so-called Renewable Energy Certificate (REC) scheme, it has been hampered by loose Renewable Purchase Obligation (RPO) compliance by discoms and frequent regulatory changes. As of December 24, 2021, only 4,526 MW or 4% of installed renewable energy capacity is registered under the scheme.

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 that fail to meet their RPO targets can buy RECs on exchanges from RE power producers registered under the scheme to meet their obligations.

According to a report by RE consultancy firm Bridge to India, an increase in registered capacity was witnessed in 2016 and 2019 following a sharp increase in RPO targets. The report said that the share of wind and solar power in the total registered capacity is 58 per cent and 21 per cent, respectively. States with attractive renewable resources such as Tamil Nadu, Maharashtra, Rajasthan and Gujarat account for 73% of the total registered capacity.

However, due to high pricing and regulatory uncertainty, project developers have been largely reluctant to register projects under the scheme. Vinay Rustagi, MD, Bridge to India, said, “As of March 2018, around 401 projects with a total capacity of 2,073 MW were deregistered, as developers found it more viable to sell renewable energy instead of ‘brown’ power and REC. Understood.”

data from Indian Energy Exchange Confirm for December 2021 that the sell bids were much lower than what buyers were seeking. Average buy bids for Solar Rec were 843,375 when sell bids were lower at 689,889. The total quantity sanctioned for solar REC was only 254,980 at a cost of 2,211/rec. In the non-solar segment, the sales bids were comparatively much higher than the demand.

Rajesh Mediratta, CEO and MD, IEX told FE: “Developers are unwilling to set up projects under the REC category as lenders refuse to curtail long-term funds. Unlike PPA projects, lenders offer power under REC. Not sure of the pricing, which varies due to the flip flop regulator.

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

Buying interest from consumers has also been much lower than expected as direct purchase of renewable energy is much cheaper than the combined cost of purchasing conventional power and purchasing REC.

Sanjeev Agarwal, CEO and MD, Amplus Solar, explained that FE buyers prefer to buy RECs in a bilateral agreement where prices are more affordable and similar to international RECs. “We have sold RECs to interested buyers at very low rates prevailing on IEX,” said Agarwal.

MNCs prefer to buy international RECs which come at a cost of 70/REC compared with2,200/rec on the exchanges.

Trading volumes have also been impacted by low RPO targets in some states, lax enforcement by regulators and virtually non-existent voluntary market. Discoms account for 60 per cent of the total trading so far. Despite their high share in conventional power purchases, their share is relatively low due to ad-hoc RPO exemptions provided by state regulators.

As per the Bridge to India report, in FY20, only four major states (Andhra Pradesh, Karnataka, Rajasthan and Telangana) are projected to generate 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 generate more non-solar renewable energy than their respective RPO targets.

Experts believe that going forward, the government needs to formulate a clear RPO trajectory by 2030 and seek continuity between national and state RPO targets.

“The government should merge solar, non-solar and hydro RPO targets into a consolidated target and allow more technologies including solar-wind hybrid, rooftop solar, battery storage, pump hydro and green hydrogen to participate in the plan. Further the state government should ensure that no relaxation or RPO target is provided to the discoms,” the report said.