The document discusses the Renewable Energy Certificate (REC) mechanism in India. The key points are: 1) The REC mechanism was created to address the mismatch between availability of renewable energy resources and obligations of states/entities to meet renewable purchase targets. 2) It allows renewable energy generators to separate the renewable attributes of their electricity from the electricity and trade them as RECs. 3) Obligated entities like distribution companies and large consumers can purchase RECs to meet their renewable purchase obligations instead of directly buying renewable energy. 4) The mechanism is administered by state and central agencies who oversee the issuance of RECs based on renewable energy injected into the grid and trading of RECs on power exchanges

1. Renewable Energy
Certificate (REC)
Mechanism
Kranav Sharma
Guest Lecturer
Jamia Milia Islamia

2. Contents
• Current Total Installed Generation Capacity
• Enabling provision of Electricity Act, 2003
• Renewable Purchase Obligation (RPO) revisited
• Overall RPO Targets- FY 17 to FY 19
• State-wise Renewable Energy Potential in India
• State-wise RPO Targets (2016-17)
• Evolution of RPO in states
• Why was REC Mechanism created?
• Renewable Energy Certificate (REC) Mechanism
• Key Objectives for Introduction of REC Mechanism
• Prices in REC Mechanism
• Exercise 1
• Block Diagram of REC Concept
• Key Elements of REC Mechanism
• Various entities involved in REC Mechanism
• REC Implementation Mechanism
• Sample REC
• Current status of REC Market
• Essential Questions

3. Current Total Installed Generation Capacity

4. Enabling provisions of Electricity Act, 2003
The EA 2003 has outlined several enabling provisions to accelerate the
development of RE based generation:
• (Section 3): National Electricity Policy and Plan for development of power
system based on optimal utilization of resources including renewable sources of
energy.
• (Section 61(h)): Tariff Regulations by Regulatory Commissions to be guided by
promotion of generation of electricity from renewable energy sources in their
area of jurisdiction.
• (Section 86(1)(e)): Regulatory Commissions to Specify Purchase Obligation from
renewable energy sources.
• (Section 66): Appropriate Commissions shall endeavor to promote the
development of market (including trading) in power in such a manner as may be
specified and shall be guided by National Electricity Policy in Sec 3.

5. Renewable Purchase Obligation (RPO) revisited
• This is a mechanism by which certain consumers are obliged to purchase a
certain percentage of power from Renewable Energy Sources (RES).
• RPO is being implemented throughout the country to create demand for
renewable energy.
• The existing legal framework under Electricity Act 2003 puts the responsibility for
promotion of RE on the State Electricity Regulatory Commissions (SERCs).
• It provides that SERCs should ensure
• ‘promotion of cogeneration and generation of electricity from renewable sources of energy
by providing suitable measures for connectivity with the grid and sale of electricity to any
person, and
• also specify, for purchase of electricity from such sources , a percentage of the total
consumption of electricity in the area of a distribution licensee’.
• National Tariff Policy 2006 also provides that ‘the Appropriate Commission shall
fix a minimum percentage for purchase of energy from such sources taking into
account availability of such resources in the region and its impact on retail tariffs’.
• This target is termed as Renewable Purchase Obligation (RPO).

6. Overall RPO Targets- FY17 to FY19
• Considering Tariff policy Provisions & national level RE capacity addition target, Ministry
of Power (MoP) in consultation with MNRE notified overall RPO target for initial 3 years
FY 17 to FY 19
• The notification mentions that SERCs may consider to notify RPO in line with the
notification, as follows:
• Various State Commissions have initiated amendment of RPO targets in line with
the above targets

7. State-wise Renewable Energy Potential in India
(in MW)
How can low RE states
conveniently satisfy
RPO requirements?
-
REC Mechanism

8. State-wise RPO Targets (2016-17)
• The weighted average of total (solar and non-solar) RPO targets of
states is around 6.6%, considerably less than 12% as was expected
under the National Action Plan on Climate Change (NAPCC).
• Only two small states, Himachal Pradesh and Mizoram, exceed the
NAPCC benchmark.
• Solar RPOs presently specified by SERCs are significantly lower than
those expected under the National Solar Mission.
• Of the large states, only Gujarat, Rajasthan and Tamil Nadu have a
sizeable solar RPO, at 1.75%, 2.5% and 2.5% respectively for 2016-
17.
• Tamil Nadu has set its solar RPO to a high of 5% for 2017-18.
• The weighted average of all state solar RPOs for 2016-17 is only
1.2%, and will need significant upward revision to come in line with
the desired 8% by 2022 as per the NTP.

