India has been making efforts to promote renewable energy to address concerns related to energy access, energy security, and climate change. These goals can only be achieved if the rules for renewable energy and the regulatory environment in the energy sector are favorable. Renewable energy technologies are promoted through various government policies and programmes.

Pursuant to the enactment of the Electricity Act 2003, the regulatory framework for the promotion and development of renewable energy was in existence in India for a long time. Electricity appears in the Concurrent List of the Indian Constitution i.e., the development of the electricity sector is the responsibility of both the Centre and the States. (Gupta, S. K., & Purohit, P., 2013)

Various State Electricity Regulatory Commissions have specified the renewable purchase obligation as well as the preferential tariff rates for claiming such power. Renewable sources of energy are not evenly spread across state boundaries. The local distribution licensees are discouraged from purchasing electricity generated through renewable sources due to its high cost.

The Renewable Energy Certificate or REC seeks to address the inconsistency between availability of renewable energy sources and the requirement of obligated entities to meet their renewable purchase obligations. The REC mechanism was launched in 2010 by CERC.  As of August, 2024 the installed capacity of renewable energy sources in India is 199.52 GW. It includes Solar (89.43 GW), Wind (47.19 GW), Biomass (10.35 GW), Small Hydro Power (5.07 GW), Waste to Energy (0.60 GW) and Large Hydro (46.92 GW).

The major contributions by the Indian Government with respect to policies and regulations to support renewables are as follows:

• Electricity Act, 2003: This Act enables competition in the Indian power sector. The Act promotes the generation of electricity from co-generation and renewable sources of energy.
• National Electricity Policy, 2005: The policy states that the share of electricity from renewable sources should be increased, and that the purchase of such sources shall be through competitive bidding.
• Tariff Policy, 2006: It states that in order to determine the tariff rates, a minimum percentage of purchase of energy should be shown.
• Indian Electricity Grid Code, 2010: Grid codes have started to incorporate renewables into the grid. (Soonee, S. K., Garg, M., & Prakash, S., 2010)

How REC Works in India

The REC mechanism is aimed at promoting investment in renewable energy by providing an alternate method to the RE generator to recover their cost. The trade of REC through electricity exchanges results in increased liquidity and price discovery. This improves the cash flows for RE producers. However, country-wide operation of REC is pending because only a few SERCs have issued regulations that recognize RECs as a means of RPO fulfillment. (Gulati, M., & Tiwari, P., 2011) REC trading takes place on the last Wednesday of each month on the Power Exchange. If there is a public holiday on the last Wednesday of the month, transactions must be conducted on the following business day. If there are other exigencies that require a change in the trading date, the Central Agency may change it accordingly after notifying all interested parties. The application window on Power Exchanges designated for trading at REC is open from 13:00 to 15:00 on the trading day.

Salient Features of REC Framework (Soonee, S. K., Garg, M., & Prakash, S., 2010):

• Renewable energy and facilitation of renewable purchase obligations are promoted by the Renewable Energy Certificate mechanism.
• REC is aimed at addressing the inconsistency between the availability of renewable sources of energy and the necessity of obligated entities to meet the RPO.
• There are two types of certificates:
  • Solar certificates issued to entities that generate electricity through solar power.
  • Non-solar certificates issued to entities that generate electricity through renewable sources other than solar.
• REC is issued to RE Generators for 1 MWh of electricity.
• The certificate shall remain valid for 1 year from the date of issuance.
• REC should be recognized as a valid instrument by the State Electricity Regulatory Commission (SERC) for RPO compliance.
• REC can be registered only by accredited projects.
• The Central Agency shall extinguish the certificates in a 'First-in-First-out' order.

The advantages of REC mechanism include inter-state transmission, promotion of standalone systems, competition in electricity market, overcoming the barriers of natural diversity, an alternative to meet renewable purchase obligations, attract investment.  (Soonee, S. K., Garg, M., & Prakash, S., 2010)

Objectives The Renewable Energy Certificate mechanism in India has several objectives. The following are the objectives:

• Addresses mismatch in RE availability: The REC mechanism addresses the inconsistency between the availability of renewable sources of energy and the need of obligated entities to meet their renewable purchase obligations (RPO).
• Promotion of Renewable Energy: The REC mechanism incentivizes the generation of renewable energy. This encourages investment in renewable energy projects and contributes to India's renewable energy goals.
• Environmental Benefits: The REC mechanism encourages investment in renewable energy sources, which is associated with reduced greenhouse gas emissions and improved air quality. Thus, entities can contribute to a cleaner and sustainable future.
• Market-based Mechanism: The REC mechanism aims at efficient allocation of resources and price discovery. This promotes cost-effective renewable sources and competition.
• Carbon Neutrality: The REC mechanism supports renewable energy, thus reducing the reliance on fossil fuels. This helps mitigate climate change and create sustainable energy in the future.

Challenges

• RPO Compliance: Strict enforcement of RPO is necessary because, in cases of non-compliance by obligated entities, it can adversely affect the stakeholders.
• Mismatch between demand and supply of RECs: In the REC market, supply is more than demand. The mismatch between demand and supply will affect the electricity market.
• Limited voluntary market: Most of the RECs were purchased by Central Public-Sector Enterprises due to their inclusion under Corporate Social Responsibility (CSR). Voluntary procurement of RECs had reduced due to the absence of such guidelines. Therefore, regulatory interventions were required to recognize the voluntary purchase of RECs by companies.
• Capacity Building: Capacity building programs are required to be conducted at regional levels to educate captive consumers about the compliance of RPO as per SERC regulations. Limited awareness about the REC mechanism can hinder the effectiveness of renewable energy.
• Cost of Renewable Energy: The cost of renewable energy is higher compared to fossil fuels. This creates difficulty for obligated entities to meet their RPO without incurring additional costs.
• Lack of standardization: The REC mechanism procedures and standards vary across different states. This creates confusion and hinders the effective trading of RECs.

Conclusion
The REC mechanism is an instrument that promotes renewable energy sources and develops the electricity market, which leads to sustainable development in the country.  Through the process of certification REC can be traded to obligated entities to fulfill their renewable purchase obligations (RPO) or social responsibility.

However, the REC mechanism faces several challenges, which includes, low REC price, lack of transparency, and regulatory complexities. In order to overcome these issues and enhance the effectiveness of the REC market, essential measures need to be implemented. This includes increasing REC prices, improving transparency and standardization, enhancing regulatory oversight, and raising awareness.

References:

1. Gulati, M., & Tiwari, P. (2011). Development of renewable energy in India: Role and effectiveness of electricity regulators on JSTOR. (n.d.). www.jstor.org. https://www.jstor.org/stable/24324725
2. Soonee, S.K., Garg, M., & Prakash, P. (2010). Power System Operation Corporation, & National Load Despatch Centre. Renewable Energy Certificate Mechanism in India. https://www.recregistryindia.nic.in/pdf/Others/Renewable_Energy_Certificate_Mechanism_in_India,_16th_NATIONAL_POWER_SYSTEMS_CONFERENCE.pdf
3. Gupta, S. K., & Purohit, P. (2013). Renewable energy certificate mechanism in India: A preliminary assessment. Renewable and Sustainable Energy Reviews, 22, 380–392. https://doi.org/10.1016/j.rser.2013.01.044