Renewable Energy Certificate (REC) Mechanism issued by Ministry of New & Renewable Energy of India to facilitate interstate transactions of Renewable Energy and to promote RE based projects. This report covers all the basic aspects of REC Mechanism along with the Operational Framewokr of the same.

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Everything you want to know about...
RENEWABLE ENERGY CERTIFICATE MECHANISM
REC Mechanism
Introduction
What is REC?
Categories of Certificates
Eligibility Criteria
Techno-commercials
Pricing of Certificates
Operational Framework
Dealings in Certificates
Summary/Salient Features
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November 7, 2013

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3. Power India
Renewable Energy Certificate (REC) mechanism is a market based instrument
to promote renewable energy and facilitate compliance for renewable purchase obligations (RPO) under inter-state transaction of RE generation. REC
mechanism is aimed at addressing the mismatch between availability of RE
resources in state and the requirement of the obligated entities to meet the
renewable purchase obligation (RPO).
Renewable energy certificates (RECs) represent the green attribute of electricity generated from renewable energy sources. These attributes are unbundled from the physical electricity and the 2 products formed – the green attribute embodied in the certificate and the commodity electricity – may be
sold or traded separately.
In other words, REC represent that the amount of energy generated from renewable sources. RECs have now become the currency of renewable energy
markets because of their flexibility and the fact that they are not subject to the
geographic and physical limitations of commodity electricity.
Under this mechanism, cost of electricity generation from renewable energy
sources is segregated in two parts (i) cost of electricity generation equivalent
to conventional energy sources and (ii) the cost for environmental attributes.
These environmental attributes can be exchanged in the form of Renewable
Energy Certificates (REC).
Thus, RE generators will have two options (i) either to sell the renewable energy at preferential tariff or ii) to sell electricity generation and environmental
attributes associated with RE generations separately.
Power India
WHAT IS REC MECHANISM?

4. Power India
CATEGORIES OF CERTIFICATES
Though India is having significant potential of RE sources, the contribution
from Solar technologies was very low. The major reasons behind such low
potential are nascent stage of development for solar technology and its very
high cost compared to other RE technologies. Earlier there was no distinction
between the solar and non-solar technology in so far as renewable energy
source is concerned. There was no separate obligation for obligated utilities to
buy power from solar. This emphasized the need for policy and regulatory
measures required to promote solar technology. In this context it is necessary
to have sustainable regulatory approach for such technology.
The Forum of Regulators in its report on “Policies on Renewables” had also
recommended that in order to promote different RE sources and technologies,
a part of RPO may be reserved for such RE sources in a nascent stage of development.
Thus, it was proposed that there will be two categories of certificates - one for
electricity generation from solar technologies called solar certificates and another for electricity from other renewable energy technologies called nonsolar certificates. Both these certificates will be mutually exclusive and cannot
be exchanged. The solar certificate shall be sold to the obligated entities to
enable them to meet their RPO for solar and non-solar certificate shall be sold
to the obligated entities to enable them to meet obligation for purchase from
RE sources other than solar.
Thus currently the Renewable Energy Certificates are having 2 categories:
i.
Solar certificates; include both PV and CSP technologies.
ii. Non-Solar certificates; include a basket of renewable energy technologies such as wind, biomass, biofuel cogeneration and small-hydro.
The certificate issued by the Central Agency would be placed in the power
exchange for dealing as per the rules and bylaws of the power exchange.
Power India
Dealing in Certificates
The REC certificates can be exchanged only through the power exchange
which have been approved by the Commission.

