CERC Proposes Drastic Changes in the REC Mechanism

In a recent announcement, CERC (Central Electricity Regulatory Commission) published the draft  Central Electricity Regulatory Commission (Terms and Conditions for Renewable Energy Certificates for Renewable Energy Generation) Regulations, 2022. Comments are due by 15th March 2022.

Key Changes provisioned in the draft REC Mechanism 2022:

• Captive projects are proposed to be eligible for RECs, subject to some conditions (they were disqualified by an earlier amendment).
• REC Multiplier concept is proposed to be introduced. Some technologies like Biomass will get >1 RECs for every MWH of power generated. 
• Direct trading of RECs to be possible. REC Certificates can be exchanged through power exchanges or through electricity traders.
• The Price of REC Certificate will be as discovered in the Power Exchange(s) or as mutually agreed between eligible entities and the electricity traders. It appears that the floor and forbearance prices will be done away with.
• It appears that Lage Hydro projects will also be eligible for RECs (till now, only small hydro projects were eligible)
• Consumers and Discoms who consume renewable energy in excess of RPO will also be eligible for RECs.

Main Features of the draft REC Mechanism 2022:

Eligible Entities:

As per the draft order, following entities will be eligible for issuance of certificates.

Exchange and Redemption of Certificates

Major changes have been introduced in the redemption of REC certificates as below:

• Certificates can be exchanged through power exchanges or through electricity traders which will allow the direct trading of certificates. 
• Eligible entities selling certificates through electricity traders will have to inform the central agency in advance upon which central agency will block those certificates
• Upon trading of those blocked certificates, Electricity traders will have to inform to central agency to update the registry
• CERC will continuously monitor the possibility of abnormality in price & volume of certificates to avoid hoarding and market manipulation.

Certificate Multiplier:

CERC also proposes to introduce Multiplier, as below, which will be reviewed regularly.

*1 REC = 1 MWh

Why Certificate Multiplier?

Dramatic fall in the capital cost of Wind and Solar technologies significantly lowered the tariffs. Probably, this has resulted in some established technologies like small hydro and biomass to become commercially unviable as described below. Technology Multiplier can be a great initiative to incentivize such projects.

It is important to note that the certificate multipliers will only be provided to projects  commissioned after the date of effect of these regulations

Additionally, the Central Agency will issue the Detailed Procedure after stakeholders’ consultation within a period of 3 months of notification of these regulations.