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SUMMER INTERNSHIP REPORT

ASSESSMENT OF MARKET POTENTIAL OF REC


AND
STUDY OF INTERNATIONAL REC
FRAMEWORK
Under the guidance of

Ms Manisha Rani, Fellow (Environment), CAMPS, NPTI


&
Mr. V. K. Agrawal General Manager, NLDC
At
National Load Dispatch Centre, New Delhi

Submitted by

ABINASH KUMAR AGRAWAL


ROLL NO: 1120812185
MBA (POWER MANAGEMENT)

(Under the Ministry of Power, Govt. of India)


Affiliated to

MAHARSHI DAYANAND UNIVERSITY, ROHTAK


AUGUST 2012

DECLARATION
I, Abinash Kumar Agrawal, Roll No - 1120812185, student of MBA-Power Management
(2011-13) at National Power Training Institute, Faridabad hereby declare that the Summer
Training Report entitled ASSESSMENT OF MARKET POTENTIAL OF REC AND
STUDY OF INTERNATIONAL REC FRAMEWORK is an original work and the same has
not been submitted to any other Institute for the award of any other degree.

A Seminar presentation of the Training Report was made on ________________________


and the suggestions as approved by the faculty were duly incorporated.

Presentation In-Charge

Signature of the Candidate

(Faculty)

Countersigned
Director/Principal of the Institute

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ACKNOWLEDGEMENT
I am thankful to Mr. V. K. Agrawal (GM, NLDC) for the support and help to carry out this
project work successfully.
Words would be too small to describe the brilliance and
versatility of my project guides Ms. Minaxi Garg ( DGM, Renewables) & Mr. Satyaprakash
for their able and consistent guidance, supervision, vision, help and encouragement at each step
of the work which motivated me throughout the project. I really feel lucky to be under such an
able guiding force in the field of power sector who never got irritated even with the most minor
& silliest doubts of mine.

I would like to extend my gratitude to Ms Manisha Rani, Fellow, NPTI (My Mentor) for her
continuous help and motivation during my summer internship.

I am very much thankful to Mr. S.K.Choudry (Principal Director, CAMPS,NPTI), Ms.


Manju Mam (Deputy Director, NPTI), Ms. Indu Maheshwari (Deputy Director, NPTI) for
providing me an opportunity to work with National Load Dispatch Centre & their precious help
and support.

My sincere thanks to my Batch Mates & Seniors who are working with other reputed
organizations for the help they rendered at each stage of the project.

Abinash Kumar Agrawal

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EXECUTIVE SUMMARY

The report begins by analyzing the rationale for increasing the share of RE is the rising energy
demand that the county is likely to face in the near future. The benefits of increasing the share of
RE are well known and can be visualized in terms of climate mitigation, energy security, saving
of foreign exchange, generation of green jobs and the development of rural infrastructure .

While studying the RE potential in India it has been noticed that there is no supply side
constraint as far as the potential is concerned. However, the estimates of RE potential in India
differ widely from one institution to another. The official figures of RE potential as estimated by
the Ministry of New & Renewable Energy (MNRE) is 90,195 MW excluding solar. The
Planning Commission, Government of India, has pegged the solar potential in India at 500,000
MW.
Before projecting the likely RE capacity addition scenarios at Pan india/state levels the report
critically verifies the adequacy of government-planned RE capacity addition targets over the 12th
Plan periods to meet the 15% renewable energy injection into the national grid as specified in the
National Action Plan on Climate Change (Chapter 4). The NAPCC has recommended that the
minimum share of renewable energy in the national grid be set at 5% in 2009/10, subsequently to
be increased by 1% every year to reach 15% by 2019/20. The anticipated renewable energy
injection envisaged under the NAPCC has been calculated by applying the National RPO targets
to the all-India electricity demand projections given under the 17th Electric Power Survey of
India Report published by the Central Electricity Authority (CEA). The government-planned
capacity addition targets (MNRE), are then converted into energy terms (in billion units) by
applying the weighted average capacity utilization factor (CUF) of all the renewable energy
technologies which is around 29% and compared with the anticipated RE injection envisaged
under the NAPCC. The present installed RE capacity and corresponding generation are also
factored in while making the comparison.

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The comparison reveals that the MNRE-planned capacity additions for 12th Plan period are
inadequate to meet the NAPCC target . The shortfall in energy terms will increase to 40 BU in
FY 17 from 7.7 BU in FY 14. The adequacy of SERC specified state-wise RPO targets to meet
the national RPO in NAPCC is verified by comparing the possible renewable energy generation
due to present state-wise RPO targets with the anticipated renewable energy generation
envisaged in the NAPCC. The possible renewable energy injection into the national grid due to
mandatory RPO targets specified by 25 SERCs in India has been worked out considering the
state-wise solar and non-solar RPO targets and state-wise future energy consumption projected
by CEA. Our analysis indicates that the current non-solar/solar RPO targets specified by the 25
SERCs taken together may not be sufficient to achieve the requisite RE capacity additions to
raise the pan-India solar and non-solar RE-based generation to the 12% share stipulated by the
NAPCC by 2016/17.

LIST OF FIGURES

Figure 1: Methodology ................................................................................................................. 11


Figure 2 : Concept of Renewable Energy Certificate ................................................................... 25
Figure 3 : Steps of REC Mechanism............................................................................................. 28
Figure 4 : Eligibility Criteria to avail REC ................................................................................... 30
Figure 5 : Requirement of renewable energy to meet NAPCC target .......................................... 39
Figure 6 : Number of Certificate Required if shortfall is met through REC ................................ 40
Figure 7 : 12th Plan Capacity Addition through Grid Connected Renewable Energy ................. 41
Figure 8 : Voluntary & Comliance Market ................................................................................... 45
Figure 9 : ROC Mechanism in UK ............................................................................................... 47

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LIST OF TABLES

Table 1: Wind State-wise feed-in tariff ..................................................................................... 14


Table 2: Non-solar/wind RPO levels specified by states .............................................................. 15
Table 3: State-wise registration status of wind projects under REC ............................................ 16
Table 4: State-wise distribution of SRRA sites ............................................................................ 19
Table 5 : Solar State-wise feed-in tariff ..................................................................................... 20
Table 6 : Solar RPO levels specified by states ............................................................................. 21
Table 7: Small hydro projects State-wise feed-in tariff ............................................................. 23
Table 8 : Forbearance & Floor Price as per Order dated 1st June, 2010 ...................................... 32
Table 9: Forbearance & Floor Price as per Order dated 1st April, 2012 ...................................... 32
Table 10: Summary of REC Related Orders................................................................................. 34
Table 11: All India electricity demand and required RE injection to meet the NAPCC Target.. 38
Table 12 : Shortfall of RE that can be met by REC taking three scenarios ................................. 40
Table 13 : 12th Plan Capacity Addition through grid connected Renewable Energy .................. 41
Table 14 : Band Allocation to Different RE Technologies. (Source: Amended RO order 2009) 49
Table 15 : Target Renewable Obligations of UK. (Source: Ofgems Obligation orders 2009) ... 50
Table 16 : Schedule of Solar Credits Multipliers (Source: ORER) .............................................. 55

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ABBREVIATIONS
CEA

Central Electricity Authority

CERC

Central Electricity Regulatory Commission

CUF

Capacity Utilisation Factor

EA

2003 Electricity Act 2003

FOR

Forum of Regulators

MNRE

Ministry of New and Renewable Energy

MUs

Million Units

MW

Mega Watt

MWh

Mega Watt Hour

NAPCC

National Action Plan for Climate Change

NEP

National Electricity Policy

NLDC

National Load Despatch Centre

OA

Open Access

PLF

Plant Load Factor

PPA

Power Purchase Agreement

RE

Renewable Energy

REC

Renewable Energy Certificate

RLDC

Regional Load Despatch Centre

RO

Renewable Obligation

ROC

Renewable Obligation Certificate

RPS

Renewable Purchase Specification

RPO

Renewable Purchase Obligation

SERC

State Electricity Regulatory Commission

SLDC

State Load Despatch Centre

AD

Accelerated Depreciation

CDM

Clean Development Mechanism

GBI

Generation Based Incentive

GOI

Government of India

JNNSM

Jawaharlal Nehru National Solar Mission

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TABLE OF CONTENTS
DECLARATION ............................................................................................................................................... ii
ACKNOWLEDGEMENT .................................................................................................................................. iii
EXECUTIVE SUMMARY ................................................................................................................................. iv
LIST OF FIGURES ........................................................................................................................................... vi
LIST OF TABLES ............................................................................................................................................ vii
ABBREVIATIONS ......................................................................................................................................... viii
CHAPTER 1: INTRODUCTION ........................................................................................................................ 1
1.1 OVERVIEW ........................................................................................................................................... 1
1.2 OBJECTIVE: .......................................................................................................................................... 2
1.3 SCOPE OF WORK ................................................................................................................................. 3
1.4 ORGANIZATION PROFILE ..................................................................................................................... 3
CHAPTER -2 : LITERATURE SURVEY, POLICY & RESEARCH METHODOLOGY ................................................ 5
2.1 LITERATURE SURVEY ........................................................................................................................... 5
2.2 LEGAL AND POLICY INITIATIVES .......................................................................................................... 8
2.2.1 Electricity Act 2003 ...................................................................................................................... 8
2.2.2 National Electricity Policy............................................................................................................. 9
2.2.3 National Tariff Policy (NTP) .......................................................................................................... 9
2.2.4 Rajiv Gandhi Grameen Vidyutikaran Yojana (RGGVY) 2005: ..................................................... 10
2.2.5 Eleventh Plan 20072012 .......................................................................................................... 10
2.3 METHODOLOGY: ............................................................................................................................... 11
CHAPTER -3 : ASSESMENT OF MARKET POTENIAL OF REC ........................................................................ 12
3.1 OVERVIEW OF RENEWABLE IN INDIA ............................................................................................... 12
3.1.1 Wind Energy: .............................................................................................................................. 12
3.1.2 Solar Energy ............................................................................................................................... 17
3.1.3 Small Hydro ................................................................................................................................ 22
3.1.4 Bio energy .................................................................................................................................. 23
3.2 REC Mechanism in India: ................................................................................................................... 25
3.2.1 REC Mechanism Objectives ........................................................................................................ 26
3.2.2 Salient Features of the REC Framework..................................................................................... 26
3.3 Analysis on Market Potential for Renewable Energy certificates ..................................................... 37
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3.3.1 Introduction ............................................................................................................................... 37


3.3.2 Approach for determination of volume of RECs ........................................................................ 37
3.3.3 The Existing Plans/And Shortfall ................................................................................................ 38
3.3.4 Calculation.................................................................................................................................. 42
3.3.5 Traditional Policy Framework and its Impact on Renewable Energy Development:................. 44
3.3.6 Issues .......................................................................................................................................... 45
CHAPTER 4 : REC INTERNATIONAL LEARNING ........................................................................................ 47
4.1 United Kingdom: ............................................................................................................................... 47
4.1.1 Renewable Obligation: ............................................................................................................... 50
4.1.2 Repayment of Buyout Funds, Late Payments and Mutualisation Funds: .................................. 53
4.2 Australia: ........................................................................................................................................... 53
4.2.1 Partial Exemption Certificates (PEC): ......................................................................................... 54
4.2.2 Solar Credits: .............................................................................................................................. 55
4.2.3 Renewable Obligation: ............................................................................................................... 56
CHAPTER -5 CONCLUSION & WAY FORWARD ............................................................................................ 57
5.1 Key outcomes of the scenario analysis ............................................................................................. 57
5.2 Roadmap of Actions Needed ............................................................................................................ 58
BIBLIOGRAPHY ............................................................................................................................................ 59
ANNEXURES ................................................................................................................................................ 60
ANNEXURE - 1 ......................................................................................................................................... 60
ANNEXURE 2 ........................................................................................................................................ 62
ANNEXURE - 3 ......................................................................................................................................... 63