5. Power India
ELIGIBILITY OF CERTIFICATES
The Ministry of New and Renewable Energy (MNRE), the nodal ministry for
promotion and development of renewable energy in India, has identified and
approved a number of renewable energy technologies such as Wind, small
hydro, solar, biomass, bagasse based cogeneration, waste to energy etc.
The primary criteria for the entity to be eligible under this mechanism should
be that the entity should be engaged in generation of electricity from MNRE
approved RE sources and connected to the grid. In addition to this, the eligible
entity should also fulfill specific criteria mentioned below to be eligible for
registration under the REC mechanism at central agency.
The entity should not have any power purchase agreement to sell electricity at
preferential tariff determined by the appropriate commission.
The agency should have obtained accreditation from State level agency.
The electricity generation by such generating company is sold either (i) to a
distribution licensee at a price not exceeding the pooled cost of power purchase of such distribution licensee, or (ii) to any other licensee or through
power exchange or to an open access consumer at a mutually agreed price.
The pooled cost of purchase considered under the criteria should be the
weighted average pooled price at which the distribution licensee has purchased the electricity which includes the cost of self-generation, if any, in the
previous year from all the energy suppliers, conventional and nonconventional, long term or short term.
Based on this, there are 3 categories of project that are eligible for REC:
a.
b.
Projects for captive consumption with no concession on transmission/
wheeling, no banking facility benefit and no electricity duty waiver
c.
Projects for sale of electricity to open access consumer/third party at a
mutually agreed price
Central agency would be issuing the REC certificates on the basis of units of
electricity generated and injected in to the grid by the eligible entity.
Injection of the electricity by such entities would be based on the information
furnished by the authorities constituted under the act to oversee scheduling
and dispatch and energy accounting.
In case of entities which are not covered under the existing scheduling and
dispatch procedures, issuance of the certificate would be based written communication of the concerned distribution licensee to the concerned State Load
Dispatch Centre about the injection of electricity by the corresponding entity.
Each certificate would represent one megawatt hour (1 MWh) of electricity
generated from renewable energy sources and injected into the grid.
Power India
Denomination and issue of Certificates
Projects with a PPA with a DISCOM at a tariff equivalent to APPC of the
DSICOM

6. Power India
A “Renewable Energy Certificate” is a commodity representing the environmental attributes of a unit of renewable energy. As mentioned before, with the
introduction of REC mechanism in India, RE based power projects (eligible
under REC framework) will comprise of two components: Electricity component and RE attribute in the form of REC. The electricity component under the
REC framework can be considered comparable to electricity generated from
conventional sources. The renewable energy attribute of electricity generated
from RE based projects will be valued separately in the form of REC price.
The price of REC will be as discovered in the power exchange, subject to the
floor & forbearance prices determined by CERC. CERC has determined the
floor & forbearance price after analysing the sate wise average power purchase cost and the tariff for RE sources determined by the appropriate commission. The forbearance price has been computed in way to not only ensure
optimum incentive for the RE technologies but also save the obligated entities
purchasing RECs at unrealistic high price. It is should be noted that the REC
purchase expense for meeting compliance by distribution licensees should be
treated as ‘pass through’ expense in the Annual Revenue Requirement.
Considering the two types of certificates Commission has fixed the separate
forbearance price for solar and non-solar REC separately after consultation
with Central Agency and the forum of Regulators in the following manner.
Non-Solar floor price





Difference between the project viability requirement and APPC for different RE technologies across states is taken out in Rs/kWh
These are arranged in ascending order
The expected RE generation in a particular state is mapped with the
respective difference calculated
The price at which the target RE generation (of 70000 MUs) is realized
is taken as the floor price
This price which we got from the difference is then rounded off to arrive at the floor price
Non-Solar forbearance price


The highest difference between the Costs of Generation (RE Tariff) and
the APPC has been specified as the forbearance price for non–solar
technologies.
The highest difference has been rounded off to the next hundred’s to
arrive at the forbearance price
Solar Floor price

The difference between the minimum requirement for project viability
of Solar PV/Thermal and respective state APPC of previous year (201112) is taken out and the highest value among these is considered as
floor price.

The project viability approach covers the cost required to meet viability
parameters including O&M, interest, principal repayment etc.
Power India
Pricing of Certificates

7. Power India
Pricing of Certificates
(Contd...)
Solar Forbearance price


This has been derived based on the highest difference between the Solar PV/Thermal tariff for 2011-12 and the APPC of 2011-12 across
states.
The highest difference in price has been rounded off to the next
hundred’s (or next ten’s in case of unit price), to arrive at the forbearance price.
History of the Floor & Forbearance prices determined by CERC
Jun 1, 2010 – Mar 31, 2012
Apr1, 2012 –Mar 31, 2017
Non-Solar
REC (Rs/
MWh)
Solar REC
(Rs/MWh)
Non-Solar
REC (Rs/
MWh)
Solar REC
(Rs/MWh)
Forbearance
3900
17000
3300
13400
Floor
1500
12000
1500
9300
Price
Validity of Certificates
Eligible entity should apply for Certificates within six (6) months (earlier it was 3
months) after corresponding generation from the eligible RE projects.
Power India
Also the certificate would be valid for 720 days (earlier it was 365 days) from the
date of issuance of such certificate.

