Significant Changes are Proposed in the REC Mechanism

 
NLDC and Central Board of Irrigation and Power (CBIP) organized a day-long workshop on the REC mechanism in Delhi in June.
 
Shri Pramode Deo, Chairman CERC was the key note speaker at the event. In his speech, he gave a preview of the significant changes expected in the REC mechanism. The highlights of these are:
 

• Quarterly compliance of RPO to be put in place soon
  • As we have mentioned earlier in our newsletter and on this blog, this is a necessary step to make the market function smoothly. The interesting point that Shri Deo made was that all the regulatory requirements to implement this change quickly are in place – as a result we may see quarterly compliance sooner that we expected.

• Vintage based RECs to be considered, particularly in Solar
  • This will help remove a major obstacle in Solar investments. Faced with rapidly reducing capital costs, investors opting for the REC mechanism face a sudden reduction in revenue as REC prices are revised downward, even though they are locked-in with high capital investment. A vintage-based REC will solve that problem. As an example, a 2010 Solar REC may be made equal to 1.3X of a 2012 Solar REC to factor in the higher capital investment required in 2010.
  • Vintage based RECs are a common feature in international markets.

• Electricity duty exemption clause to be reviewed
  • A large number of units generating RE power in captive mode are in-eligible for RECs as they enjoy ED exemption. However, the ED exemption available and the REC revenue foregone are disproportionate. At the same time, this clause is preventive entire states and regions (like UP, Punjab and Vidharba) from participating in the REC market.

• Consider Discom’s to sell RECs when they purchase RE in excess of their RPO requirement
  • This will be a welcome step, as this will enable Discom’s to lessen the burden of RE power purchase, particularly as many are not in good financial health. However, this approach also has risks – a Discom may disallow open access in the state and monopolize REC trading. One way out could be to allow this only in states where open access is allowed in its true spirit and form.