CHAPTER 1
INTRODUCTION
1.1 OVERVIEW
India has great potential to accelerate the use of its endowed renewable resources to power its
growing economy with a secure and affordable energy supply. The Government of India
recognizes that development of local, renewable resources is critical to ensure that it is able to
meet both its economic and environmental objectives, and it has promoted this development
through policy action. The Indian economy has experienced tremendous growth over the past
several years. Energy, in all its forms, underpins both past and future growth. For the Indian
economy to continue this trajectory, India needs to address its energy challenges, which cross all
sectors and impact all citizens. Electricity both in terms of quality and access is a key challenge.
The quality of the current electricity supply is impeding Indias economic growth. Issues such as
voltage fluctuation, frequency variation, spikes, black-outs, brown-outs, and other disruptions
impact industrial, commercial, and residential consumers. The addition of grid- tied renewable
power can help address these issues.
Much of Indias population is not experiencing the benefits of economic growth. The
Government of India sees the provision of electricity to all as critical to inclusive growth. It
recognizes off-grid renewable energy as a practical, cost-effective alternative to an expansion of
grid systems in remote areas of the country.
India currently emits approximately 4% of global GHG emissions. However, its per capita
emissions are only one-quarter of the global average and less than one-tenth of those of most
developed nations. India has committed to reducing the emissions intensity of its economy to
20%25% below 2005 levels by 2020 and has pledged that per capita GHG emissions will not
exceed those of industrialized nations. There are two primary climate-focused instruments that
are influencing deployment of renewable energy technologies in India. The first is NAPCC,
which was released in 2008 with the aim of promoting development goals while addressing GHG
mitigation and climate change adaptation. NAPCC suggests that up to 15% of Indias energy
could come from renewable sources by 2020. The NAPCC includes eight focused missions, one

of which is dedicated to solar energy (the others concern energy efficiency, water, sustainable
habitat, and related topics). In addition, the Clean Development Mechanism (CDM) of the Kyoto
Protocol is supporting development of renewable energy projects in India.
In 1992, the Government of India established MNRE, the worlds first ministry committed to
renewable energy. MNRE is dedicated to expanding contributions of renewable energy in all of
Indias end-use sectors and undertakes policy and planning activities to that end. MNRE also
supervises national-level renewable energy institutes such as the Solar Energy Centre and the
Centre for Wind Energy Technology. The Indian Renewable Energy Development Agency
(IREDA) provides financial support and innovative financing for renewable energy and energy
efficiency projects with funds from the Indian government and multilateral lending agencies.
IREDA also administers the central governments renewable energy incentive programs. Other
government institutions with direct responsibilities that extend into renewable energy include
several units under the Ministry of Power, the Planning Commission, and the Prime Ministers
Council on Climate Change
.
1.2 OBJECTIVE:
The focus of the study was to see whether the national RE target specified in the National Action
Plan on Climate Change (NAPCC) can be achieved, India being in the nascent stage of REC
implementation thus various operational and regulatory issues are also covered. The main
objectives behind commissioning this study were to:
Study the REC Mechanism & analysis of various Current Issues.
Ascertain whether the targets for RE capacity addition set by the MNRE over the 12th Plan
period is adequate with regard to NAPCC recommendation & subsequently finding out a
market potential of REC.
Project the likely RE capacity addition scenarios at the national level and at the state level to
match the RE targets specified in NAPCC.
Understanding REC mechanism in other international markets.

1.3 SCOPE OF WORK


Renewable energy has created competition in electricity market and has led to reduction in use of
fossil fuels which are used for generation of electricity and in significant benefits for
environment by cutting down emission and also creates greener environment. The study will help
to understand the entire process of REC mechanism, RE source availability, and a comparative
study to analyze whether the target set by MNRE is adequate as per the NAPCC guidelines.
International learning from two markets i.e Australia & UK is being done in this assignment
where REC has been successfully implemented.

1.4 ORGANIZATION PROFILE

National Load Despatch Centre (NLDC) has been constituted as per Ministry of Power (MOP)
notification; New Delhi dated 2nd March 2005 and is the apex body to ensure integrated
operation of the national power system. On 25th February, 2009 the National Load Dispatch
Center(NLDC) was inaugurated. Now these Regional Load Dispatch Centers (RLDCs) and
National Load Dispatch Center (NLDC) is a separate Organization named POSOCO (Power
system Operation Corporation). POSOCO is fully owned subsidiaries of POWERGRID.There
are 5 RLDCs and 33 SLDCs under NLDC

Mission

A mission critical activity for uninterrupted, secure, reliable and quality power supply
in the country

A relentless pursuit for optimization of precious power generating resources and


minimization of inherent system losses

A facilitator for an efficient electricity market

A vehicle for equitable and fair use of the transmission infrastructure in the country

A vital link between the administrators, planners & regulators on one end and physical
system on the other end.

Functions of National Load Dispatch Centre

Supervision over the Regional Load Dispatch Centers.

Scheduling and dispatch of electricity over the inter-regional links in accordance with
grid standards specified by the authority and grid code specified by Central Commission
in coordination with Regional Load Dispatch Centers.

Coordination with Regional Load Dispatch Centres for achieving maximum economy
and efficiency in the operation of National Grid.

Monitoring of operations and grid security of the National Grid.

Supervision and control over the inter-regional links as may be required for ensuring
stability of the power system under its control.

Coordination with Regional Power Committees for regional outage schedule in the
national perspective to ensure optimal utilization of power resources.

Coordination with Regional Load Dispatch Centers for the energy accounting of interregional exchange of power.

Coordination for restoration of synchronous operation of national grid with Regional


Load Dispatch Centers.

Coordination for trans-national exchange of power.

Providing Operational feedback for national grid planning to the Authority and Central
Transmission Utility.

Levy and collection of such fee and charges from the generating companies or licensees
involved in the power system, as may be specified by the Central Commission.

Dissemination Of information relating to operations of transmission system in accordance


with directions or regulations issued by Central Government from time to time.

CHAPTER -2
LITERATURE SURVEY, POLICY AND RESEARCH METHODOLOGY

2.1 LITERATURE SURVEY

N.H.van der Linden et al (2005), The main policy instruments currently used in the EU Member
States to achieve the targets set for electricity produced from renewable energy sources are:
1) the quota obligation system; 2) the feed-in tariff system; and 3) the tendering system. The
current study aims to review the experience gained with the quota obligation system. The report
provides an overview of the regions where obligation systems have been implemented and
contains a detailed evaluation of the performance of the obligation systems in the USA, the UK
and in Sweden. The obligation systems in these countries have been evaluated based on the
following criteria:

Effectiveness

Market efficiency

Certainty for the renewable energy industry

Cost effectiveness

Stakeholder support for the obligation system, and

Equity.

The evaluation of international experiences with the obligation system gives rise to a mixed
picture. Although an obligation in theory is effective and cost effective, it seems too early to
conclude that the system delivers these promises in practice. On the one hand this is due to the
limited period of implementation that makes it hard to distinguish between the direct effect of the
system and some teething problems that will be solved in due time. On the other hand, the
conclusion can be drawn that the obligation is a complex system, which will only function well if
designed carefully. It does seem worthwhile, however, to continue monitoring the experiences
with the obligation system abroad, because this will further reveal whether the system is indeed
effective and cost effective in practice. In the longer term, e.g. beyond 2010, the introduction of
an obligation system in the Netherlands could be considered. Finally, as the design of support
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schemes is being improved, it appears that the basic concepts of both the obligation system and
the feed in system have been refined in such a way that the two systems are gradually
converging. An important difference between the two systems however remains, namely that an
obligation system relies more on market forces whereas the feed-in system is based on a greater
involvement of the government.

Anoop singh (2010) Renewable energy sources (RES) have been promoted through a number of
policies including subsidies and fiscal incentives, as well as regulatory provisions. Attractive
fiscal policies like higher depreciation and the Renewable Portfolio Obligation (RPO) with Feedin-Tariff (FiT) have provided significant impetus to growth of renewable energy in the electricity
sector in India.1 Economic efficiency of renewable energy promotional policies like RPO with
FiT has been questioned as these do not provide incentive for cost reduction and exploitation of
cost-effective resources with appropriate technology. Tradable Renewable Energy Certificates
(RECs) are identified as market-based instruments that can help promote RES in a cost-effective
manner. Renewable Energy Credits or RECs are used as a disclosure, marketing and compliance
mechanisms in a number of countries. These are called Renewable Obligation Certificates
(ROCs) in the UK and green tags or Tradable Green Certificates (TGCs) across many countries
in the Europe, Guarantee of Origin (GO) or Renewable Energy Guarantee of Origin (REGO) is
often used in the European Union (EU) as a disclosure mechanism. At least 21 REC schemes
were under operation in a number of jurisdictions including the UK, Italy, the Netherlands,
Sweden, Australia, and numerous states in the US (Mendonca et al. 2010; Bertoldi and Huld
2006).
In the Indian context, Singh (2006 and 2009) discusses the advantages of RECs and proposes its
implementation to bring in economic efficiency in promotion of RES. The Central Electricity
Regulatory Commission (CERC) has recently issued regulations2 for introducing a market for
RECs in the country (CERC 2010a). This chapter critically examines the above regulations and
identifies areas for improvement. We discuss the impact of market segmentation into solar and
non solar RECs, and propose a multiplier scheme. While presenting a mechanism for price
discovery of RECs, it also highlights the importance of a buyout price. The chapter proposes a
linkage between the FiT and REC mechanisms. It begins by highlighting the role of RECs in
promoting RES in an economically efficient manner. We also present a framework for
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developing a market for RECs, and discuss institutional mechanisms and role of various
stakeholders.

S.K.Soonee et al (2011) India has been richly endowed with renewable resources. Since the cost
of electricity generated from such resources is expensive, large scale development of renewable
resources did not take place. Concern about climate change and concerted action to reduce green
house gas emissions are powerful drivers for renewable energy. Lately, in view of growing
awareness about green environment, development of renewable energy has been promoted by
fiscal policies of Government of India. These include tax incentives and purchase of electricity
generated through renewable energy sources. Enactment of the Electricity Act 2003 (the Act) has
lent further support to renewable energy by stipulating purchase of a percentage of the power
procurement by distribution utilities from renewable energy sources. The renewable purchase
obligation as well as preferential tariff for procurement of such power has been specified by
various State Electricity Regulatory Commissions (SERCs). Renewable energy sources are not
spread evenly across the state boundaries and the very high cost of generation from RE sources
discourages local distribution licensees from purchasing electricity generated from RE sources.
Renewable Energy Certificate seeks to address the mismatch between availability of RE sources
and the requirement of the obligated entities to meet their renewable purchase obligation by
purchasing green attributes of renewable energy remotely located in the form of Renewable
Energy Certificate (REC). This paper discusses regulatory developments including Indian
Electricity Grid Code-2010 (IEGC) for promotion of renewable energy in India and in particular
the nationally tradable renewable energy credits in the form of Renewable Energy Certificates
(REC) for achieving the targets set by respective SERCs for renewable purchase obligations.
This would help to minimize cost of power procurement, and lead to efficient resource utilization
across the country and provide incentive for investment in appropriate technologies. The paper
highlights salient features, advantages and implementation of REC mechanism in India. The
REC mechanism is a market based instrument, to promote renewable sources of energy and
development of market in electricity, leading to the sustainable development of the country.
Recognizing that, like other resources the renewable resources are also not evenly distributed
across the country, it encourages setting up of larger generation capacities at resource rich
locations and, through a process of Certification create a market based instrument which can be

traded, on CERC approved power exchanges, to obligated entities or voluntary buyers to fulfil
their Renewable Purchase Obligation/ Social Responsibility.

