Story of Renewable Energy Certificates for promoting the solar energy in India (Part 2)
What could be achieved through RECs?
RECs would increase the flexibility for participants and overcome geographical constraints. It could also reduce the transaction costs for renewable energy transactions. This requires a robust penalty mechanism for enforcement of RECs in India. Moreover, it would also create competition among various renewable technologies to compete at operational level. Finally it would reduce the risks of local Discoms by limiting their liability to only energy purchase.
Breaking RECs myths
There are certain points that are to be kept in mind while understanding what REC is and what it is not:
· REC scheme is NOT an incentive mechanism. Instead it enables the sale of purchase of renewable component across the state boundaries.
· REC does NOT represent any fiscal attributes such as 'Accelerated Depreciation', hence it is different than Production Tax Credits
· Though REC represents environmental attribute, it is NOT related to carbon credits as two mechanisms are independent of each other
REC mechanism could be implemented with any 'Generation based incentive' scheme as both mechanisms are based on certification of generation
Operation of REC Mechanism
The above figure represents how the REC mechanism would work. There are various issues that have to be addressed for implementation of the RECs. These are:
· Pricing and Denomination of REC
· Physical form of REC
· Creation of REC
· Eligible RE Technologies and Generators
· Obligated entities
· REC registry
· Banking and Trading
· Enforcement for non-compliance
· Shelf life of RE certificate
· Sunset date for REC mechanism
· Compatibility with other schemes
A broad policy mandate needs to be introduced for REC mechanism and inter state REC sale in India.
RECs can bring about the much needed change in the subsidy mechanism currently used by India for promoting solar and other renewable energy. This would require a detailed planning and structuring of the certificate but it is imperative to act now when India is attracting huge investments in this space. Or else, China would be toppling us in renewable energy also in future!!!
Note: This analysis has been derived from a report by IREDA and ABPS Infrastructure Advisory Pvt. Ltd.