8. Power India
Step 1. Accreditation
Through this process State Nodal Agency (SNA) authorizes or endorses the RE
Generator and recommends it for registration.
 Eligible Generator can get accredited not before 6 months prior to the
proposed date of commissioning.
 Accreditation Certificate valid for 5 years from the date of accreditation.
 Separate applications for separate RE generation projects
 Minimum capacity of RE generation project to be 250 kW.
Step 2. Registration
Through this process, NLDC (Central Agency) registers their Generator as
‘Eligible Entity’ for its RE Generation Project.
 Eligible Generator can get registered not before 3 months prior to the
proposed date of commissioning.
 Registration can only be done after receipt of the ‘Certificate of Accreditation’ for the RE Generation Project from the concerned State Agency.
 Registration is valid for 5 years from the date of Registration.
Step 3. Issuance of REC
 The electricity generated from RE project is injected into the grid and
sold to either a distribution licensee or open access consumer with
whom it has contract or sold through the power exchange. The metering of quantum of Renewable Energy injected into the grid is approved
by or recorded through energy accounting by SLDC.
 Eligible RE Generator to apply to NLDC to issue the RE certificates
equivalent to the amount of electricity injected into the grid as certified
by the SLDC. The application to be filed within three months from the
date of renewable energy generated.
 Application can be made on a fortnightly basis, i.e., on the 1st day of the
month or on 15th day of the month.
 NLDC to issue RECs to Eligible RE Generator within 15 days as per
SLDC and State Agency’s generation report.
 RECs to be sold within 720 days of issuance or else they will lapse.
Step 4. REC Trading at Exchange Platform
Once the RECs are issued to the RE Generator (Eligible Entity), sale/purchase
of RECs amongst Eligible RE Generators and Obligated entities to be undertaken only through Power Exchanges.
 Trading through Closed double-sided auction on the last Wednesday of
every month.
 Call of bids from 13:00 Hrs to 15:00 Hrs on the auction day(T-day).
 PXs to intimates details of maximum sale bids placed by each Eligible
RE Generator to NLDC by 15:30 Hrs .
 NLDC to check availability of RECs with the eligible entity by 16:00 Hrs.
 Post-confirmation from NLDC, PXs to determine Market Clearing Price
and Market Clearing Volume and send the details final cleared trades to
NLDC for extinguishing of RECs sold in the records of NLDC by 17:00
Hrs.
Power India
Operational Framework of REC Mechanism

9. Power India
Step 5. Surrender/Redeeming of RECs
The Obligated Entities purchase RECs through PXs and to surrender to SERC
or other agency as specified by SERCs as to meet their RPO. NLDC (REC Registry) to maintain record of RECs sold and purchased.
Step 6. Compliance Reporting
Compliance Auditors to monitor and report the compliance of REC Regulations.
Following diagram shall graphically demonstrated the entire Operational
Power India
Operational Framework of REC Mechanism (Contd)

10. Power India
Ministry of New and Renewable Energy (MNRE)
MNRE, being the nodal agency for promotion of renewable energy in the country is primarily expected to facilitate the development of REC mechanism in
India. Some of the activities which MNRE is expected to perform are listed
below:





To facilitate development of REC mechanism
To provide support as desired by Forum of Regulators
To approve technologies eligible for participation in REC Mechanism
To assist SERCs in implementation of generation accreditation process
To ensure that any future incentive mechanism for promotion of RE is
compatible with the REC Mechanism
Forum of Regulators (FOR)
FOR is expected to evolve consensus on following issues:







Standard Regulations under Section 86(1)(e) incorporating REC covering:
 Institutional structure for REC Mechanism
 Operating Framework for REC Mechanism
 Methodology for pricing of electricity component
 Methodology for pricing of REC component
 Enforcement Principles for non-compliance of RPO
 Generation accreditation process
 Structure & Rules of the Monitoring Committee
Development of standard methodology for energy accounting process
Assessment of market for REC
Review and comment on the Regulations developed by the CERC for
REC Registry and REC Exchange Platform
Periodic review of the development and implementation of REC mechanism
Seek inputs from time to time from the MNRE and other stakeholders
Resolve any issue which may crop up during implementation in any
State
Central Electricity Regulatory Commission (CERC)
CERC is expected to develop and implement:





