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Renewable energy firms pin hopes on Tribunal as REC market collapses

M Ramesh Chennai | Updated on September 26, 2014 Published on September 26, 2014

What do you call a market where 93 lakh instruments are offered for sale but only 22,000 are bought? A dead market.

The trading that took place in ‘renewable energy certificates’ on the country’s two energy exchanges on Wednesday is a sharp reminder of how a well-meant legislation can be rendered useless by poor enforcement.

Electricity produced by renewable sources, such as wind, solar, biomass and hydro, is usually costly and RECs are market tradable instruments given to renewable energy producers who cannot get premium tariffs for their power. They can sell the certificates in the market to ‘obligated entities’ — specified categories of consumers and electricity distribution companies – who are mandated by law to either produce or purchase green power, or buy the certificates in the market.

A portion of this purchase obligation is reserved for ‘solar’, so there are non-solar and solar RECs. The floor and ceiling prices of the RECs are fixed by the Central Electricity Regulatory Commission for five years up to 2017 — ₹1,500-3,300 a certificate for non-solar and ₹9,300-13,400 for solar.

So far, one crore RECs have been issued. On Wednesday, 93,62,473 non-solar and 3,69,977 solar RECs were offered for sale, but only 22,650 and 1,363 respectively were bought.

The reason is that the obligated entities (OEs) are not meeting their obligations and the State electricity regulatory commissions, who are supposed to enforce the law, are not doing so. “It has become a very frustrating experience to run REC trade sessions these days,” says Vishal Pandya, Director, REConnect, a REC market consultancy.

Eyes on APTEL

Against this background, many renewable energy companies are anxiously waiting for the Appellate Tribunal for Electricity (APTEL) to give its verdict, expected next month, on a petition of the Indian Wind Energy Association and the Indian Wind Turbine Manufacturers Association, asking the Tribunal to direct the State regulators to enforce obligations.

A few State regulators (such as Punjab’s) have been warning discoms against default and the hope is that a favourable APTEL judgement will galvanise all regulators to do so.

Need for overhaul

However, in the meantime, there have been calls for overhauling the entire REC regime. A State regulator, who asked not to be named, noted that, often, the certificates are given to companies that do not deserve them — for instance, wind energy producers who sell their electricity directly to consumers at negotiated tariffs, or sugar companies that have co-generation plants. These companies are already well remunerated and do not deserve to make more money by selling the certificates, and that too, at the expense of the bleeding discoms. Moreover, many feel that the floor prices set for solar RECs (₹9.3 a kWhr) is too high and, hence, the lack of compliance.

Published on September 26, 2014
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