India’s Renewable Purchase Obligation (RPO) is failing because of callous State Governments imposing no penalties on recalcitrant Power Consumers

Renewable Energy Certificate Policy in India which was unfurled with great fanfare in 2011 is suffering because of a lack of enforcement from states. According to the RPO, a certain percentage of a state’s electricity generation must come from clean energy sources. States and utilities which can’t meet their  renewable energy requirements can buy REC from Indian Energy Exchanges to meet their needs. Power Exchanges in India have already set the ball rolling in terms of trading in RECs. However, the REC policy which was meant to be the primary subsidy for green energy generation in India based on market rates is currently in a limbo. Though there is enough supply of RECs in the energy exchanges, there is not enough demand as states are not forcing their utilities and industries to meet their renewable power purchase obligations (RPO).  The trading has been lack-lustre as there is no urgency for states to buy REC until the end of the fiscal year in March when they have to meet their compliance numbers. This has led to low illiquid trading of Renewable Energy Certificate which has made price discovery difficult. Also it acts as a major problem for green energy producers as they can’t get remunerative prices as the market does not exist in a proper form.

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RPO, launched in 2010, makes it obligatory for distribution companies, open-access consumers and captive power producers to meet part of their energy needs through green energy. While the government wants state electricity regulatory committees (SERCs) to penalize defaulting distributions companies, the Central Electricity Regulation Commission (CERC) advocates a wait and watch policy. Penalty for shortfall in units of RPO is calculated on the forbearance price, which is the ceiling price in the price band of renewable power. At present, solar power costs between 9.30 and 12.40 a unit while that of non-solar power ranges from 1.50 to 3.30. RPO as a concept hasn’t stabilized. Most states haven’t declared their RPO trajectory for the coming years. Each state will look at it differently and that will impact the tariff regime in the long run.

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Most state electricity distribution utilities have failed to meet their renewable energy purchase obligation for 2011-2012, experts say, citing poor policy enforcement and lack of awareness as reason.

India Energy Exchange’s Mediratta said, “The future of REC hinges on how effectively SERCs communicate the need for compliance to the obligated entities. A greater impetus in sensitising the obligated entities for the need for compliance would go a long way in achieving the RPO targets. The SERCs and state nodal agencies are better positioned to do this.”

A few month ago, CERC drew an RPO trajectory in which it predicted the capacity addition by renewable energy during the 12th plan period could be 35,715 mw.