India recently introduced the Renewable Energy Certificate Scheme to promote the use of Green Energy in India through a market based pricing mechanism. Other cleantech subsidies are being gradually reduced in favor of this single unified market process. In Wind Energy, the use of accelerated depreciation and GBI has been cancelled this year. REC Trading has seen an exponential increase almost every month since inception and it grew by almost 50% in June to see a record turnover of almost $10 million. Though small in absolute terms, the figure is set to grow as the pan India market sees many organizations entering to fulfill their Renewable Energy Obligations. India has set a target to obtain 15% of its electricity requirements from Renewable Energy from around 6% now. This will require about 4-5 GW of Green Energy installations every year .

 What is REC

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.

Though the REC market is growing rapidly potential bumps remain in the road as there is no penalty structure defined for states who don’t meet their RPO obligations. The RPO are vague and some electricity regulators can arbitrarily relax the targets which would leave the green energy producers in limbo. Note the experience of other countries like Australia and USA shows that REC market can crash due to oversupply leaving green investments high and dry. Cleantech investors need to be sophisticated and savvy to understand the future contours, regulatory plays in order to play the REC market.

SREC price crash in New Jersey

Solar Renewable Energy Certificate (SREC) Prices in New Jersey have been falling at a sharp rate from a high of $600 to $225 as high returns from falling solar panel prices and other tax breaks. This has led to a massive growth in solar installations in the state making it the 2nd largest state by solar capacity. New Jersey installations have crossed 500 MW and made it a huge green job driver in the state. However this boom has made the market driven SREC prices fall quite sharply. Though not falling as sharply as Pennsylvania where SREC prices have become a joke, they are still low and falling.

Renewable energy certificates witness a record trade in June

In its 16th trading session, India energy exchange (IEX) witnessed a record trading figure of renewable energy certificates (RECs). Out of the 3, 99,865 RECs that were available for sale, 2, 48,165 RECs were issued – the highest issuance for any month till date.

In the non-solar REC segment, IEX received buy bids of 3, 13,973 certificates and sell bids of 3,30,371 certificates against which 2,23,164 non-solar RECs were cleared at Rs 2,402/REC. IEX also received buy bids of 9,489 Solar RECs and sell bids of 541 solar RECs against which 336 solar RECs were cleared at Rs 12,750/REC.