9. Evolution of RPO in States

10. Why was REC Mechanism created?
• Renewable sources are not spread evenly across country
• Many states with no or little RE were not able to promote RE
• States with good RE felt they have exhausted their capacity to absorb and
are surplus
• It is difficult to carry out inter-State sales using CERC OA Regulations for
large scale deployment of RE following reasons:
 Most RE generators are difficult to schedule due to variability in power generation
 Transaction would be expensive due to low capacity factors of RE
 RE generators are not connected to STUs (State Transmission Utilities) but to
DISCOMS
 Intra-state balancing systems (that ensure all power demand is being met) have not
yet stabilized
• Therefore, a mechanism that will enable inter-state sale and purchase of
renewable energy was required.

11. Renewable Energy Certificate (REC)
Mechanism
• Renewable Energy Certificate (REC) mechanism is a market based instrument to promote
renewable energy and facilitate compliance of renewable purchase obligations (RPO).
• It is aimed at addressing the mismatch between availability of RE resources in state and
the requirement of the obligated entities to meet the renewable purchase obligation
(RPO).
• The RE generator may sell electricity to the obligated entities
• Obligated entities are- DISCOMS (Distribution Companies), Open Access consumers
(heavy users with more than 1 MW connected load) and Captive power plants
(companies/ industries generating electricity for own consumption)
• One REC will be issued to the RE generator for one MWh electrical energy fed into the
grid.
• The RE generator may sell RECs to the entities with RPO target in the State or outside
the State.
• There are two categories of RECs, viz., solar RECs and non-solar RECs.
• Solar RECs are issued to eligible entities for generation of electricity based on solar as
renewable energy source, and non-solar RECs are issued to eligible entities for
generation of electricity based on renewable energy sources other than solar.

12. Key Objectives for Introduction of REC
Mechanism
• Effective implementation of RPO
• Increased flexibility for participants/ obligated entities
• Overcome geographical constraints
• Reduce transaction costs for RE transactions
• Enforcement of penalty mechanism (shortfall x forbearance price)
• Create competition among different RE technologies
• Development of all encompassing (all inclusive) incentive mechanism
• Reduce risks for local distributor by limiting its liability to energy
purchase (they can purchase RECs instead)

13. Prices in REC Mechanism
Forbearance price – maximum allowable price for one REC
Floor price- minimum price that one REC can have for a
project to be viable
• Central Agency and Forum of Regulators from time to time provide for the floor price and forbearance price
separately for solar and non-solar Certificates.
• The Commission while determining the floor price and forbearance price shall be guided inter- alia by the following
principles:
a) Cost of generation of different renewable energy technologies falling under solar and non-solar category,
across States in the country;
b) The average Pooled Cost of Purchase paid by DISCOM across States in the country;
c) Expected electricity generation from renewable energy sources including:-
i. expected renewable energy capacity under preferential tariff
ii. expected renewable energy capacity under mechanism of certificates;
d) Renewable Purchase obligation targets set by State Commissions
• The Commission proposed the following forbearance and floor price for dealing in Certificates under the REC
Regulations with effect from 1st April 2017.
Non-solar REC
(Rs/MWh)
Solar REC
(Rs/MWh)
Forbearance price 3,000 2,400
Floor price 1,000 1,000

14. Exercise 1- Calculate the RPO penalty
An obligated entity has to satisfy a non-solar RPO compliance of 5%.
It directly purchased 10 MWh from a nearby wind power plant and
further purchased 25 RECs during recent power exchange.
However, during last FY, it was not able to fully meet its RPO
compliance. Calculate the penalty to be paid by an Obligated Entity to
SERC.
Total electricity consumption of obligated entity is 1200 MWh.

15. Solution to Exercise 1
The total required Renewable energy to be consumed (directly or through RECs) by the obligated entity as per RPO will
be
= % of RPO x total consumption (in MWh)
Total required RE consumption as per RPO = .05 x 1200 MWh = 60 MWh
Now,
Total RE consumed directly through purchase from wind power plant = 10 MWh
Total RE consumed through purchase of RECs = 25 RECs x 1 MWh = 25 MWh
Total RE consumed = 10 MWh + 25 MWh = 35 MWh
The net RE shortfall = Total required RE consumption – Total RE consumed
The net RPO shortfall = 60 MWh – 35 MWh = 25 MWh
The required penalty to be paid to SERC for net non-solar RPO shortfall = Forbearance price x The net RPO shortfall
Required penalty = 25 MWh x INR 3000 per MWh
Required penalty = INR 75,000

