First Indian Solar Renewable Energy Certficaties sold for 24c/Kwh as NLDC certifies solar plants ; New Solar Funding Mechanism holds Promise

The Indian Solar Electricity generating industry has mainly been funded by the auction mechanism at the federal and state level. The solar generators get their electricity dues from the distributors based on a PPA signed between them for a fixed rate for a fixed tenure. Another way  for small scale projects to get funding was to get a capital subsidy from the government. Now a new third way has come up to fund the solar plants. The Renewable Energy Certification (REC) scheme which was adopted in 2010 for the states in India to meet their Renewable Energy Targets is now available to fund solar power in India.

Note the RECs that have been traded so far only involve biomass,wind and small hydro. Now Solar Certificates have started trading for the first time in May 2012. Recently a number of companies had managed to get their solar power plants registered by NLDC. These certificates are now being traded on the power exchanges with M&B Switchgear selling certificates at 24c/KwH. Note the recent funding of solar plants has been done at 15c/Kwh so it’s a good price. However to ensure that REC becomes a good solar funding mechanism, the red tape and  bureaucracy must be reduced. The process to get solar plants registered should be transparent and be done online. It should be done in a way that even smaller rooftop solar plants can get themselves registered. Also there must be a way for aggregation of small rooftop plants to get a certification, otherwise only big industrial houses will benefit from solar power subsidies. This would defeat the entire purpose of solar subsidies. Things need to be straightened out because solar is a booming sector in India, with large number of ongoing & planned solar thermal projects.

What is REC

Renewable Energy Certificate (REC) Policy allows Green Energy Generators to earn additional tariff over and above the normal wholesale electricity price. Note the REC Mechanism is also present in different forms in Italy, USA and Australia and has proven a good incentive to promote Renewable Energy in those countries.

The REC Scheme is a Policy whereby Renewable Energy Generators are granted a REC per MwH of Green Energy that they contribute to the Grid. These RECs can be traded on Exchanges whereby Green Energy Producers can sell them to Buyers. Energy Deficient Entities have to buy these RECs in order to meet their Renewable Energy Targets. Note each state in India has a Renewable Purchase Obligation(RPO) which is decided by the State Electricity Regulator (SERC). RPO means that the State has to compulsorily consume a fixed percentage of electricity from Renewable Energy Sources. Some states in India like Tamil Nadu, Gujarat are rich in Green Energy while others like Bihar, Delhi and Maharashtra are deficient. Power Exchanges in India have already set the ball rolling in terms of trading in RECs.

Renewable Energy Companies and Green Utilities are set to benefit the most from this Policy. Suzlon has welcomed the policy saying that Financing will ease for Renewable Energy Projects. Orient Green Power, the largest Green Focused Utility will also be a big beneficiary. Local Indian Wind Turbine Companies should also benefit from the Scheme. It also provides companies outside the JNNSM to get decent returns from solar generation as the REC band for Solar REC has been set between Rs 12-17/Kwh. India need to increase Renewable Energy Capacity by at least  50 GW in the next 10 years to meet the 15% CERC Target.

REC Mechanism

The Regulatory framework for REC mechanism has been notified by CERC and the REC mechanism is being supported by MNRE and the Ministry of Power. REC mechanism is expected to bring new investments in renewable energy projects and help introducing market based competition in renewable energy sector. To address this mismatch, the Electricity Regulatory Commissions have collectively evolved REC mechanism under which the green electricity is to be split into two components, i.e. electricity and the green attribute. The electricity component can be sold to local distribution utilities at a price of conventional electricity and the green attribute is converted into REC which the generator can sell to the utilities of States like Delhi. Such a utility can fulfill its renewable purchase obligations by purchasing RECs.