2.2 LEGAL AND POLICY INITIATIVES


In the last few years, a set of conducive policies facilitating accelerated RE development have
been put in place. These relate to legal provisions and policy pronouncement.
2.2.1 Electricity Act 2003
The Electricity Act, (EA), 2003, introduced some enabling provisions that were conducive for
accelerated development of grid connected renewables.

Under Section 61(h), promotion of cogeneration and generation of electricity from


renewable sources of energy has been made the explicit responsibility of state electricity
regulatory commissions (SERCs), who are taking these considerations into account while
drafting their terms and conditions for tariff regulations. Nearly all SERCs have issued
their tariff regulations/orders incorporating suitable clauses which will enable the SERCs
to provide a preferential treatment to renewable energy during the tariff determination
process.

Under Section 86 (1)(e), SERC is also made responsible for the following:
i. Ensuring suitable measures for connectivity of renewable power to the grid;
ii. Sale of renewable energy electricity to any person;
iii. Mandating purchase of a certain percentage of total energy consumption from
renewables

As mandated under section 86 1(e) of EA, 2003, almost 24 SERCs have fixed certain
quota (in terms of percentage of electricity being handled by the power utility) to procure
renewable energy. The mandate termed as Renewable Purchase Obligation (RPO) or
Renewable Purchase Specification (RPS) varies from 0.5% to 14% in various states. Few
states have come out with technology-specific RPO or RPS. Besides, the state regulators
determine the tariff for all RE projects in the states and ensure connectivity to the grid
through extension of power evacuation from the RE project sites which are generally at
remote locations and away from major load centers.
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2.2.2 National Electricity Policy


Clause 5.12 of the National Electricity Policy stipulates several conditions for promotion and
harnessing of renewable energy sources. The salient features of the said provisions of NEP are
reproduced below.

5.12.1: Non-conventional sources of energy being the most environment-friendly, there is


an urgent need to promote generation of electricity based on such sources of energy. For
this purpose, efforts need to be made to reduce the capital cost of projects based on nonconventional and renewable sources of energy. Cost of energy can also be reduced by
promoting competition within such projects. At the same time, adequate promotional
measures would also have to be taken for development of technologies and a sustained
growth of these sources.

5.12.2: The Electricity Act, 2003, provides that co-generation and generation of
electricity from non-conventional sources would be promoted by the SERCs by providing
suitable measures for connectivity with the grid and sale of electricity to any person and
also by specifying, for purchase of electricity from such sources, a percentage of the total
consumption of electricity in the area of a distribution licensee.

2.2.3 National Tariff Policy (NTP)


This policy further elaborates the role of regulatory commissions, the mechanism for promoting
renewable energy, the time frame for implementation, etc. Clause 6.4 of the policy addresses
various aspects associated with promoting and harnessing renewable energy sources. Salient
features of the provisions made by the NTP are as follows.

Pursuant to provisions of Section 86 (1) (e) of EA, 2003, the appropriate Commission
shall fix a minimum percentage for purchase of energy from such sources, taking into
account availability of such resources in the region and its impact on retail tariffs. Such
percentage for purchase of energy should be made applicable for the tariffs to be
determined by the SERCs latest by 1 April 2006.

It will take some time before non-conventional technologies can compete with
conventional sources in terms of cost of electricity. Therefore, procurement by
distribution companies shall be done at preferential tariffs determined by the appropriate
Commission.

Such procurement by distribution licensees for future requirements shall be done, as far
as possible, through competitive bidding process under Section 63 of the Act among
suppliers offering energy from same type of non-conventional sources. In the long term,
these technologies would need to compete with other sources in terms of full costs.

The Central Commission should lay down guidelines within three months for pricing
non-firm power, especially from non-conventional sources, to be followed in cases where
such procurement is not through competitive bidding.

Recently on 20th January 2011, clause 6.4 (1) is amended with inclusion of solar specific RPO.
Now clause 6.4 (1) reads as follows: within the percentage so made applicable, to start with, the
SERCs

2.2.4 Rajiv Gandhi Grameen Vidyutikaran Yojana (RGGVY) 2005:

Supports extension of electricity to all rural and below poverty line households through a 90%
subsidy of capital equipment costs for renewable and non-renewable energy systems.

2.2.5 Eleventh Plan 20072012

Establishes a target that 10% of power generating capacity shall be from renewable sources by
2012 (a goal that has already been reached); supports phasing out of investment-related subsidies
in favor of performance-measured incentives. _
As of April 2010, 18 states had established RPOs or had draft regulations under consideration
with RPO requirements ranging from 1% to 15% of total electricity generation. In January 2010,
CERC announced the terms of a tradable Renewable Energy Certificate (REC) program. Under
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this program, generators choose between selling the renewable electricity generated at a
preferential tariff and selling the electricity generated separately from the environmental benefits.
The environmental attributes can be exchanged in the form of RECs, which will be issued by a
central agency set up for administration of this program. RPOs are not yet enforced.

2.3 METHODOLOGY:

With the broad objective of meeting the NAPCC target of 15% RE by 2020, MNRE projection
of renewable capacity addition in the 12th five year plan were considered keeping in mind the
availability and commercial potential of each RE resource in India. Secondary data about state
level future RE capacity addition, state wise rpo targets, energy requirement & availability status
of various states etc., has been collected from various sources. The historical annual energy
scenario over the past decade, as well as in the recent past, has also been studied before
projecting future demand.

Energy requiremen & RE Potential from Auhentic sources are


taken.
REC Mechanism in India (Collection of regulatory
Information ,policy framework,etc)
International market of UK & Australia are covered

Various operating & regulatory issues were analysed

Analysis & Conclusion

Figure 1: Methodology

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CHAPTER -3
ASSESSING OF MARKET POTENTIAL OF REC

3.1 OVERVIEW OF RENEWABLE IN INDIA

3.1.1 Wind Energy:


3.1.1.1 Existing policy and regulatory regime for wind power
The regulatory policies for wind power sector emanated from the Electricity Act, 2003,
mandating SERCs to generate renewable electricity by providing connectivity and creating
purchase obligations. Besides, several other federal-level policy incentives through accelerated
depreciation and other exemptions are also available to developers. These interventions have
helped the wind industry to grow many folds.
The pro-wind policies adopted by the central and state governments include the following:

3.1.1.2 Tax exemption through accelerated depreciation


Investors can take advantage of the tax exemption through an accelerated depreciation of up to
80% of the project cost within the first year of commissioning of projects. This is the most
significant incentive that has led to the growth of the wind industry.

3.1.1.3 Income tax exemption and import duty waivers


Wind power project owners are exempted from income tax on all earnings generated from the
project for any single 10-year period during the first 15 years of the project life. Besides, import
duty waivers on wind turbines and other components are available.

3.1.1.4 Soft loans from Indian Rural Energy Development Agency


MNRE and the Indian Rural Energy Development Agency (IREDA) have issued guidelines for
financing wind energy projects, applicable from 3rd February 2009.

12

3.1.1.5 Generation-based incentives


In December 2009, MNRE announced the scheme for the implementation of generation-based
incentives (GBI) for grid-interactive wind power projects. The introduction of GBI aims at
attracting large IPPs and foreign direct investors to the wind power sector by giving an incentive
on the generation of electricity. IREDA is the nodal agency for the implementation of GBI. The
scheme provides an incentive of Rs. 0.50/kWh through IREDA with a total cap of Rs. 6.2
million/MW spread over a minimum of 4 years (i.e., an annual cap of Rs. 1.55 million/MW). The
incentive is over and above the feed-in tariff specified by the respective SERCs. The scheme is
not applicable for third party sale and merchant plants, but is applicable for captive power plants.

13

3.1.1.6 Feed-in tariff


Central and state electricity regulatory commissions have notified the wind-specific feed-in tariff
for electricity generated from wind. The tariffs applicable in various states are as per the
following table.

STATE
Madhya Pradesh
(Order dated
14/05/10)
Andhra Pradesh
(Order dated
01/05/2009)

WIND ENERGY TARIFF (RS. PER UNIT)


Rs. 4.35 levelised for 25 years
Rs. 3.50 for 10 years, next 10 years tariff to be decided
afterwards

Gujarat (Order dated


30/01/2010)

Rs. 3.56 fixed for 25 years

Karnataka (Order
dated 11/12/2009)

Rs. 3.70 fixed for 10 years

Rajasthan (Order
dated 14/12/2011)

Rs. 4.46: Jaisalmer, Jodhpur, and Barmer districts


Rs. 4.69: Other districts, fixed for 20 years
Wind Energy Zone

Maharashtra (Order
dated 21/04/2010)

Wind Zone 1
Wind Zone 2
Wind Zone 3
Wind Zone 4

Kerala (Order dated


22/11/2010)
Tamil Nadu (Order
dated 20/03/2009)

Net Levelised Tariff (Rs./kWh)


201112
4.56
3.96
3.38
3.04

Rs. 3.64 for 20 years


Rs. 3.39 for 20 years

Haryana (Order
dated 15/05/2007)

Rs. 4.08 applicable for 5 years with annual escalation of 1.5%


from 2008-09

Punjab (Order dated


13/12/2007)

Rs. 3.49 (base year 2006-07) with annual escalations @5% up to


2011-2012

West Bengal
(Notification dated
25/03/08)

Rs. 4.00 fixed for 5 years and as cap


Table 1: Wind State-wise feed-in tariff

14

3.1.1.7 Renewable purchase obligation


Most of the SERCs have notified the RPO regulations for which the control period is ending in
either 2013 or 2014. The non-solar RPOs announced by various SERCs are mentioned in the
table below.
STATE
Gujarat
Haryana
Himachal Pradesh
Jammu and Kashmir
Jharkhand
Goa and other UTs

FY 12
5.00%
1.25%
10.00%
2.90%
2.50%
1.70%
9.75%

Karnataka
6.75%
Kerala
Madhya Pradesh
Maharashtra
Manipur
Mizoram
Meghalaya
Nagaland
Orissa
Punjab
Rajasthan
Tamil Nadu
Tripura
Uttar Pradesh
Uttaranchal
West Bengal

3.05%
2.10%
6.75%
2.75%
5.75%
0.15%
6.75%
1.20%
2.37%
4.50%
8.95%
0.90%
4.50%
4.50%
3%

FY 13
FY 14
5.50%
1.50%
2.25%
10.00%
10.00%
4.75%
3%
2.60%
2.60%
For BESCOM, MESCOM,
CESCOM
For GESCOM, HESCOM, Hukeri
3.35%
3.40%
7.75%
4.75%
6.75%
0.20%
7.75%
1.40%
2.83%
6.60%
To be declared
0.90%
5%
5%
4%

Table 2: Non-solar/wind RPO levels specified by states

15

3.65%
4.70%
8.50%

1.60%
3.37%
7.70%
1.90%
5%

3.1.1.8 Renewable Energy Certificate mechanism


A renewable energy certificate represents the renewable attributes of a single megawatt-hour of
renewable energy. The participation of wind energy generators in the renewable energy
certificate (REC) market has also been quite encouraging, totaling a registered capacity of 672
MW. The status of REC market for wind projects registered as on 31st October 2011 is as
follows:

SR. NO.

STATE

WIND (NO. OF
UNITS)

WIND
CAPACITY(MW)

1
2
3
4
5
6
7
8
9

Gujarat
Maharashtra
Rajasthan
Tamil Nadu
Himachal Pradesh
Jammu and Kashmir
Chhattisgarh
Haryana
Uttar Pradesh
Total

11
111
4
30
0
0
0
0
0
156

92
290
28
262
0
0
0
0
0
672

Table 3: State-wise registration status of wind projects under REC

16

3.1.2 Solar Energy


The solar energy sector in India has received great impetus since the announcement of the
Gujarat Solar Policy in January 2009, which is a milestone in Indias solar energy development
programme. The Government of India announced the Jawaharlal Nehru National Solar Mission
(JNNSM) on 23rd November 2009, which was launched on 11th January 2010. The mission
seeks to kick-start solar generation capacities, drive down costs through local manufacturing, and
boost research & development (R&D) in order to accelerate the transition to clean and secure
energy.
The key driver promoting solar power projects has been the solar-specific RPOs. As per the solar
mission, the solar power purchase obligation for states may start with 0.25% in Phase I and go up
to 3% by 2022. Developers will have the option of participating in the solar-specific REC
mechanism or availing benefits from the feed-in tariff. The RECs will also allow states with
relatively poor solar resources to meet their RPO commitments. Several estimates have been
made on solar power potential, and most of them have identified the feasible solar power
potential in India to be more than 100,000 MW. This potential coupled with the thrust from the
government to develop solar power, has made investments in solar power very attractive to solar
developers. The key aspects related to solar power are as follows.

