Government actions to facilitate the use of renewable energy certificates (RECs) can improve Indian companies’ ability to compete globally—a major policy objective of the current government
REC in India
Renewableenergy certificatesunbundlethe electricity from the renewable character of its generation,which isembodied in the REC. RECscan be sold independently to different customers in one or different marketsandregions.
Since 2003, Indiancompanies—thosewho have setup captive generation using fossilfuelsor thosewho purchase energy via open access— have beensubjected torenewable purchase obligation(RPO)regulations.Companies usethreetypes of power procurement toolsto meet their RPO targets:
- Investingin self-generation ofrenewables,
- Procuring renewablesfrom agenerator,utility,supplier, ortraderthrough apower purchase agreement, and
- Purchasingrenewableenergy certificates.
In the recent past,Indian companies haveexploredtheir options for renewables procurement evenifthey are not subject toanRPO, primarily becausethecost of rooftop photovoltaic is lower thantheexistingretail tariffs. However, complexity andthecosts of regulation have proved to be a major impediment to renewable capacity addition.
For companies who do not wish to invest capital themselves or enter into binding long-termpower purchase agreementswith suppliers,purchasingRECscan bean easy start. Two type of RECs are available on the power exchanges — solar RECs(current pricerange: Rs. 1/kWh to Rs. 3.5/kWh) andnon-solar RECs(current price range: Rs. 1/kWh to Rs. 1.5/kWh).Inorder to participate in REC trading,companies must register on the exchange, though there is nocharge forregistrationfor voluntary purchasers.
Companies canbook theirvoluntary REC purchasesas acorporate social responsibility (CSR) expense. Companies meeting financial thresholds—as defined by the government from time to time—are required to spend 2percentof their net profits on CSR expenses as per the Companies Act, 2013.Purchasing RECs providesaneasy way of meeting CSR obligations while at the same time building an environmentally conscious image.
Indian Energy Exchange datashow thatto date,26 entities havemadevoluntary REC purchases. More than half of the voluntary purchases have been made by public sector enterprises (Rural Electrification Corporation Ltd., POSOCO,and National Mineral Development Corporation). This is largely attributable to December 2011 guidelines from the Department of Public Enterprises,which included RECson the list of sustainable development projects allowed under CSR.
Government canguide morevoluntary purchases
While companies may actbythemselves, a little bit ofapolicy nudgecanhelp accelerate demand for further voluntary action. That in turn shall expand the clean energy market in India.We presentafew suggestions to do so:
- Governmentand/or distribution utility“recognize”consumers who agree for voluntary action.
- Allow distribution utilities to market RECs to their customers. They can target not only their industrial and commercial consumers, but also individual residential consumers and residential housing societies.
- The CERC currently regulates prices for mandatory compliance purchases,as these costs are ultimately borne by ratepayers. However, price-setting should ideally be left tothemarket. Market-discovered prices providetheright investment signals torenewabledevelopers,thereby accelerating renewable capacity addition.
Nielsen’s 2015 Global Corporate Sustainability Reportfound that 66percentof consumers are willing to spend on a sustainable brand, even if it costs more.This need of the consumer can be fulfilled ifthegovernment facilitatesitand companies act on it accordingly.
[Ranjit Bharvirkar, Principal and India Program Director, RAP, also contributed to this piece]
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