Should India shutter its REC market, given its status as a long standing joke
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The Indian renewable energy certificate market has become a long standing joke, due to the long years of non-compliance. The Indian REC market was built under its RPO policy, which mandated that 15% of India’s power should come from renewable energy sources by 2020. REC market was developed so that the RPO policy could manage a smooth implementation. However ever since the market got developed, the non-compliance of the RPO policy has made it a joke. Despite the massive number of RECs on offer to be sold by renewable energy developers, a miniscule portion gets traded as most obligated users such as distribution utilities, open access consumers etc. do not comply with the policy.
Also read 12 International Practices for Renewable Energy Trading.
They do not meet their RE obligations nor do they buy the RECs. The state electricity regulators has allowed these organizations to run with non-compliance which makes the organizations that comply with the rules look stupid. Why pay money when you cannot buy REC and not have to pay penalty. While there have been a number of efforts made for state regulators to make people work under the rules, it has been a non-starter. Some organizations have been penalized off and on but until all the 30 state regulators work in unison, then the REC market will remain a joke that it currently is.
While traded REC’s have increased this year, there is a huge backlog of RECs that cannot be sold at any price. Solar RECs have been reduced in price but they still find no takers. I think given the changed circumstances, there is scope for a further sharp decrease in minimum solar REC prices of around 5 cents/kWh. This will increase the incentive for people to comply with the REC obligations. The price of non-solar renewable REC is at a decently low level but like the solar REC, it too has not found too many takers.
As per the latest date, only around 300,00 RECs have been traded in August which is a tiny fraction of more than 16 million RECs being offered for sale. All these RECs have been traded at their minimum prices. The Indian government needs to bring out a solid clear policy to get the RECs moving. If it can’t, then is should just shut down this REC market and not make the Indian power sector a laughing stock that it has become.
The number of renewable energy certificates (RECs) traded on exchanges rose by over 9 per cent to 2.98 lakh in August compared with 2.73 lakh in July. It further said, “Prior to the auction (held yesterday) more than 1.69 crore RECs were available in the market for trade; however the traded volume is low on account of non fulfillment of RPO compliance by major utilities.”