Green electricity: Understanding renewable energy certificates
Sustainability
India currently faces two major impending challenges - i) it needs more energy ii) it needs it clean.
Being the 2nd largest producer of coal in the world, we’ve been largely dependent on the commodity for most of our energy needs (~70%). And now, as industries have started to open up post-COVID, production quotas of Coal India haven’t really been able to meet the rising electricity demands.
According to Economic Times, 100 out of our 135 coal plants have less than a week of buffer left, with 6 of them already having run dry. Last year, India had to import close to 250 MT of coal (4.7% of supply) from other countries like Australia.
At this time, an immediate short term resolution is needed to avoid blackouts and production. However, in the near future, India needs to increase its focus on renewable energy.
The climate angle
India made a lot of promises in the ‘Paris Climate Agreement 2021’. The plan was to:
Cut emission intensity by 35% and
Source 40% of our total energy from non-fossil fuel-based sources, all by the year 2030!
Despite production issues, coal is still the most favoured energy source - mainly due to its abundance, robust supply chain and dirt cheap prices.
So how do we incentivise corporations to move from inexpensive-but-polluting fuel sources to slightly-expensive-but-renewable ones?
Renewable Energy Certificates (RECs)
RECs are certificates or credits issued to anyone who produces renewable energy (RE). Based on the source of this energy, RECs can be classified into two: solar and non-solar.
So for example, if a solar plant produces 1 kWh of clean electricity, it gets 1 solar REC.
The plant can then choose to trade these RECs in public exchanges with firms that would need them to meet their clean energy quota. And these clean energy quotas could be mandated on firms by the government enforcing Renewable Purchase Obligations (RPOs) on them.
Renewable Purchase Obligations (RPOs)
RPOs are directives issued to electricity distribution companies and high energy consumption firms to source part of their power load from renewable sources. They could do this any way feasible- by building renewable energy plants, or by purchasing electricity from other renewable producers.
Alternatively, they could also fulfil demands by purchasing RECs.
For instance, if you’re an automotive firm using 1,00,000 MWh coal-based power for your manufacturing facility with a 10% RPO, you can purchase 10,000 RECs from a solar power company and you're done.
The intent
The purpose of the REC framework is simple: penalise DISCOMs and companies to the point they make a voluntary switch to renewable power sources. Like it or not- you either aid the clean energy movement directly by producing your own RE or indirectly by purchasing it from others who are producing it.
Additionally, RECs are also a good branding factor for firms.
When businesses say they’re ‘powered by 100% clean electricity’, what they could also mean is that they purchase an equivalent amount of RECs for all their electricity consumption.
Current state of affairs
Launched in India in 2010, so far 59 million RECs have been sold on the India Energy Exchange (IEX) and the Power Exchange of India (PXIL), at a net value of INR 9,266 Crores. However, these figures severely undermine the potential that India’s renewable market holds, especially considering how unevenly our RE resources are distributed.
Currently, over 5.1 million RECs remain unsold due to poor RPO compliance across states. Additionally, since July 2020, REC trades are suspended by the Appellate Tribunal for Electricity, due to the issue of fixing floor and ceiling prices of RECs.
Revamp
Recently a circular was approved by the Union Power Ministry over rebooting the REC mechanism with amendments and redesigns. The changes solve some key issues associated with REC trades:
Certificates now hold perpetual validity till they are sold
No floor or forbearance prices will prevail
CERC will strictly vigil all trades so as to ensure no hoarding of RECs take place
What does the future mandate?
While the redesigned mechanism is a good step towards boosting REC trades, GOI still needs to ensure strict RPO compliance to aid the renewable sector.
India has a target of building 450 GW of renewable solar, wind and biofuel based power sources by 2030, against a current installed capacity of 89.63 GW (with just 49.59 GW being under execution).
With the threat of rapid global temperature increase stated in the IPCC report released this year by the UN, urgency in moving away from coal-based power sources is a crucial need of the hour.
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