3.1.2.1 Ambitious targets of National Solar Mission


The targets for grid-connected solar power for the three phases of the mission are as follows:
Phase 1: 1,000-2,000 MW by 2013
Phase 2: 4,000-10,000 MW by 2017
Phase 3: 20,000 MW by 2022

At the launch of the National Solar Mission, these targets appeared aggressive. But after the two
rounds of bidding for NTPC Vidyut Vyapar Nigam Limited Phase I projects, these targets were
found to be achievable considering the focus and support of the government. A moderate
achievement of mission targets (4,000-10,000 MW solar power by 2017), considering a normal
fructification rate of project proposals and interest of investors, could lead to a figure of 4,000-

17

6,000 MW of solar power by 2015. Solar power developers have shown interest in setting up
solar power projects in various states.
.
3.1.2.2 Potential assessment
The daily average solar energy incident varies from 4-7 kWh per square meter of surface area
depending on the location and time of the year. Solar radiation is available at most locations in
the country for about 300 days in a year.
With the launch of JNNSM, the requirement of solar radiation data gains utmost importance as it
is required by
Solar project developers to design their projects optimally to achieve competitive costs of
energy generation
Financial institutions to be convinced about the viability of solar power projects
The government to formulate policies backed by scientific rationale
Regulators to determine levelised tariff.

The solar radiation data assumes critical importance as it impacts the viability of solar power
projects, which are quite capital intensive. As of now, the measurement of global solar radiation,
diffuse solar radiation, and direct normal incidence (DNI) is being carried out only at 39, 23, and
21 locations, respectively.
MNRE has also taken cognizance of the requirement of correct estimation of radiation data and
has started the augmentation of the network of solar radiation resource assessment (SRRA)
stations, to begin with, by setting up such stations at sites with high potential for solar power
generation in the country. C-WET is implementing this project. 51 ground-monitoring stations
are being set up, where all the relevant solar radiation parameters and associated weather
parameters will be monitored.

18

SR. NO.

STATE

NO. OF SITES

1
2
3
4
5
6
7
8
9
10

Andhra Pradesh
Chhattisgarh
Gujarat
Jammu and Kashmir
Madhya Pradesh
Maharashtra
Karnataka
Pondicherry
Rajasthan
Tamil Nadu

7
1
11
1
3
3
5
1
12
6

Table 4: State-wise distribution of SRRA sites

The key takeaway is that the country has enormous solar energy potential. The daily average
solar energy incident varies from 4-7 kWh per square metre of surface area depending on the
location and time of the year. Gujarat and Rajasthan with excellent solar radiation and abundant
land availability are the most suitable states for solar energy plants. Other suitable states are
Andhra Pradesh, Tamil Nadu, Karnataka, Madhya Pradesh, Maharashtra, and Orissa. However,
the solar energy potential in the country remains largely unutilized.

3.1.2.3 Existing policy and regulatory regime for solar power


The policy and regulatory regime emanated from the Electricity Act, 2003; the National Tariff
Policy, 2006; the Gujarat Solar Policy; and the National Solar Mission as a part of NAPCC, that
mandated SERCs to generate renewable electricity by providing connectivity and creating
purchase obligations. The pro-solar policies adopted by the central and state governments
include the following.

3.1.2.4 Tax exemption through accelerated depreciation


Investors can take advantage of tax exemption through accelerated depreciation of up to 80% of
the project cost within the first year of commissioning of projects.

19

3.1.2.5 Income tax exemption and import duty waivers


Solar project developers are exempted from income tax on all earnings generated from the
projects for any single 10-year period during the first 15 years of the project life. Besides, import
duty on panels and other components is waived.

3.1.2.6 Feed-in tariff


Central and state electricity regulatory commissions have notified the feed-in tariff for electricity
generated from solar sources. The tariffs applicable in various states are given in the following
table.

SL.NO

STATE

Gujarat

WIND ENERGY TARIFF (RS. PER UNIT)


Solar PV: Rs. 15 (year 1-12),
Rs. 5 (year 13-25)Solar Thermal: Rs. 11 (year 1-12), Rs. 4 (year 13-25)

Karnataka

Rs. 14.5 -Solar PV and Rs. 11.35 -Solar Thermal

Madhya
Pradesh

Rs. 15.35 -Solar PV and Rs. 11.26 -Solar Thermal

Maharashtra

Rs. 13.10 -Solar PV and Rs. 12.85 -Solar Thermal

Rajasthan

Rs. 15.32 -Solar PV and Rs. 12.58 -Solar Thermal

Tamil Nadu

Rs. 14.34 (after availing the Accelerated Depreciation benefits)


Table 5 : Solar State-wise feed-in tariff

20

3.1.2.7 RPO
Most of the SERCs have notified the solar RPO regulations for which the control period is
ending in either 2013 or 2014. The solar RPOs announced by various SERCs are given in the
table below.

STATE
Assam
Bihar
Chhattisgarh
Gujarat
Haryana
Himachal Pradesh
Jammu andKashmir
Jharkhand
Karnataka
Kerala
Madhya Pradesh
Maharashtra
Orissa
Punjab
Rajasthan
Tamil Nadu
Uttar Pradesh
Uttaranchal

FY 12

FY 13

FY 14

0.10%
0.50%
0.25%
0.50%
0.25%
0.01%
0.10%
0.50%
0.25%
0.25%
0.40%
0.25%
0.10%
0.03%
0.50%
0.05%
0.50%
0.03%

0.15%
0.75%
0.50%
1%
0.50%
0.25%
0.25%
1.00%

0.20%
1.00%

0.75%
0.25%

0.25%
0.25%
0.60%
0.80%
0.25%
0.50%
0.15%
0.20%
0.07%
0.13%
0.50%
0.50%
To be declared
1.00%
0.05%
-

Table 6 : Solar RPO levels specified by states

3.1.2.8 REC mechanism


The implementation of the REC mechanism has facilitated the transfer of the green attribute of
the electricity generated from renewable sources of energy to the states with scarce RE potential.
The first solar Photo Voltaic project was registered under the REC mechanism in October 2011
only.

21

3.1.3 Small Hydro

3.1.3.1 Background
Hydropower represents the use of water resources towards inflation-free energy due to the
absence of fuel cost, mature technology, and a high plant load factor. Out of the total installed
capacity in India of 176,990 MW (June 2011), hydropower contributes about 21.5%, i.e., 38,106
MW. The total hydroelectric power potential in the country is assessed at about 150,000 MW,
equivalent to 84,000 MW at 60% load factor. The potential of small hydropower projects is
estimated at about 15,000 MW. While the Ministry of Power, Government of India, deals with
large hydro projects, the responsibility of small hydropower development rests with MNRE.

Most of the small hydropower projects are driven by large private investment. Generally, the
projects are economically viable and the private sector is showing lot of interest in setting up
small hydropower projects. The viability of these projects improves with the increase in the
capacity of the projects. These projects have the potential to meet the power requirements of
remote and isolated areas. These factors make small hydropower projects one of the most
attractive renewable sources for grid-quality power generation.

3.1.3.2 Potential assessment


The estimated potential of power generation in the country from small/mini hydropower projects
is about 15,500 MW. Almost 50% of the total estimated potential lies in the states of Himachal
Pradesh, Uttarakhand, Jammu and Kashmir, and Arunachal Pradesh. In the plain region,
Maharashtra, Chhattisgarh, Karnataka, and Kerala have a sizeable potential.

3.1.3.3 Feed-in tariff


Central and state electricity regulatory commissions have notified the feed-in tariff for electricity
generated from small hydropower projects. The tariffs applicable in various states are given in
the following table.

22

STATE

TARIFF

Andhra Pradesh

Rs. 2.691.92 (year 1-10)

Gujarat

Rs. 3.29 for FY 08 escalation @3%

Karnataka

Rs. 3.4 for 10 years

Madhya Pradesh

Rs. 5.403.73 (Year 1-30)

Maharashtra

Rs. 3.34

Himachal Pradesh

Rs. 2.95

Table 7: Small hydro projects State-wise feed-in tariff

3.1.4 Bio energy

3.1.4.1 Background
Biomass is a vital source of energy for meeting the household and industrial energy requirements
in India. It is the most commonly used domestic fuel. It is also used as the energy source for
several small-scale industries and as fuel for independent power plants. A cumulative capacity of
2,650 MW biomass power and bagasse co-generation has so far been commissioned, which
includes 1,000 MW from biomass power and 1,650 MW from bagasse cogeneration. Several
states including Maharashtra and Karnataka have initiated action for setting up agro residue
based projects, which aggregate to about 3,000 MW. In addition, 300 MW non-bagasse
cogeneration projects have been installed. Besides this, about 120 MW equivalent biomass
gasifier systems have been installed in rice mills and other industries for captive power and
thermal applications.

3.1.4.2 Potential assessment


As per the Biomass Resource Atlas of India, prepared by IISc and facilitated by MNRE,
Estimated biomass power potential is 18,601 MW;
Estimated wasteland power potential is 6,239 MW.
23

The biomass power potential can be increased significantly by exploring the opportunity of high
yield varieties and energy plantation in the wasteland areas. The assessment of scale-up potential
has been facilitated by MNRE separately for crop residues and energy plantations. In the case of
crop residues, the assessment focused on the market for utilization of residues such as stalk and
straw, which are still at the initial stages of development, and the target potential for scale up by
utilization of these resources during the 12th Five Year Plan. In the case of energy plantations,
biomass yield has been estimated by utilization of arid lands and through plantations based on
high yield woody biomass.
With progressively higher steam parameters and efficient project configuration in new sugar
mills and the modernization of the existing ones, the potential of surplus power generation
through bagasse cogeneration in sugar mills is estimated at 5,000 MW.
The potential of biomass based power could be increased substantially if linked with dedicated
plantation on forest and non-forest degraded lands. It is possible to generate about 5,000-6,000
MW power by raising dedicated plantations on about 2 million hectares of forest and non-forest
degraded lands.
Further, with a view to determine the realistic achievable potential, detailed analyses have been
carried out to examine the state-wise agro residue based biomass potential. It has been estimated
that 20% to 30% of the generated biomass is lost in harvesting and transportation when
mechanized harvesting is used. States such as Punjab, Maharashtra, Uttar Pradesh, Haryana,
Madhya Pradesh, Gujarat, Karnataka, Tamil Nadu, Rajasthan, Kerala, Andhra Pradesh, Bihar,
West Bengal, Orissa, and Assam have 18,051 MW power potential, which is 96% of the total
power potential based on biomass.
It is also highlighted that a comprehensive mapping of biomass resource needs to be carried out
in order to estimate the realistic achievable biomass power potential. We understand that MNRE
has already initiated various studies and has undertaken the launch of a bioenergy mission in the
12th Plan period.