Institutional and Regulatory Mechanism for REC Registry
Regulation for REC Exchange Platform
Principles for determination of tariff for RE Technologies which may be
used by SERCs for determination of pricing of RE in the State
Develop criteria for eligibility of RE technologies for inclusion in REC
mechanism in consultation with MNRE and FOR
Approve RE technologies for inclusion in REC mechanism, in consultation with MNRE
Power India
Roles and Responsibilities of Various Institutions

11. Power India
State Electricity Regulatory Commissions (SERCs)
SERCs will carry out following activities:










Adopt Standard Regulation developed by FOR after taking into account
state specific issues
Determination of RE Technology specific tariffs
Determine the Tariff Rate for procurement of electricity component of
RE
Specify the RPS percentage and eligibility for RE procurement
Specify enforcement mechanism for different Stakeholders for noncompliance
Amend State Grid code to enable SLDC to take up energy accounting
Amend Regulations under Section 86(1)(b) to account for acquisition of
RECs
Adopt with suitable modifications, regulations for monitoring committees
Design Contractual framework between SLDC/ Distribution Company,
RE Generator and Monitoring Committee for energy accounting
Design Contractual framework between SLDC/ Distribution Company,
Obligated entities and Monitoring Committee for energy accounting
State Load Dispatch Centre (SLDC)
Energy Accounting would be the backbone of the proposed REC mechanism
and the mandate for this important task under the Act is with SLDC. SLDCs to
undertake following functions:




Accounting of renewable energy fed into the grid (electricity generated)
Accounting of renewable energy procurement by the Obligated Entities
Issuance of power generation certificate to REC registry
Accounting of total energy procurement by all obligated entities
Monitoring Committee
The Monitoring Committee is expected to undertake following activities:








The Primary Responsibility of the Monitoring Committee would be to
monitor the compliance of the RPO by all obligated entities.
Accreditation of eligible RE generators in the State
Act as a repository of all information pertaining to renewable energy in
the State
Maintain database of Obligated Entities in the State
Monitoring the compliance of Market rules by all stakeholders
Reporting of non-compliance, breach of rules to the concerned SERC
Enter into tripartite agreement with SLDC/ Distribution Company & RE
Generator for energy accounting
Enter into tripartite agreement with SLDC/ Distribution Company, Obligated entities for energy accounting
Power India
Roles and Responsibilities of Various Institutions (Contd…)

12. Power India
REC Registry
The REC Registry will also have to perform following tasks:







Registration of eligible RE generators
Registration of REC buyers which could be any person, obligated entity,
trader or individual buyer who wishes to buy RECs to be carbon neutral
Issuance of RECs to RE generators
Redemption of RECs on receipt of redemption request
Track transactions involving sell and purchase of RECs
Provide requisite information to Monitoring Committee of each State
on redemption of RECs by buyers
Automatically redeem RECs if the life of the RECs is over
REC Exchange Platform
REC Exchange Platform is expected to provide REC buyers and sellers a fair
and transparent platform for sell and purchase of REC. REC Exchange Platform is expected to undertake the following tasks:

Development of hardware and software in accordance with CERC Regulations

Facilitate exchange of RECs amongst interested parties in accordance
with CERC Regulations

Periodic reporting to the CERC regarding REC trades

Recovery of costs from participants on the Platform
Power India
Roles and Responsibilities of Various Institutions (Contd…)

13. Power India
Parameter
Description
Objectives
 Effective implementation of Renewable Purchase Obligation
 Increased flexibility for participants
 Overcome geographical constraints
 Reduce transaction costs for RE transactions
 Enforcement of penalty mechanism
 Create competition among different RE technologies
 Development of all-encompassing incentive
mechanism
 Reduce risks for local distributor by limiting
its liability to energy purchase
REC Categories
Solar & Non-Solar RECs
Denomination
1 REC = 1 MWh
Shelf life of REC
720 days
REC issuing authority
Trading platform
Transfer type
Banking and borrowing
NLDC shall issue REC to generator based on the
energy injection report prepared by SLDC
Power exchange under the guidance of CERC
Single transfer only, repeated trade of the same
certificate is not possible
Not allowed
Trading calendar
Last Wednesday of the month
Trading period
1pm – 3pm on the day of auction
Trading methodolo-
Close bid double sided auction for each type of
gy
certificate separately
Penalty for non-
Forbearance Price (may vary depending on
compliance
SERC)
Minimum bid volume
1 certificate (equivalent to 1MWh of energy
injected)
Power India
Summary/Salient Features of REC Mechanism

14. Power India
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