According to an independent study released today by the CEEW Centre for Energy Finance (CEEW-CEF), India’s Renewable Energy Certificate (REC) market has recorded net sales worth INR 9,266 crore during its decade of existence.
The CEEW-CEF is an initiative of the Council on Energy, Environment and Water (CEEW), one of Asia’s leading think tanks. CEEW-CEF acts as a non-partisan market observer and driver that monitors, develops, tests, and deploys financial solutions to advance the energy transition.
The current piece of news is an encouraging sign, given that the country will increasingly bank on market instruments like RECs to support its energy transition. But REC trading has been suspended since July 2020 due to an ongoing legal arbitration.
Gagan Sidhu, Director, CEEW-CEF and lead author of the study, said, “It is difficult to see India achieving a massive scale-up of its existing RE capacity, including solar, without a healthy market for instruments such as RECs. As a first step, REC trading should resume at the earliest, accompanied by a calibrated market reboot to address current concerns and prepare for future challenges.”
RECs are market-based instruments that can help power distribution companies (discoms) and others meet their renewable purchase obligations (RPOs) without actually buying renewable power. As many as 99 per cent of all RECs sold have served to fulfil RPO requirements. Still, poor RPO compliance across India has contributed to a demand shortfall of 7 per cent, represented by the 5.1 million RECs unsold as of December 2020. While an effective market reboot should focus on boosting demand, it should also prepare for the possibility of a future supply crunch.
This could happen if policymakers tighten lax regulations that currently allow defaulters to carry forward RPOs instead of meeting their targets using RECs. Further, the CEEW-CEF study highlights that India’s 27 RPO under-compliant states would have needed to buy an additional 67.2 million certificates in 2020 if they had chosen only to use RECs to meet their targets. For perspective, total REC issuances between 2011 and 2020 amounted to just 70.6 million.
According to the CEEW-CEF study, solar projects account for as few as 16 per cent of all RECs issued to power generators (non solar projects account for the remaining 84 per cent). Further, discoms, the largest consumers of solar power in India, account for a mere 12 per cent of the total REC issuances (RE generators account for the remaining 88 per cent). This data is in sharp contrast to the significant role that solar is expected to play in expanding India’s renewable energy capacity.
Sidhu added that going forward, India must do more to prepare the existing system for the pulls and pressures that will inevitably accompany its energy transition. While we need to improve RPO compliance vastly, we should simultaneously develop alternative sources of demand such as voluntary REC purchases by corporations hoping to reduce their carbon footprint.
Source: saurenergy.com
