Renewable energy certificates (RECs) prices hit ₹185 per certificate during the May 8 trading session on the Indian Energy Exchange (IEX), which is the lowest on record. Around 4 lakh RECs, equivalent to 400 million units (MU), were traded.

Prior to this, the REC market recorded an all-time low price of ₹204 in the trading session held on April 24. Prices have declined by more than 80 per cent on an annual basis so far.

REC is a market based instrument to promote RE and facilitate compliance of renewable purchase obligations (RPO). It is aimed at addressing the mismatch between availability of RE resources and requirement of obligated entities to meet the RPO.

One REC equals 1 MWh of energy generated from renewable sources. More than 85 per cent of the trade in RECs takes place on power exchanges.

Market trend

Historically, RECs have traded under solar and non-solar categories, based on the renewable source. Floor and forbearance prices were set for trading on power exchanges wherein prices varied from time to time. Most of the time, RECs traded at the floor price, that is, ₹1,000 per certificate due to surplus inventory.

However, regulation by the Central Electricity Regulatory Commission, effective December 5, 2022, eliminated the concept of floor and forbearance prices, enabling trading of RECs at market determined price. Subsequently, there has been a significant decline in REC prices.

For instance, 7.55 lakh RECs, equivalent to 755 MU, was traded in the IEX sessions on November 8 and November 29, 2023, at a clearing price of ₹375 per certificate. It rose to 10.52 lakh RECs, equivalent to 1,052 MU, in the trading sessions on December 13 and December 27, at a clearing price of ₹370 and ₹360, respectively.

The numbers went up further in January 2024, with a total of 15.20 lakh RECs equivalent to 1,520 MU being traded on January 10 and January 31, at a clearing price of ₹360 per certificate, which is also the highest REC volume in FY24.

Trading in RECs dipped in February. A total of 6.14 lakh RECs, equivalent to 614 MU, traded in the sessions held on February 14 and February 28, at a clearing price of ₹360 per certificate and ₹347, respectively.

March again witnessed higher volume of 11.14 lakh RECs, equivalent to 1,114 MU, in the sessions held on March 13 and March 27, at a clearing price of ₹300 and ₹270 per certificate, respectively.

The higher numbers during January and March 2024 were also due to companies undertaking carbon emission audits for FY24. Lower volumes are also reflective of oversupply in the market as REC suppliers have increased to more than two dozen aided by government’s policies to increase adoption of renewables.

April witnessed lower numbers compared with March. A total of 6.18 lakh RECs, equivalent to 618 MU, were traded in the sessions held on April 10 and April 24, at a clearing price of ₹240 a certificate and ₹204, respectively.

Obligated entities

Industry sources said that REC prices have declined substantially since December last year encouraging obligated entities to leverage record low rates to procure RECs.

A government official explained that low prices will encourage obligated entities to meet their RPOs and voluntary customers to meet their sustainability aspirations.

However, even as REC prices have been weakening, some Discoms are not meeting their RPO compliance leading to a huge inventory pile up. For instance, REC inventory in May 2024 is more than 3.5 crore.