24

3.2 REC Mechanism in India:


The Electricity Act, 2003, the policies framed under the Act, and also the National Action Plan on
Climate Change (NAPCC) provide for a roadmap for increasing the share of renewable energy in
the total generation capacity in the country. Since, the Renewable Energy (RE) sources are not
evenly spread across different parts of the country, this concept seeks to address the mismatch
between availability of RE sources across different states and the requirement of the obligated
entities to meet their Renewable Purchase Obligation (RPO). The scheme is also expected to
encourage significant addition to the Renewable Energy capacity across the country by providing
an additional source of revenue for offsetting higher project costs and thereby
leading to higher ROl's. Central Electricity Regulatory Commission (CERC) has notified the
Regulation on Renewable Energy Certificate (REC) in fulfillment of its mandate to promote
renewable sources of energy and development of market in electricity.The REC framework
is expected to give a significant push to the renewable energy capacity addition in the
country.

Figure 2 : Concept of Renewable Energy Certificate

Till date around 2 million REC's, have been issued by the NationaI Load Dispatch Centre. With the
recent inclusion of REC's as a mechanism for CPSE's to meet their sustainable development

25

obligations, the market has now expanded beyond the traditional energy producers or distribution
companies. With more states, taking the total tally to 26 states, releasing their draft RPO obligations
and stricter implementation of RPO obligations in the future, the trading volumes and liquidity could
be expected to rise significantly in the coming years.
Renewable Energy Certificates (RECs) represent the attributes of electricity generated from
renewable energy sources. These attributes are unbundled from the physical electricity and the
two products the attributes embodied in the certificates and the commodity electricity may be
sold or traded separately.
One REC represents that 1Mwh of energy is generated from Renewable sources. RECs quickly
become the currency of renewable energy markets because of their flexibility and the fact that
they are not subject to the geographic and physical limitations of commodity electricity.
There are two categories of RECs, they are

Solar REC: Issued for energy generated and fed to grid only from solar source

Non-Solar REC: Issued for the energy generated and fed to grid from non-solar source
such as Wind, Small Hydro Plants, Biomass, Cogeneration, Municipal waste to energy.

3.2.1 REC Mechanism Objectives

Effective implementation of RPO

Increased flexibility for participants

Overcome geographical constraints

Reduce transaction costs for RE transactions

Create competition among different RE technologies

Reduce risks for local distribution company by limiting its liability to only energy
purchase

3.2.2 Salient Features of the REC Framework


The National Load Dispatch Centre (NLDC) would be the central agency to be
designated by the Central Commission for registration of RE generators participating in
the scheme.

26

The RE generators have two options - either to sell the renewable energy at preferential
tariff fixed by the concerned Electricity Regulatory Commission or to sell the electricity
generation and environmental attributes associated with RE generation separately.

On choosing the second option, the environmental attributes can be exchanged in


the form of REC. Price of electricity component is equivalent to the weighted average
power purchase cost of the distribution company including short-term power purchase
but excluding renewable power purchase cost.

The NLDC will issue the REC to RE generators. The value of REC will be equivalent to
1 MWh of electricity injected into the grid from renewable energy sources.

The RECs, which are to be categorized as Solar and Non-Solar RECs, will be exchanged
only in the Power Exchanges approved by CERC within the band of a floor price and a
forbearance (ceiling) price to be determined by CERC from time to time.

The distribution companies, open access consumers and Captive Power Plants (CPPs)
will have option of purchasing the REC to meet their Renewable Purchase Obligations
(RPO). Pertinently, RPO is the obligation mandated by the State Electricity Regulatory
Commission (SERC) under the Act, to purchase minimum level of renewable energy out
of the total consumption in the area of a distribution licensee.

There will also be compliance auditors to ensure compliance of the requirement of the REC by
the participants of the scheme.

3.2.3 STEPS INVOLVED IN REC MECHANISM

1. Electricity Generation and Feeding to the Grid


2. Request for issuance of REC
3. Confirmation of Electricity Generation
4. Creation and Issuance of RECs
5. REC Sale by RE Generator
6. Surrender/Redeeming of RECs
7. Compliance Reporting

27

STEP 1: ELECTRICITY GENERATION AND FEEDING TO THE GRID


The electricity generated in RE project is injected into the grid. This electricity is consumed in
real time by load prevalent in the system, which in turn is accounted against the consumption by
the entities which had contract with that particular RE project. The metering of quantum of
electricity injected into the grid and energy accounting will be done by the State Load Dispatch
Centre (SLDC).
STEP 2: REQUEST FOR ISSUANCE OF REC
The RE Generator will send a request to the REC Issuance Registry (i.e. Central Agency) to
issue the RE certificates equivalent to the amount of electricity injected into the grid and as
certified by the SLDC.

Figure 3 : Steps of REC Mechanism

STEP 3A: CONFIRMATION OF ELECTRICITY GENERATION


The REC Registry and SLDC shall establish the procedure for exchange of information about
actual electricity generated by registered RE projects on regular basis. The SLDC shall submit
the report for the energy accounts of RE projects to the Central Agency, as per established
procedure son regular basis.

28

STEP 3B: RE GENERATOR ACCREDITATION AND REGISTRATION


The State Agency shall provide its report to the Central Agency for accreditation and
recommending the RE project for registration. The RE projects will have to be accredited with
State Agency and will also have to be registered with Central Agency.

STEP 4: CREATION AND ISSUANCE OF RECS


Referring to the generation report submitted by SLDC and State Agency, the REC Registry
(Central Agency) will create and issue appropriate number of RECs to the concerned RE
Generator (Eligible Entity).

STEP 5: REC SALE BY RE GENERATOR (ELIGIBLE ENTITY)


Once the RECs are issued to the RE Generator (Eligible Entity), sale/purchase of RECs amongst
various RE Generators and Obligated entities is proposed to be undertaken only through Power
Exchange operational under the guidance of CERC.

STEP 6: SURRENDER/REDEEMING OF RECS


The Obligated Entities can procure the RECs over the Exchange Platform and need to surrender
the RECs to the SERCs to meet their RPS obligation. This will facilitate convenient and effective
mechanism for ensuring the RPO compliance by the obligated entities. REC Registry shall
maintain record of RECs issued and RECs received for redemption on regular basis.

STEP 7: COMPLIANCE REPORTING


It is envisaged that the Central Commission in consultation with the National level Registry (i.e.
Central Agency) may appoint from time to time Compliance Auditors to inquire into and report
on
the compliance of REC Regulations by the person applying for registration, or on the compliance
by the renewable energy generators in regard to the eligibility of the Certificates and all matters
connected thereto.

29

3.2.4 Eligibility Criteria :

3.2.4.1For Independent Power Producers:


A power generating company, generating electricity from renewable sources of energy will be
eligible to receive Renewable Energy Certificate (REC) for each 1MWH (1000 KWH) of
generation subject to the following clauses:
It does not have any PPA for the capacity related to such generation with the distribution
licensee at: preferential tariff (state regulated tariff).
It sells eiectricity generated either to the distribution licensee at price not exceeding
average pooled cost of power purchase of the distribution licensee for last year.
It sells electricity to any other licensee ar to an open access consumer at mutually agreed
price, or through Power Exchange.

Figure 4 : Eligibility Criteria to avail REC

30

3.2.4.2 For Captive Power Producers:


CPP's are also eligible for REC if such generators are:
Not availing Promotional Wheeling
Not availing Promotional Banking
Not getting any electricity tax/duty exemption from the state

3.2.5 Pricing of RECs.


REC is priced in the form of Forbearance and Floor price. Both these prices play different roles
for different stakeholders. Floor price ensures the basic project viability for the developers
whereas the Forbearance price acts as a deterrent for obligated entities against non-compliance of
the RPOs. Both these prices should be set in a balanced way which ultimately promotes utilities
to buy RECs, developers to invest in RE projects and ensuring that the deterrent are not too harsh
enough causing burden on the ultimate end consumers. The Forbearance and Floor Price are
influenced by a no. of factors like:

Fluctuation in the price of conventional power procurement.

RE Portfolio: Like resources available for RE generation, RE tariffs, present level of RE


percentage in the overall power mix, period for which RECs can be retained by RE
generators, quantum of electricity required in the future RPO targets, etc.

The forbearance & floor price is very much dependent on the RE generation available to meet
the targets. The performance in terms of generation of renewable energy projects is indicated by
the CUF of the projects. The CUF is also dependent upon the technology & the resource
available in a particular region.
The forbearance price has been derived based on the highest difference between cost of
generation of RE technologies / RE tariff and the average pooled power purchase cost of 200910 for the respective states.
The floor price has been determined by following a project viability approach keeping in view
the basic minimum requirements for ensuring the viability of RE projects set up to meet the RE
targets. This viability requirement shall cover loan repayment & interest charges, O&M expenses
and fuel expenses in case of Biomass and Cogeneration

31

The Commission earlier came out with an Order dated 1st June, 2010 for Determination of
Forbearance and Floor Price for the REC framework (Suo Motu Petition No.99/2010) and
provided forbearance price and floor price for dealing in Certificates under the REC
Regulations:

Price

Non solar REC (Rs/ MWh)

Solar REC (Rs / MWh)

Forbearance Price

3,900

17,000

Floor Price

1,500

12,000

Table 8 : Forbearance & Floor Price as per Order dated 1st June, 2010

.
CERC, through its order dated 1st April, 2012 prescribed the forbearance and floor price
for dealing in certificates under the REC regulations as follows.
Price

Non solar REC (Rs/ MWh)

Solar REC (Rs / MWh)

Forbearance Price

3300

13400

Floor Price

1500

9300

Table 9: Forbearance & Floor Price as per Order dated 1st April, 2012

3.2.6 Penalty Mechanism


Very few stats in India have provided for enforcement mechanism for non-compliance of RPO
targets. Availability of RE and adequate infrastructure have been the main considerations for the
lack any enforcement mechanism or stipulation of penalties for non compliance. Keeping in view
that at present few states have not issued RPO,- the current RE generation in some state is low
and, -new capacities may take time to come up, it is likely that there may not be sufficient RECs
for distribution licensees in such states to achieve compliances from the first year itself. It is
proposed that the Forum of Regulators may be deliberate if a moratorium period of two years
should be provided to the obligated entities before enforcement of penalties. However, the total
32

amount of target missed (in MUs) by obligated entities in the next two years should be made up
over the next three to four years by purchase of additional RECs.
SERCs should separately specify penalty for not meeting solar purchase obligation. However, it
is expected that not much generation will take place from solar based power projects get added,
the penalty on not meeting solar energy purchase obligation should be subject to availability of
solar RECs in the market.
The penalty paid by the distribution licensees should not be allowed as a pass through in the
Annual Revenue Requirement of Discoms; else it would result in Discom preference for
payment of penalties instead of purchase of RECs.

3.2.7 Key Development on Implementation of REC:


Following to introduction of The Conceptual Framework for REC Mechanism in India,
June 2009 numerous orders were announced for rapid development of REC in country
as summarized

ORDERS
Draft Model Regulations For SERC under Section 86(1)(e)
of EA2003, FOR
CERC Regulations For Market Development Of RE Sources
By Issuance of Transferable And Saleable Credit Certificates
Designation Of Central Agency, CERC
Model Procedure/Guidelines For REC Mechanism by State
Agency

DATE OF ORDERS
Oct-09
14-Jan-10
29-Jan-10
17-Mar-10

Study Report On Determination of Forbearance And Floor


price by M/s PricwaterhouseCoopers Pvt. Ltd., CERC

23-Mar-10

Determination Of Forbearance And Floor Price For REC


Framework, CERC

01-Jun-10

Approval Of The Rules, Bye-Laws And Business Rules Of


Indian Energy Exchange, CERC

26-Aug-10

Determination Of Fees and Charges Payable For REC under


Regulation 11 of CERC Regulations 2010, CERC

21-Sep-10

33

Approved Procedure For REC Implementation (Amendment


1), CERC

09-Nov-10

Approved Procedure For REC Implementation (Amendment


2), CERC

18-Mar-11

Determination of Forbearance and Floor Price applicable


from April 2012, CERC

13-Jun-11

Determination Of Forbearance And Floor Price for The REC


Framework to be applicable from 1st April 2012. Petition
No. 142/2011 (Suo Motu)

23rd Aug, 2011

Table 10: Summary of REC Related Orders

3.2.8 Regulatory Framework:


3.2.8.1 Obligated Entities
All distribution licensees, open access consumers and captive generator who have the orders
indicating Renewable Purchase Obligation are designated in this framework as the Obligated
Entities.
3.2.8.2 Eligible Entities
Renewable Energy Generators will have the option of selling energy to distribution licensee at
preferential tariff as is currently prevalent or sell energy generated from their plants at the price
of conventional electricity (average power purchase cost) and receive a certificate that represents
the renewable component of its electricity.
Renewable Energy Certificates should be issued to only renewable energy generators selling
electricity to distribution licensees at the conventional price of the electricity (lower than the
preferential renewable energy tariff issued by SERCs)
Renewable energy project having PPA with distribution utilities to sell power at preferential
tariffs will not be eligible for RECs. However after the expiry of PPA the developers may opt
for REC, meaning that they can sell electricity at discounted price and preferential tariff would
not be applicable to them anymore.

