India’s REC Framework 2025: A Shift Towards Smarter, Inclusive and Stricter Renewable Energy Compliance

The Central Electricity Regulatory Commission (CERC) has released the Draft Renewable Energy Certificate (REC) 1st Amendment Regulations, 2025, marking a major shift in India’s renewable energy compliance landscape. This amendment goes beyond routine revision, aiming to align renewable procurement, compliance, and market mechanisms with India’s broader energy transition goals. Its intent is clear: expand participation, tighten timelines, and modernize incentives for emerging technologies.

Expanding the Scope: From RPO to RCO

Until now, India’s REC framework revolved around the Renewable Purchase Obligation (RPO), which required distribution companies, open access consumers, and captive power plants to procure a share of electricity from renewable sources.

The 2025 amendment introduces the Renewable Consumption Obligation (RCO), aligned with the Energy Conservation Act, 2001. This targets Designated Consumers, which include energy intensive industries such as steel, cement, fertilizer, aluminium, and railways, effectively expanding responsibility beyond utilities to the industrial sector.

This broadening ensures the renewable transition becomes economy wide rather than power sector centric. However, one area needing clarity is the relationship between RPO and RCO. It remains uncertain whether a single REC can satisfy both obligations or whether they must remain distinct. Clear guidance would reduce compliance ambiguity and ease implementation.

Virtual Power Purchase Agreements Enter the Picture

A major innovation in the 2025 draft is the formal inclusion of Virtual Power Purchase Agreements (VPPAs).

A VPPA is a financial contract between a renewable generator and a corporate buyer where electricity is sold into the grid at market prices while the corporate settles the difference between the market and strike prices. The buyer also receives the associated environmental attributes, in this case the RECs.

The draft ensures that RECs from VPPA projects automatically transfer to the consumer and can only be used for RPO or RCO compliance. Surplus RECs may be carried forward but not traded.

This mechanism is particularly attractive for corporates pursuing net zero goals, providing an accessible route to demonstrate renewable energy use without physical power purchase. However, the trading restriction could reduce liquidity in the REC market. Allowing partial trading or longer banking windows could balance compliance integrity with market flexibility.

Tightening Compliance: The Three Month Rule

To improve discipline, the amendment mandates that distribution licensees and open access consumers must apply for RECs within three months of certification by the State Commission. Delays beyond this will result in forfeiture of certificates.

While this promotes accountability and timely reporting, smaller consumers and state utilities often face administrative or procedural delays. Introducing a provision for one time extensions or force majeure exemptions could maintain fairness without undermining compliance rigor.

Smarter Incentives: Dynamic Certificate Multipliers

The most structural change lies in how RECs are valued.

Earlier, multipliers were static and technology specific, for example solar (1.0), hydro (1.5), and biomass (2.5). This rigid structure failed to reflect evolving costs or technologies such as storage and offshore wind.

The 2025 framework introduces a scoring based multiplier system using three parameters: tariff range (40 percent weight), technology maturity (30 percent), and capacity credit or peak support (30 percent). This results in differentiated multipliers, 1.0 for solar and onshore wind, 2.5 for biomass and MSW, 3.0 for pumped hydro and storage, and 3.5 for offshore wind.

This approach better reflects the evolving technology landscape and encourages investment in grid supportive or high impact technologies. Still, regular reviews will be necessary to ensure relevance. Updating the multipliers every three years and publishing data sources for transparency would enhance investor confidence.

Additionally, since capacity credit varies across regions and grid conditions, a standardized or regionally adjusted methodology would ensure fair valuation nationwide.

Why These Changes Matter

The 2025 amendment broadens participation, strengthens compliance, and aligns incentives with national energy goals. Its implications extend across four key fronts.

1. Broader Base: By including large industries under RCO, clean energy responsibility expands to the entire economy, reducing over reliance on DISCOMs.

2. Corporate Buy In: Recognition of VPPAs formalizes corporate participation in renewable procurement, aligning India’s REC market with global sustainability practices.

3. Market Discipline: The three month rule enforces procedural rigor, though modest flexibility would improve implementation.

4. Technology Push: The dynamic multiplier structure incentivizes technologies critical for grid stability and long term decarbonization.

Together, these reforms shift the REC framework from a narrow compliance tool into a more strategic market instrument. It reflects India’s growing maturity in balancing regulatory oversight with market efficiency.

Final Thoughts

The Draft REC Amendment 2025 is not merely a technical correction, it represents a strategic evolution in India’s clean energy governance. By expanding coverage, embedding accountability, and rewarding technological advancement, it aims to build a smarter and more inclusive compliance ecosystem.

That said, the amendment’s success will depend on its execution and clarity on finer details. Streamlining the interaction between RPO and RCO, refining the treatment of VPPA linked RECs, allowing limited flexibility for procedural delays, and ensuring transparency in multiplier calculations would strengthen the framework considerably.

If these elements are managed well, India’s REC mechanism could evolve from a compliance driven registry into a powerful lever for corporate climate action and technology innovation, a market that rewards not only renewable generation but also smarter grid participation and responsible consumption.