India raises solar Renewable Purchase Obligation Target for Indian utilities, but REC market remains dead
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August 3, 2016Renewable Purchase Obligation & Renewable Energy Certificate – India
India has implemented a Renewable Purchase Obligation (RPO) for major power users, but the plan remains only on paper. The Renewable Energy Certificate (REC) framework which has been developed in order to allow the implementation of the RPO policy has not worked out. Most of the state energy regulators have not penalized power users, for not meeting their RPO obligation. As a result of which most RECs generated do not get bought. This has led to most of the solar RECs going untraded and the developers who have used the REC business model to build solar power plants have failed.
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RECs and RPO were thought of as a market based renewable energy promotion program, but they have not worked because of the lack of implementation of policy on the ground. While some state regulators have cracked down on the non-compliance, most of the others have not. The problem lies with electricity being a concurrent subject, which allows both state and central government to legislate policy. Even if one state regulator fails to penalize, then the whole house collapses. Other states then have no incentive to penalize their own distribution utilities.
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While the CERC and MoP have made numerous attempts to rectify the situation, the REC market has not really revived. The government of India recently raised the RPO obligation from 3% by 2022, to 8% by 2022. This sharp jump was done as the government wants 100 GW of solar power to be installed. However, this RPO has not spurred governments at the state to act. The quick building of solar power plants and their sharply falling costs, have been major reasons behind their success. With the Indian power situation turning power surplus these days, it remains a hard climb for solar power in the coming days.
The MoP has also given the RPO obligations by year, which shows a sharp 2% increase till FY19:
FY17 – 2.75%
FY 18 – 4.75%
FY 19 – 6.75%
While all these targets are nice and good, the government first needs to ensure that the implantation happens for the existing RPO. Just making targets when the current policy is in limbo will not help the power or the solar sector. It also penalizes power users who are meeting their RPO. With solar power costs falling, I don’t think this RPO will be needed in the coming years. Solar is already cheaper than wind and gas and soon will become cheaper than domestic coal.