16. Conventional Power Plant vs Renewable Power
Plant
Conventional Power Plant Renewable Power Plant
These plants have high capacity utilization factors
(typically more than 50%)
These plants have low capacity utilization factors
(typically less than 50%)
They need continuous fuel supply to operate, which
contributes to the operating costs
They generally do not need fuel supply but utilize
renewable natural resources, such as the sun and
wind and thus have relatively lower operating costs
If adequate fuel is available they can supply constant
power output over a period of time
The power output fluctuates due to intermittency
(irregular variation) of the particular natural resource
The installation cost (in terms of cost per installed
MW) of conventional technologies is usually lower
(eg - Around 3-5 crore per MW for thermal)
The installation cost (in terms of cost per installed
kW) of renewable technologies is usually higher
(eg - Around 5-8 crore per MW for solar)
The operation of conventional power plants leads to
negative environmental impacts as the combustion
of fossil fuels leads to harmful emissions.
Renewable power plants are considered to be clean
sources of energy as they produce no harmful effects
on the environment
Environmental
Attribute
(quality or feature)

17. Block Diagram of REC Concept
RE generators will have two options:
i) either to sell the renewable energy at
preferential tariff or PPA
or
i) sell electricity generation and environmental
attributes associated with RE generations
separately.
The environmental attributes can be exchanged
in the form of Renewable Energy Certificates
(REC).
Non-REC
Mechanism
REC Mechanism
or
PPA
Environmental
attribute

18. Key Elements of REC Mechanism
• SERC to recognize REC as valid instrument for RPO compliance.
• REC will be issued to the RE generators for 1 MWh of electricity injected into the grid from renewable energy
sources.
• The Certificate once issued shall remain valid for 1095 days from the date of issuance of such certificate.
• REC would be issued to RE generators only and can be issued within six months of power generation.
• Grid connected RE Technologies approved by MNRE would be eligible under this scheme.
• RE generations with existing Power Purchase Agreement on an agreed tariff are not eligible for REC mechanism.
• Renewable energy contracted through competitive (reverse) bidding is not eligible
• After registration, the RE generator is eligible for RECs from the date of commercial operation or from the date of
registration whichever is later
• SERC to designate State Agency (SA) for accreditation (sanction/approval) for RPO compliance and REC mechanism
at State level.
• CERC has designated National Load Dispatch Centre (NLDC) as Central Agency (CA) for registration, repository, and
other functions for implementation of REC framework at national level.
• Only accredited project can register for REC at Central Agency.
• Central Agency would issue REC to RE generators for specified quantity of electricity injected into the grid.
• REC would be exchanged only in the CERC approved power exchanges.
• Central Agency will extinguish the RECs sold in Power Exchanges in its records as per information provided by the
Power Exchanges.
• REC would be exchanged within the forbearance price and floor price.

19. Various entities involved in REC Mechanism
RE Generator
Power plant that produces and supplies renewable electricity to the grid and generates RECs in the process
Obligated entity
Entity that is required to purchase a designated percentage of power from renewable sources by provisions of EA
2003
State Agency (S.A.)
A govt. body of the state that checks an RE generator’s eligibility and compliance and provides accreditation
Central Agency (C.A.)
A govt. body of the center that registers the RE generator and keeps record of all Energy Injection Reports, other
related documents and validates REC transactions
State Load Dispatch Centre (S.L.D.C.)
Managing the power generated in the grid and preparing the Energy Injection Report prepared by RE generator
Power Exchange
Platform at which sale of electricity and REC takes place

20. REC Implementation Mechanism
Step-wise Implementation:
1. RE generator (power plant) will apply for
Accreditation with State Agency (S.A.)
2. After receiving accreditation, it will apply for
registration with Central Agency (C.A.), i.e.
NLDC
3. After registration, RE generator will provide
Energy Injection report (prepared by SLDC on
monthly basis) to C.A.
4. The SLDC will provide its validation
(affirmation) on the Electricity Injection
report
5. Based on both, the C.A. will issue RECs and
send it to a power exchange for trading
6. During trading the REC will be bought by an
Obligated Entity
7. The C.A. will validate all the transactions
made in during trading in the Power Exchange
1
2
3 4
5
6
7
5

21. Sample REC

22. State-wise REC target vs achievement
• Only six states have achieved there
RPO targets in 2015-16
• Eleven states have achieved significant
amount (more than 50%) of their RPO
targets

23. Current status of REC market
As on 22/06/2017

24. Yearly trend in registered projects

25. History of REC trading

26. Essential Questions
1. Explain why the REC Mechanism was created
2. List the key objectives of REC Mechanism
3. Using an appropriate block diagram explain the REC concept
4. Describe the implementation of REC Mechanism
5. An obligated entity has to satisfy a solar RPO compliance of 4%.
It directly purchased 5 MWh from a nearby solar power plant and further
purchased 15 RECs during recent power exchange.
However, during last FY, it was not able to fully meet its RPO compliance.
Calculate the penalty to be paid by an Obligated Entity to SERC.
Total electricity consumption of obligated entity is 1500 MWh.

27. END