Indian REC Market – Why will it remain attractive?

Posted on May 20, 2011 by

Read more on Solar REC market in India – History, Take off and Current Scenario

REC Mechanism has been well taken by the RE Project developers with 71 project accredited and 30 projects registered across technologies – wind, biomass, small hydro and co-generation. The result of the last trading session and the floor price, especially the buoyant cap prices reached in March trading has un-necessarily made a number of RE-developers and investors worried about the future of REC Market.

We present a brief analysis of why the REC market will continue to be attractive in the foreseeable future.

It is a Compliance Market and Not Voluntary

In India, the REC and RPO framework will be implemented as compliance market as against a voluntary market. REC Mechanism, in the compliance market format has been used by a number of countries including US, UK and Australia with success.

REC Mechanism is essential to meet RPO

Government of India is looking at the Renewable Purchase Obligation and the Renewable Energy Certificate as the driver to enhance the Renewable Energy generation in the country. REC Mechanism will be a key in the implementation of the same, since without them, the various states (such as Madhya Pradesh and Haryana) will find it impossible to meet their RPO targets. As can be seen in the table below, states such as Maharashtra and Karnataka have been able to meet RPO but a number of states in North such as Punjab and Haryana are finding it difficult to reach the RPO target RE installations.

RE Potential remains to be exploited

The current status of RE utilization at the national level as well as the potential available across technologies as of October 2009 (Source: MNRE Report – October 2009) is shown in the figure below

This implies that the investments in the under-exploited RE technologies such as bioenergy and solar will drive the growth of RE sector.

Growing nation-wide RPO will require increased generation from RE sources

Though the installed RE base in the country is around 11% of the total installed capacity, the generation from RE sources is less than 5% of the total energy generated (2010 data). The table summarizes the national RPO target, the overall energy requirement of the country and the resultant RE generation required to meet the RPO requirement at the national level.

This shows the significant growth required in the generation from RE sources and corresponding installation of RE capacity.

There will be shortfall of the RE generation to meet the RPO

The supply of RECs is related to the generation of electricity by the eligible RE projects in the country. It is expected that RECs will be issued mainly to generators in states which have met their RPO compliance and have adequate RE potential. A review of the capacity addition trend in the renewable energy projects has been done for the major renewable energy technologies across select states for the development of the supply curves

Add to this the fact that a significant share of generation will happen from the capacity that is already under the long term PPAs and therefore out of the REC market. This implies that if properly enforced, a significant demand will come from licensees, captive and open access customers in RE-deficit states – mostly in the north.


  • REC Framework is widely expected to be implemented with full enforcement, given that it is part of Prime Minister’s National Action Plan on Climate Change (NAPCC)
  • The installed RE capacity is very low compared to the potential and the Renewable Purchase Obligation (RPO) requirements.
  • Many states (such as UP, Haryana, Delhi) have very low supply of RE against their RPO requirement.
  • The generation from projected RE capacity addition will leave a shortfall for UP’s RPO requirement for the foreseeable future
  • Distribution Licensees and other obligated entities in states such as Uttar Pradesh, Haryana, Delhi  will therefore remain significant buyers of RECs at least in the short term till these states develop and successfully implement policies for RE development in them.
  • With RPO targets of RE-rich states such as TN and Karnataka being high and the growth in consumption, these states too won’t be in the “only-as-a-seller” mode – there would be demand from these states given the high RPO %ges.

Source:  Study on determination of Forbearance and Floor price, March 2010 – A study by PWC for CERC

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