Renewable Energy Certificates (RECs) in India - A performance analysis and future outlook

Well designed Renewable Energy (RE) policies and their effective regulation is the key to promote RE generation in the world. Renewable Energy Certificate (REC) mechanism is a market-based policy instrument which facilitates Renewable (Energy) Purchase Obligations (RPOs) in order to increase RE generation in a country. The recently conceived and implemented REC mechanism in India attempts to involve various stakeholders in an economically efficient manner and has been effective in its first year of operation. The paper commences with the background and the genesis of REC mechanism in India. It characterises the REC trading mechanism and analyses the performance of the REC market for the FY 2011-12. Comparing the financial viability for sale of RE by project developers in certain key states, the paper shows that REC mechanism is more profitable than entering into a Power Purchase Agreement (PPA) for sale of RE at Preferential Tariff (Feed-in-Tariffs). Thus, the REC market which has attained a size of 2.3 billion INR in its first year of existence is forecasted to grow manifold in the future and the paper attempts to forecast the market size in near term. Further analysis of the REC market reveals that although there are inherent advantages of the REC mechanism over other methods of promoting growth of RE, the market is currently subject to various distortions and the paper suggests few steps for correcting these distortions by appropriate market re-design. The paper concludes that the REC market mechanism has gained momentum and can effectively promote RE generation in an economically efficient manner, with benefits to all stakeholders, provided it is strictly implemented and continuous corrections are given in the right direction by the market regulator.