India lacks penalty enforcement to stimulate voluntary REC purchases


Despite a major legislative push for renewable energy, voluntary purchasers of renewable energy certificates (REC) are still insignificant in India, consulting firm Intellecap said in its report. 

According to the analysis, obliged entities account for almost all demand for RECs, with distribution companies (discoms) taking 60% of the supply and captive power plants and open access users accounting for nearly 40%. Participation from voluntary buyers is barely seen. 

The Renewable Energy Certificate (REC) mechanism is a market-based tool for promoting renewable energy and facilitating compliance with renewable 
purchase obligation (RPO). 

RECs are traded on the India Energy Exchange (IEX) and Power Exchange India Ltd (PXIL) at a price within the Central Electricity Regulatory Commission’s forbearance and floor price (CERC).

The report released by Intellecap found that since the launch of the mechanism in 2010, 59 million RECs worth 39,266 crore (US$1.24 billion) have been sold on India’s two power exchanges by May 2021.

Non-solar RECs account for 83% of issuances, with wind energy (38%) and biomass (15%) leading the way, while solar PV accounts for 17%, according to the report.

In the 2020-2021 fiscal year, only 5.3 million RECs were purchased while 27 discoms failed to fulfil their RPO targets and were estimated to create a demand of 72.5 million RECs, meaning that a demand shortage of 67.2 million RECs was recorded. 

The report said that this was mostly due to lax implementation of fines for noncompliance with RPOs. According to the country’s regulations, failure to meet RPOs is punishable by a penalty set by the Central Electricity Regulatory Commission (CERC). 

Yet, the discretionary powers granted to SERCS to specify penalty charges have resulted in obligated entities being allowed to carry forward their RPOS to the following year despite the availability of RECS in the market, resulting in a shortfall in demand in the market of FY2020-2021. 

Intellecap pointed out that carbon markets have shown to be one of the most efficient drivers of emission reductions and offer the lowest cost emission reductions. It can help the country cut its carbon intensity by 45% by 2030, increase non-fossil energy capacity to 500 GW by 2030, and meet 50% of its energy demand from clean energy sources by 2030. 

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