3.2.8.3 Accreditation Of Project


REC mechanism requires a procedure for accrediting generation plant which is eligible to
receive REC. Operators of RE plant need to apply for accreditation for a particular facility
34

identified for energy injection to the grid. In case the plant is owned by more than one party, all
parties will sign the accreditation application form and would identify one nominated
person/entity which will deal with RECs.Their application should be verified to ensure that the
project confirms with the eligible RE technologies set out in eligible entities criteria and rules.
This can be done through a self declaration by the plant operator/ owner, a document review or
by a physical inspection of the plant. The accreditation shall be subject to compliance of
guidelines of MNRE and be liable for cancellation on contravention of the guidelines.
Once verified the generation plant becomes an accredited generator and should be registered in
the REC system Register. Only accredited generators are eligible to receive RECs within the
system.
3.2.8.4 National Level REC registry
The role of national central registry entity under the REC framework will be to:

Develop uniform definition and creation of certificates,

Facilitating exchange of certificates

Maintain records of all RECs issued and exchanged

Avoidance of duplication

The National Load Dispatch Centre (NLDC), being the agency at the national level responsible
for energy accounting appears to be the most appropriate agency to undertake the activities of the
Central Registry i.e. SLDC envisaged above.
3.2.8.5 Issuance Of Rec
An accredited renewable energy plant receives a certificate for a specified quantity of electricity
generated. One REC is issued for each 1 MWh of electricity generated from renewable energy
plans. Certificates will be issued at the end of certain period, ones the metered renewable energy
generation for that period has been provided and verified. State agency maintains data on energy
injection of generators. However, most renewable energy generators are not visible in SLDCs
system and the energy injection details of such plants would not be available to SLDC.
The distribution companies, which undertake joint meter reading of generation with RE
generator, provide this data on RE generation to SLDC on a monthly basis to enable them to
compile and maintain a database on energy generation and injection in the grid. These details can
be given for plants which also sell to captive and open access consumers since the details of their
energy wheeled are also recorded by distribution companies for payment of wheeling charges.

35

The data collected by SLDC should be passed on to the NLDC through the RLDCs, separately
but on the same lines as existing practice of relying information on energy accounting. RECs will
then be issued by the entity operating the NLDC based on information received on energy
injection by the registered and accredited RE generators.
RECs will be created as electronic records in a register (because electronics documents are easier
to track than paper documents). The issued certificates will be credited to the registered account
of the plant operator/owner.

3.2.8.6 Rec Exchange


The exchange of REC can be done on the power exchanges operational in the country. They can
participate in the REC mechanism and will be connected to the central registry.

3.2.8.7 Monitoring And Compliance


It is proposed that a panel of auditors be constituted at the central level by CERC for post audit
of transaction in the REC market. Auditing is required for ascertaining the validity of transaction.
It is proposed that the minimum %age of REC transactions should be audited by the panel of
auditors. Central registry will furnish details of REC purchase and redemption to discoms or
their designated entities to enable them to assess compliance of eligible entities and impose
penalties on them, as may be necessary. SERC shall ensure compliance based on the total
transactions of RECs.

3.2.8.8 Liquidity Of RECs


The supply and liquidity of RECs in the market will depend on the number of RECs issued, which
in turn will depend upon the extent to which new renewable generators opt to sell under the
suggested REC framework instead of preferential tariff route.

36

3.3 Analysis on Market Potential for Renewable Energy certificates

3.3.1 Introduction
India has over 17 GW of installed renewable power generating capacity. Installed wind capacity
is the largest share at over 12 GW, followed by small hydro at 2.8 GW. The remainder is
dominated by bioenergy, with solar contributing only 15 MW. The Eleventh Plan calls for gridconnected renewable energy to exceed 25 GW by 2012. JNNSM targets total capacity of 20 GW
grid-connected solar power by 2022. Renewable energy technologies are being deployed at
industrial facilities to provide supplemental power from the grid, and over 70% of wind
installations are used for this purpose. Biofuels have not yet reached a significant scale in India.
Indias Ministry of New and Renewable Energy (MNRE) supports the further deployment of
renewable technologies through policy actions, capacity building, and oversight of their wind
and solar research institutes. The Indian Renewable Energy Development Agency (IREDA)
provides financial assistance for renewable projects with funding from the Indian government
and international organizations; they are also responsible for implementing many of the Indian
governments renewable energy incentive policies. There are several additional Indian
government bodies with initiatives that extends into renewable energy, and there have been
several major policy actions in the last decade that have increased the viability of increased
deployment of renewable technologies in India, ranging from electricity sector reform to rural
electrification initiatives. Several incentive schemes are available for the various renewable
technologies,

and

these

range

from

investment-oriented

depreciation

benefits

to

generationoriented preferential tariffs. Many states are now establishing Renewable Purchase
Obligations (RPOs), which has stimulated development of a tradable Renewable Energy
Certificate (REC) program. _
3.3.2 Approach for determination of volume of RECs

Analytical approach for estimating the potential of RECs has been divided in to three segments
which give a better understanding of the rationale behind the analysis. The three broad segments
are:
1. Broad approach based on NAPCC targets.
37

2. State Specific approach for determining REC availability


3. Renewable Energy Liquidity Position
Let us discuss in detail about these segments of analysis.

The NAPCC Target has recommended minimum share of renewable energy in the national grid
to be set at 5% in 2009-10, subsequently increasing by 1% every year during the next 10 years to
reach 15% by 2020. The anticipated renewable energy injection envisaged under the NAPCC has
been found out by applying the National RPO targets to the all India electricity demand
projections given by Central Electricity Authority.

3.3.3 The Existing Plans/And Shortfall


Table and Fig reveal that RE generation of the order 72 BU and148 BU need to be injected into
the national grid to realize 7% and 11% share of RE in 2013 and 2017 respectively.

YEAR
Demand of electricity (MU)

Required RE Injection (MU)


NAPCC Target
Proposed Plan RE Injection
(MU) MNRE 5 YR PLAN
SHORTFALL/ SURPLUS
(MU)

FY 13

FY 14

FY 15

FY 16

FY 17

1026347.088 1097571.128 1174338.82 1257130.8 1346474.153

71844.3

87805.7

105690.5

125713.1

148112.2

71645.20

80066.63

88386.44

98382.91

108671.53

199.10

7739.07

17304.06

27330.17

39440.63

Table 11: All India electricity demand and required RE injection to meet the NAPCC Target

38

160000.0

1600000

140000.0

1400000

120000.0

1200000

100000.0

1000000

80000.0

800000

60000.0

600000

40000.0

400000

20000.0

200000

0.0

Required RE
Injection (MU)
NAPCC Target
Proposed Plan RE
Injection (MU)
MNRE 5 YR PLAN
SHORTFALL/
SURPLUS (MU)
Demand of
electricity (MU)

0
FY 13

FY 14

FY 15

FY 16

FY 17

Figure 5 : Requirement of renewable energy to meet NAPCC target

Assumptions:

All India electricity demand projections as per 17th EPS Report of CEA.

The weighted average capacity utilization factor (CUF) of all the renewable energy
technologies is around 29%.

Renewable energy capacity addition is as per MNRE strategy plan 2011-17.

39

PERCENTAGE

FY13

FY14

FY15

FY16

FY17

10 % REC (MWH)

19910

773907

1730406

2733017

3944063

20% REC (MWH)

39819

1547813

3460812

5466034

7888126

30 % REC (MWH)

59729

2321720

5191217

8199051

11832188

199.10

7739.07

17304.06

27330.17

39440.63

SHORTFALL

(IN MU)

Table 12 : Shortfall of RE that can be met by REC taking three scenarios

14000000

45000.00
39440.63

12000000

40000.00
35000.00

10000000

30000.00

27330.17
8000000
17304.06

6000000

25000.00

10 % REC
(MWH)

20000.00

20% REC (MWH)

15000.00

4000000

10000.00

7739.07
2000000

5000.00
199.10

0.00
FY13

FY14

FY15

FY16

FY17

Figure 6 : Number of Certificate Required if shortfall is met through REC

40

SHORTFALL
(IN MU)

30 % REC (MWH)

INSTALLED
CAPACITY

In MW

Capacity Upto

Cumulative Addition (In


MW)

Cumulative
IN MU

Addition
(In MU)

24497

24497

62233.0

62233.0

2012-13

3705

28202

71645.2

71645.2

2013-14

3315

31517

80066.6

80066.6

2014-15

3275

34792

88386.4

88386.4

2015-16

3935

38727

98382.9

98382.9

2016-17

4050

42777

108671.5

108671.5

31.03.2012

Table 13 : 12th Plan Capacity Addition through grid connected Renewable Energy

120000

108671.5
98382.9

100000

88386.4
80066.6

80000

71645.2
62233.0

60000
40000
24497

28202

31517

34792

38727

42777

20000
0
Capacity
Upto
31.03.2012

2012-13

2013-14

2014-15

2015-16

2016-17
In MW
IN MU

Figure 7 : 12th Plan Capacity Addition through Grid Connected Renewable Energy

41

3.3.4 Calculation
1. Capacity in MW to Generation in MU Conversion

Capacity in MW X 24 Hours X 365 Days X C.U.F`


Generation = ------------------------------------------------------------------- Million Units
1000
Example: Installed capacity = 100 MW
Capacity utilization Factor = 25%
100 MW X 24 X 365 X 0.25`
Generation = -------------------------------------= 219 Million Units
1000
Note: Using the same formula, the Capacity Utilization factor can be determined,
provided,
Generation and Capacity data is available.

2. Generation into Number of RECs conversion.

Number of RECs = Generation in Million Units X 1000


( 1 REC = 1 MWh of electricity generated)

3. Compounding

FV = PV X (1 + CAGR) n
Where FV = Future value
PV = Present value or Base years Value
CAGR = Compounded Annual Growth Rate in Percentage
n = Number of years for which the compounding has to be done or the difference
between the base year and the future year
Example: Value in 2010 = 73765
CAGR = 8.9%
Value in 2012 = ?
42

Value in 2012 = 73765 X (1 + 0.089) 2


= 87480

4. CAGR Determination from observed growth.


CAGR (%) = [{ V2 / V1} ^ { 1 / ( Y2 Y1) } 1] X 100
Example: Value in 2009 = 45
Value in 2012 = 214
CAGR = ?
CAGR = [ { 214 / 45 } ^ { 1 / ( 2012 2009) } 1 ] X 1000
= 68.16 %

5. RE Liquidity
Liquidity = RE Availability RE Requirement
Note: Liquidity in negative denotes deficit
Liquidity in Positive denotes Surplus.

43

3.3.5 Traditional Policy Framework and its Impact on Renewable Energy Development:

During the year 2008-09, while renewable energy sources contributed 7.78 per cent of
generation capacity its energy contribution was merely 3.49 per cent (estimated from
CEA 2009a). This can be attributed to a faulty policy approach that provided tax
incentives for investment in capacity addition rather than generation of electricity. This
has been addressed to some extent through feed-in tariff approach and generation-based
incentives.

