REC (Renewable Energy Certificate)

 

World over, Renewable energy is more expensive than traditional forms of energy and the growth of renewable energy has been supported mostly by governments through various policy initiatives like Feed-in-Tariffs, subsidies, tax concessions, among others. In order to make the renewable energy sector more sustainable, many countries like Australia, Japan, etc have put in place a mechanism to trade the renewable energy on platforms similar to stock exchanges. The trade of the energy will be purely based on demand and supply and the only role the government plays is to mandate utility companies to buy a certain part of their power from renewable energy sources.

Indian Electricity Act 2003 and Renewable Purchase Obligations(RPOs)

According to the Indian Electricity Act 2003, the State Electricity Regulatory Commission (SERC)s set targets for utility companies to purchase some percentage of their total power from renewable energy sources. These targets, called Renewable Purchase Obligations (RPOs), vary from state to state due to the potential of renewable energy. For example, Tamil Nadu has the most potential in Wind energy whereas Rajasthan has the most potential in Solar Energy. If the utility company is unable to buy its share of renewable energy, it can compensate that by buying the RECs from the market to make up for the shortfall.

REC Mechanism

Under the REC Mechanism, when Renewable Energy is generated (solar, Wind, biomass, etc), the energy is divided into two components  the physical commodity electricity and a tradable certificate, which is the Renewable Energy Certificate (REC). The schematic is given below.

The commodity electricity is sold to the distribution company/utility(or any user) at a mutually agreed tariff while the REC can be traded in the exchange. As mentioned earlier, the utility companies can make up for their shortfall in meeting the RPO targets by buying the RECs from the exchange.

Details of REC

Given below are some highlights of the RECs. The denomination of each REC is 1 MWh( 1 REC = 1000 units(kWh) of electricity generated). In other words, the electricity producer can sell 1 REC for every 1000 units of electricity generated.The REC is divided into two types

  • Solar REC
  • Non-solar REC

The RECs are valid for 365 days from the date of issuance of the certificate. There is a range in which the RECs can be traded. This range is different for the Solar and Non-solar REC.

Power exchanges

In India, the trading of RECs has started in two exchanges. Indian Energy Exchange (IEX) and Power Exchange India Limited (PXIL).