23 Mar, 2021
What are RPOs and RECs?
1 mins read | CEF Explains
RECs allow entities like discoms to meet their RPOs without actual procurement of RE-generated power

Context

India’s renewable energy expansion programme is one of the largest in the world.1 It ranks 3rd globally in terms of installed renewable energy capacity.2 Policy and regulatory support to incentivise both demand and supply have been a key driver of the rapid growth in the renewable energy sector. One such support measure has been in the form of renewable purchase obligations (RPO) which require obligated entities such as discoms to purchase a minimum percentage of electricity from renewable energy (RE) sources.3 RPOs are mandated by the Electricity Act (2003).

However, RE resources potential is not evenly spread across the country. Moreover, obligated entities also face difficulty in procuring power from RE sources due to its variable nature. It is here that the concept of renewable energy certificates (RECs) assumes significance. RECs are ‘green tradeable certificates’ that represent the environmental attributes of power generated from RE but not the actual power itself.4 RECs allow the obligated entities to meet their RPO without actual procurement of RE-generated power.5 They can be purchased on the national energy exchanges such as Indian Energy Exchange (IEX) and Power Exchange of India Limited (PXIL) by the obligated entities like discoms to meet their RPO targets. Purchase of RECs for voluntary reasons also takes place, but volumes are negligible. The figure below depicts the relationship between RECs and RPOs. 

Figure 1: RECs and its relation to RPOs.


RECs and RPOs are complementary to each other and the key features of the two are highlighted below:

Table 1: RECs and RPOs – What, How, Who?

Source: CEEW-CEF analysis


Relevance and Impact

Compliance of obligated entities with RPO targets has been consistently poor. For example, the RPO target for the financial year 2019-20 was set at 17.5 per cent but the achievement on pan-India basis was merely 12.73 per cent and compliance is less than 55 per cent of the target for about 20 states6. Poor compliance with RPO targets has negatively impacted the REC market as one of the main end-use of RECs is to facilitate RPO compliance. RECs are flexible instruments and are also relevant to companies committing to 100 per cent energy consumption from green sources. 

Who should care?

  • Renewable energy developers
  • Discoms
  • Corporates committing to 100% power from renewable energy
  • Policymakers
  • Individuals

References

  • [1] MNRE.2021. “ Initiatives and Achievements.” https://mnre.gov.in/. Accessed 18 March, 2021.
  • [2] CEEW-CEF.2019.”Market Intelligence – India page.” https://cef.ceew.in/intelligence/india/overview. Accessed 15 March, 2021.
  • [3] MahaUrja.” FAQ – RPO.” https://mahaurja.com/meda/data/rporec/FAQ%20RPO.pdf. Accessed 15 March, 2021.
  • [4] POSOCO.2018. “REC Mechanism- Key learnings, Data analysis and way forward.” Accessed 15 March, 2021.
  • [5] Renewable Energy Certificate Registery of India. 2010.” About REC.” https://www.recregistryindia.nic.in/index.php/publics/AboutREC. Accessed 15 March, 2021.
  • [6] Ministry of Power. 2020.” Minutes of theConference of Powerand Renewable Energy Ministers of States & UTs held on 3rd July, 2020.” https://powermin.gov.in/sites/default/files/webform/notices/Approved_minutes_of_PMC.pdf. Accessed 15 March, 2021.

Disclaimer

CEF Analysis” is a product of the CEEW Centre for Energy Finance, explaining real-time market developments based on publicly available data and engagements with market participants. By their very nature, these pieces are not peer-reviewed. CEEW-CEF and CEEW assume no legal responsibility or financial liability for the omissions, errors, and inaccuracies in the analysis.
Filled under: Power Markets , Renewables , Policy & Regulation
Recommended for you
Subscribe to latest updates