Renewable energy sources, especially wind resources, have been extensively exploited in
some of the states in the southern and western regions of the country. Biomass-based
plants have made significant contribution in some of the states in the northern and the
western regions. States in the eastern region have generally lagged behind in the
exploitation of RES.

Some states may be able to set and achieve higher RPO targets while others may lag
behind. With an increasing share of renewable energy, the cost of power procurement and
hence the impact on consumer tariff cannot remain insignificant cant. Given the existing
pressure to reduce costs and the inability to increase tariff s, obligated entities (especially
the distribution companies) may find it difficult to meet increasing levels of RPO in
future.

In states like Karnataka and Tamil Nadu, where obligated entities have surpassed RPO
targets, there would be additional increase in consumer tariff s as high cost power
procurement from renewable energy sources was compulsorily absorbed beyond the RPO
targets. A mechanism to sell the additional renewable energy procurement toobligated
entities who are falling short of the RPO target would not only lower the burden on
consumer tariff s (in Karnataka and Tamil Nadu, in this case) but would also improve
compliance with RPO regulations elsewhere in the country.

Further, absence of banking in the prevailing RE policies would not permit the two
states to take credit of the excess purchase of RE in a year and utilize the same to meet
the RPO target for subsequent years.

44

3.3.6 Issues

Flexibility in RPO compliance (Compliance market):The existing REC regulations do


not credit RECs for purchases made by the obligated entities under their RPO obligations
under a feed in-tariff (FiT) scheme. Providing for this would not only help establish a
better compliance mechanism but also encourage participation of such obligated entities
in the RECs market and, hence, enhance liquidity for the same

Voluntary purchase of Green Electricity (Voluntary market): While the primary


goal of the RECs is to address the needs of the compliance market, it can also serve as a
useful tool for meeting the green electricity needs of the voluntary market. Such
applications include participation by corporate as a part of their Corporate Social
Responsibility (CSR)

Figure 8 : Voluntary & Comliance Market

Eligibility for REC: Scope for Off -grid RE Projects: The eligibility for crediting REC
is limited only to electricity generated from grid-connected renewable energy sources and
fed into the grid.
45

Denomination of Certificates and Expansion of Voluntary Markets: The REC


regulations define the denomination of each REC to represent 1 MWh of electricity
generated from a renewable energy source and injected into the grid. A higher
denomination has the following implications:

Exclusion of small RE generators

Limited participation of smaller buyers

Adjustment for quantity less than 1 MWh

In order to enhance market participation and to improve liquidity in the market for RECs,
the denomination of single REC should be smaller than 1 MWh. It can perhaps be set in
units of 100 kWh. Higher denominations for RECs would be unfavorable to small RE
facilities. A smaller denomination (such as the 100 kWh equivalent) would facilitate
participation of small buyers as well as small projects across the country. This would
expand the scope of voluntary markets and facilitate the reach of the market to
individuals and smaller organizations. Smaller denomination for RECs would be a boon
for small solar projects as envisioned under the JNNSM. Roof-top solar PV facilities with
net metering can also be credited with RECs in a manner similar to that proposed for
larger projects thereby making it a more attractive option for investment.

Absence of Banking of RECs: With banking provisions, obligated entities can procure
additional RECs in a given year over and above their current year RPO target and seek
credit for the same in a future period. The validity of tradable RECs extends up to two
years and fi ve years after the issuance in Italy and Belgium (Flanders) respectively.

46

CHAPTER - 4
REC INTERNATIONAL LEARNING

4.1 United Kingdom:


UK is a unitary state which consists of four countries England, Northern Ireland, Scotland and
Wales. There are three devolved national administrations with varying powers situated in
capitals of Northern Ireland, Wales and Scotland. UK has signed up to the EU Renewable
Energy Directive to supply 15% of total energy demand from renewable by 2020. To meet this
target various renewable obligation schemes were designed to incentivize renewable generation
into the electricity generation market.

Figure 9 : ROC Mechanism in UK

The first Renewable Obligation Order (ROO) enforced under section 32 of Electricity Act 1989
came in April 2002, so did the second Renewable Obligation (Scotland) Order and the last
Renewable Obligation Order (Northern Ireland) came into force in April 2005.
Later amendments were done and new orders were passed in 2009 which was also amended in
years 2010 and 2011. ROO 2002 defined targets till March 2011 and ROO 2009 review revised
47

the targets till FY 2020. The three schemes introduced by Department of Enterprise, Trade and
Investment, The Scottish Executive and Department of Trade and Industry under these orders are
Renewable Obligation (RO), Renewable Obligation Scotland (ROS) and Northern Ireland
Renewable Obligation (NIRO) respectively. These orders place an obligation on licensed
electricity suppliers in England and Wales, Scotland and Northern Ireland to source an increasing
proportion of electricity from renewable sources. The certificates issued in these three schemes
are named as Renewable Obligation Certificates (ROCs), Scotland ROCs (SROCs) and Northern
Ireland ROCs (NIROCs). Office of Gas and Electricity Market (Ofgem) issues and administers
ROCs and SROCs. NIROCs are also issued by the Ofgem on behalf of Northern Ireland
Authority for Utility Regulation (NIAUR) under an Agency Service Agreement; however
NIAUR retains the legislative responsibilities for administrating the NIRO. The sunset dates for
RO and ROS is 2037 and for NIRO it is 2033.
ROCs are issued to all generating stations (monthly bases) with declared net capacity (DNC)
greater than 50kW and even micro generators with 10 kW < DNC < 50kW can opt to receive
ROCs (annually), supplying electricity via part of national transmission/distribution network.
The captive generator can also claim ROCs for eligible electricity used on site provided the
operator signs a declaration Permitted Ways and submit to Ofgem every year. The various
generation technologies for which the certificates are issued in UK are On-shore wind, Landfill
gas, Fuelled (Biomass, Anaerobic digestion, Co-firing), Off-shore wind, Hydro, Others (PV,
Tidal flow and Wave Power) and Sewage Gas. FIT scheme introduced in April 2010 made all
installations of capacity between 50 KW to 5 MW certified under MCS (micro generation
schemes) installed on or after 15 July 2009 valid under it. Obligated Entities are allowed to meet
12.5% of their obligation by ROCs issued for co-firing of fossil fuels and biomass and yearly
25% of obligations could be met by banked ROCs.
One ROC is issued for every MWh of electricity fed into the network. In 2009 to help emerging
Renewable Energy technologies overcome the various constraints like delays in legislative
planning, grid connection, practical resource availability and higher costs of renewable energy
projects government introduced the Banding Process with 4 proposed bands:

Established Band = 0.25 ROC/MWh

Reference Band = 1 ROC/MWh

Post Demonstration Band = 1.5 ROCs/MWh


48

Emerging Technologies = 2 ROCs/MW

Technology

No. of ROC/MWh

Landfill gas

0.25

Hydro Electric

Sewage Gas

0.5

Onshore Wind

Energy from waste with CHP

Offshore Wind

1.5

Gasification Pyrolysis

Wave

Tidal impoundment Tidal Lagoon

Tidal Stream

Tidal impoundment Tidal Barrage

Solar Photovoltaic

Geothermal

Geopressure

Anaerobic digestion

Co-firing of Energy Crop with CHP

1.5

Dedicated Biomass

1.5

Dedicated Energy Crops

Dedicated Biomass with CHP

Table 14 : Band Allocation to Different RE Technologies. (Source: Amended RO order 2009)

49

4.1.1 Renewable Obligation:


The obligation is set on the basis of 3 calculations:

1. Fixed Targets (Calculation A): The no. of ROCs that would be needed by licensed electricity
suppliers to meet a fixed target of obligation from eligible renewable sources per MWh from
electricity sales.

Countries

2009/10

2010/11

2011/12

2012/13

2013/14

2014/15

2015/16

10.4%

11.4%

12.4%

13.4%

14.4%

15.4%

9.7%

10.4%

11.4%

12.4%

13.4%

14.4%

15.4%

3.5%

4.0%

5.0%

6.3%

6.3%

6.3%

6.3%

England and 9.7%


Wales
Scotland
Northern
Ireland

Table 15 : Target Renewable Obligations of UK. (Source: Ofgems Obligation orders 2009)

2. Headroom (Calculation B): The amount of renewable electricity we expect to be generated


in coming year and based on this the no. of ROCs we expect will beissued, uplifted by 8% (as
decided by government). Headroom is a mechanism to ensure that the size of the obligation will
always be at least 8% above expected generation in the obligation period.

3. The Cap (Calculation C): The number of ROCs that would be issued if suppliers were to
source 0.2 ROCs per MWh from eligible renewable sources.

50

The example for above calculations is mentioned below:

Calculation A
305.83

Predicted UK Licensed Electricity Sales (MWh):


England and
Wales
Proportion Electricity Sales by Obligation
Region (%):
Total Electricity Sales by Obligation Region
(MWh):
Obligation Schedule 1 Percentage
Supplier's Obligation ROCs per MWh of Sales
(ROCs)
Total Obligation by Region (ROCs)
Total Obligation by Region as percentage of
total obligation in ROCs (%)

Scotland

Northern
Ireland

88.25%

9.25%

2.50%

269.89

28.29

7.65

10.4%

10.4%

4.0%

0.104

0.104

0.040

28.07

2.94

0.31

89.63%

9.39%

0.98%

Total Obligation according to Calculation A

31.32

Calculation B
Predicted Total Number of ROCs Generated (ROCs)

30.95

plus Headroom at 8% (ROCs)

33.43
England
and

Scotland

Wales

Northern
Ireland

Total Obligation by Region (ROCs)

29.96

3.14

0.33

Supplier's Obligation (Percentage)

11.10%

11.10%

4.27%

Supplier's Obligation ROCs per MWh of Sales

0.111

0.111

0.043

Total Obligation according to Calculation B

51

33.43

Calculation C
20% Limit

61.17

Total Obligation according to Calculation C

61.17

Using the results of above 3 calculations the Secretary of State determines which
calculation will be used to set the Obligation. In summary, calculation of the Obligation
is determined as:
Summary of RO Decision.
Obligation Value

Condition

Fixed Targets (A)

If, A > B

Headroom (B)

If, B > A but B < C

The Cap (C)

If, B > C

The obligated entities can complete their obligations by buying ROCs, making buyout payments
or late payments or partially by buying ROCs and making buyout and late payments. Obligated
entities failing to comply the Obligation by presenting ROCs are supposed to pay Buy out price
of 36.99 (FY 11) for each ROC not presented between 1st July to 1st September every year.
Buyout price is calculated every year and published on Ofgem website in February every year.
Obligated entities failing to pay buyout before the above mentioned deadlines are obligated to
pay late payments which includes interest to be paid at 5% points above the Bank of England
base rate between 1st September to 31st October.
Interest amount = Debt * interest rate * (no. of days/365)
Suppliers cant present ROCs during late payment periods. Both these payments are done
through electronic transfer mode to dedicated bank accounts for the RO, ROS and NIRO. If
some of the obligated entities becomes insolvent and fails to comply their obligations by not
presenting ROCs neither by paying buyout and late payments this will lead to shortfall in the
buyout fund. When this shortfall reaches a certain level called Relevant Shortfall
Mutualisation Process is triggered which will require all suppliers who have discharged their RO
and ROS (in whole or in part) to make additional payments to makeup the Relevant Shortfall.
Mutualisation Payments shall be made in 4 equal installments and will be based on the
percentage of suppliers obligation as a proportion of the total obligation for the shortfall period.

52

Mutualisation is applicable only for buyout funds of RO and ROS but not for NIRO. The
corresponding Relevant Shortfall for RO and ROS for FY 11 are 10.4 million and 1.04
million respectively.

4.1.2 Repayment of Buyout Funds, Late Payments and Mutualisation Funds:


The Buyout Funds, Late Payment Funds and Mutualisation funds will be redistributed back to
the suppliers in the proportion of the total ROCs which they have contributed as their RPO
Obligation after deducting NIAURs and Ofgems administration costs from it. e.g. A supplier that
presented ROCs representing 3% of the total no. of ROCs presented across all 3 obligations
would get back 3% of the total sum of the Buyout funds, late payment funds and Mutualisation
funds. The Mutualisation fund will be repaid among the obligated entities of all three schemes in
spite of it being funded by only RO and ROS. The repayment of Buyout Fund is given a high
priority as compared to Late Payment fund but whenever possible they both are redistributed
together. Late
Payment Funds are not redistributed if the amount is less than 50000 and will be rolled over to
following years Buyout Funds. Mutualisation Fund is also redistributed in four equal
installments.

4.2 Australia:
Following the KYOTO Protocol dated Oct 1997, the Prime Minister of Australia announced an
A$ 180 million package with 24 designed measures to improve the Greenhouse performance of
country. One of the measures in above package was Mandatory Renewable Energy Target
(MRET), the major consultation for implementation of MRET started in April 1998 and was
completed in May 1999.
Following this The Renewable Energy (Electricity) Act 2000 and The Renewable Energy
(Electricity)(Charge) Act 2000 were enacted which detailed about requirements and provisions
to enable the renewable energy liability, certificate system operation and the penalty system and
the relevant shortfall charges for non-compliance. The main objectives behind this Renewable
Energy Target (RET) was to encourage additional generation from renewable energy sources and
ensure that renewable energy sources are ecologically sustainable. The Renewable Energy
53

(Electricity) Act 2000 established a statutory agency the Office of Renewable Energy Regulator
(ORER) to oversee the implementation of MRET. The Obligation percentage for Renewable
Energy Target (RET) was set in Renewable Energy (Electricity) Regulations 2001. Later the
Renewable Energy (Electricity) Amendment Bill 2010 passed in June 2010 spilted RETS into
Large Scale RET (LRET) and Small Scale Renewable Energy Scheme (SRES) from January 1
2011, to support the development of both large scale and small scale renewable energy systems
in country. The Certificates issued in these two schemes are Large Scale Generation Certificates
(LGC) and Small Scale Technology Certificates (STC) respectively. LGC can be traded directly
between liable entities and generators or with a mediating agent between them at a negotiated
price whereas the STC can be traded through STC Clearing House at a fixed price of A$ 40/STC.
The REC registry an internet based registry system under ORER facilitates the creation,
registration, transfer and surrender of LGCs and STCs and maintains various registers as set in
act.
Summary of some key features of this REC scheme amended in:

RET increased from 9500 GWh to 45000 GWh by 2020.

20% of electricity supply from renewable by 2020.

Sunset date 2030.

Partial Exemptions for Emission Intensives Trade exposed Activities (EITE).

Solar Credits.

41000 GWh target under LRET by 2020.

One REC represents one MWh of electricity.

4.2.1 Partial Exemption Certificates (PEC):


The RET legislation and regulations provides partial exemptions from RET for electricity used in
defined EITE activities. There are various EITE activities mentioned in the Act which can apply
for the PEC. The entities involved in such EITE activities shall apply for PEC to ORER. Some of
these EITEs comes directly under the scope of RET as wholesale purchasers of electricity while
most of them comes under the indirect purview of the retailers. Thus it is envisaged that the
entity to whom PEC is issued will voluntarily submit a copy of PEC to its electricity retailer for
the purchase of RET liable electricity for EITE. This retailer while surrendering its obligation
54

could use this PECs to attain an exemption from the proportion of liability it holds for the year.
Thus the total relevant acquisitions could be defined as difference between the relevant
acquisitions made and PECs presented by the obligated entity.

4.2.2 Solar Credits:


Solar Credit is a mechanism which increases the no. of STCs which can be created for eligible
installations under SRES scheme by multiplying the no. of certificates for which the system
would normally be eligible. It is applicable for the first 1.5 kW of on grid capacity installed and
20 kWs of off grid systems installed.

Date

9 June 2009 30

1 July 2011 - 30

1 July 2012 - 30

From 1 July 2013

installed

June 2011

June 2012

June 2013

onwards

Multiplier

Table 16 : Schedule of Solar Credits Multipliers (Source: ORER)

No multiplier (1) would be used after 1st July 2013 onwards and generation from capacity above
1.5 kW (on-grid) or 20 kWs (off-grid) installed at a later stage will be eligible for 1 STC/MWh
of generated power. Solar credit can be created only once for a particular installation. Eligibility
conditions for solar credits are:

Solar PV systems up to 100 kWs.

Small wind turbine up to 10 kWs.

Micro-hydro system up to 6.4 kWs.

Installations should be at eligible premises.

No more than one system at eligible premises is entitled to solar credits.

System should be new and complete.

Application should be made within the 12 months from the date of


Commissioning.

55

4.2.3 Renewable Obligation:


There are two different obligations set under LRET and SRES schemes. Renewable Power
Percentage (RPP) under LRET and Small Scale Technology Percentage (STP) under SRES
schemes places a legal liability on liable entities typically electricity retailers and wholesale
purchasers of electricity to source certain amount of their purchase through renewable energy by
purchase of LGC and STC every year. RPP and STP are set on the basis of:

Required RE target of year.

Estimated amount of electricity to be acquired by the liable entities for the year.

year.

The RPP and STP for the year 2011 is 5.6% equivalent to 10.6 million LGCs and 14.8%
equivalent to 28 million STCs as a proportion of total estimated electricity consumption, both the
percentage obligations are published before 31st of March every year on ORERs website. The
entities which fail to comply with their obligations are supposed to pay a corresponding
Renewable Energy Shortfall Charge (RESC). RESC was set by Renewable Energy
(Electricity)(Charge) Act 2000 which has now been replaced by Large Scale Generation
Shortfall Charge (LGSC) and Small Scale Technology Shortfall Charge (STSC) applicable under
The Renewable Energy (Electricity)(Large Scale Generation Shortfall Charge) Act 2000 and
The Renewable Energy (Electricity)(Small Scale Technology Shortfall Charge) Act 2010
respectively. The respective LGSC and STSC charge set are $65/LGC and $65/STC for
compliance years from 2010 to 2030 and 2011 to 2030.

56

CHAPTER -5
CONCLUSION AND WAY FORWARD

5.1 Key outcomes of the scenario analysis

The governments plans for development of RE are not consistent with the policies. The
RE capacity additions targeted by MNRE and those planned under the JNNSM are
inadequate to meet the targets set by the NAPCC. The targets originally planned by the
working group will have to be revised to achieve the 12% and 15% RE penetration by
2016/17 and 2019/20 respectively. The revision in planned RE capacity in the 12th and
13th Plans are still possible as the 12th plan Working Group Report on RE is yet to be
finalized

The potential of RE at the national level needs to be re-assessed urgently. In the absence
of realistic potential assessment figures, policy decisions on power generation could be
skewed in favor of conventional sources.

The huge untapped solar potential of the country is important from the point of view of
energy security. International experience shows that cost reduction can be achieved by
way of mass production and R&D efforts.

57

5.2 Roadmap of Actions Needed

AREA

CRITICAL ACTION NEEDED

RESPONSIBILITY

Capacity addition plans for grid-connected RE for the

Planning

12th Plan needs to be revised to ensure achievement of

Commission &

15% RE electricity injection into the grid by 2020.

MNRE

State-wise capacity addition plans should be


Planning

communicated to the state planning boards, energy


departments, and state nodal agencies, for incorporation in
the 12th Plan of the states.

Planning
Commission &
MNRE

CERC/FOR may take coordinated action to persuade


those SERCs who have not set the RPO targets as per the

CERC/FOR

national objective to revise their RPO regulations


Adequate funding may be provided in advance for
developing transmission infrastructure for RE

Ministry of Power

Scaling up RE to 15% would result in significant impact


Financing

on APPC. In order to assuage financial difficulties of


utilities by bringing down tariffs, indirect or direct support
mechanisms like interest subsidies, generation-based
incentives, soft loans, etc., should be provided to RE

Planning
Commission &
MNRE

projects.
All states should be persuaded to bring out comprehensive
RE policies.
SERCs who have not declared RPOs in line with the
Regulation

NAPCC target should do so.

MNRE

FOR / SERCs

The REC mechanism should be strengthened through


capacity building of nodal agencies in states, bringing out
smaller denomination RECs, and allowing banking of
RECs, etc.

58

CERC

BIBLIOGRAPHY
[1] Central Electricity Regulatory Commission (CERC) (2010). Terms and Conditions for
Recognition and Issuance of Renewable Energy Certifi cate for Renewable Energy Generation
Regulations, 2010, Central Electricity Regulatory Commission,
New Delhi.
[2] Determination of Forbearance and Floor Price for the REC Framework, 2010, Central
Electricity Regulatory Commission, New Delhi.
[3] FoR (2008). Policies on Renewable: Report, Forum of Regulation, Central Electricity
Regulatory Authority, New Delhi. Government of India (GoI)
[4] National Action Plan of Climate Change (NAPCC), Government of India, New Delhi.
Ministry of New and Renewable Energy,
[5] Anoop Singh, Nationally Tradable Renewable Energy Credits for Renewable Portfolio
Obligation in the Indian Power Sector,
[6] Report given by ABPS Infra Advisory Private Limited to Ministry of New and Renewable
Energy, June 2009,
[7] Ministry of New and Renewable Energy, Annual Report, 2010-11
[8] http://relaw.wisein.org/, Need for Renewable Energy Law in India
[9] http://www.martinot.info/Beck_Martinot_AP.pdf, Barriers to Entry in Renewable Energy
Unleashing Renewable Energy Potential in India, ADB and World Bank; Author: Gevorg
Sargsyan & Mikul Bhatia, 2010
[10] Energy Development, www.wikipedia.org Policies to promote Renewable Energy,
[11] www.geni.org/globalenergy/policy/renewableenergy/index.shtm
[12] Electricity Act, 2003, Government of India
[13] Ministry of Power, http://www.powermin.nic.in/whats_new/national_electricity_policy.htm
[14] Renewable Energy in Power Systems, Author: Leon Freris and David Infield, 2008
Development of Conceptual Framework for REC Mechanism for India, ABPS Infra Advisory
Pvt. Ltd., 2009
[15] Tariff orders, CERC
[16] NAPCC, pmindia.nic.in/Climate%20Change.doc
[17] MNRE 2011, Strategic Plan for New and Renewable Energy Sector for the period 201117, Ministry of New and Renewable Energy.
59

ANNEXURES
ANNEXURE - 1

[Source: TERI]
Solar Radiation Map of India
60

Nation-wide immediate issues in harnessing wind potential

61

ANNEXURE 2

Sl.
No.

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28

SERCs
ANDHRA PRADESH
ASSAM
ARUNACHAL PRADESH
BIHAR
CHHATTISGARH
DELHI
GUJARAT
HARYANA
HIMACHAL PRADESH
J&K
JHARKHAND
KARNATAKA
KERALA
MADHYA PRADESH
MAHARASHTRA
MEGHALAYA
NAGALAND
ORISSA
PUNJAB
RAJASTHAN
SIKKIM
TAMIL NADU
TRIPURA
UTTARAKHAND
UTTAR PRADESH
WEST BENGAL
JERC for Goa & all Uts
JERC for Manipur &
Mizoram
TOTAL

Draft
Regulation

Final
Regulation

Designation of State
Agency

25

24

24

Status of REC Regulations of SERCs (as on 22.03.2012)

62

ANNEXURE - 3
OPERATING PROCEDURE

Procedure of Accreditation

63

Procedure of Registration

Procedure of Issuance

Procedure of Redemption
64

State wise Energy Requirement & Projection using CAG

65