REC – Worth To Invest?

As of Nov ’15, more than 1 crore REC’s are pending to get their value. With the increase in this number, more and more renewable generators are tempted to go for FIT or preferential tariff power selling options. Though, a generator gets far better realization while going through the route of APPC and REC mechanism, but anyone try to avoid.

The recent development in the renewable sector is more responsible for the increase in the quantum of the pending renewable energy certificates. The increase in the target of the solar, hydro and wind energy will lead to the increase of these certificates. At present, more than 28 lacs solar and more than 1 crore Non-solar REC’s are pending (The exact data is shown in figure below).


The increase in the target will lead to the increase in these piles of REC’s.  On one side, the supply of the REC is increasing but the demand of REC is decreasing. The current implementation of vintage multiplier further hampers the economics of demand and supply curve.


The total increase in the solar REC’s can be estimated as per the calculation below:-

Target = 100 GW

Total expected REC to be supplied (Solar) = 876000000*1##% = 8760000MWH (Considering 1% as only quantum of MWH going for REC).

Considering the clearing ratio of 2.07##% (as per Last month clearing ratio), the amount of left-over REC = 85 lacs (approx.).

These certificates will be in addition to the pending REC’s. These would lead to the question, are we prepared for the REC mechanism market. Should any generator go for this market driven methodology or any other route for their realization. The confusion pertains in the mind of all the investor.

Looking into the long term perspective of the REC market, investment should be made in REC market.

The power market is driven by 3 P’s – Price, policy and politics. The present scenario looks greener than before. The political party is stable at centre, capable of making the decision and motivated towards developing new and investor friendly policies. The price of renewable sources- mainly solar is also converging towards grid parity. The recent sun-edison quote of 4.63 INR is a step toward the competitive market. The graph below depicts the solar REC purchase on monthly basis since its inception:

graph 2

The demand for the REC’s sees the major spike in the duration of December to march. The reason can be facilitated to the annual RPO fulfilment compliance norms by the respective commission. The stricter the government go for the RPO fulfilment; the REC market will become merrier for the investor.

The government attention towards the cleaner environment and focus towards alternative sources of power generation is helping the REC market to grow. To make this market more feasible, the commission is forming different and stricter rules. There are more proposals of penalties for not fulfilling their respective rpo’s. Initially, these were totally based upon the states and their commission where states politics hampers the ideal growth of the market.  The current draft national renewable energy act 2015 clearly mentions the effects of non compliance of the RPO’s at Part VI (section 8) of the renewable act.

Non-compliance of RPO: In case any complaint is filed before the Appropriate Commission by any person or if that Commission is satisfied that any generating company or licensee has contravened any of the provisions of this Act or the rules or regulations made there under, or any direction issued by the Commission or has not complied with the renewable purchase obligation or renewable generation obligation as specified, the Appropriate Commission may after giving such generating company or licensee an opportunity of being heard in the matter, by order in writing, direct that, without prejudice to any other penalty to which the generating company or licensee may be liable under this Act, such generating company or licensee shall pay, by way of penalty, which shall not exceed one crore rupees for each contravention and in case of continuing failure with an additional penalty which may extend to one lakh rupees for every day during which the failure continues after contravention of the first such direction:

  1. Provided that in case of non- compliance of by a generating company generating
  2. Renewable Energy, such generating company shall be liable to a penalty not exceeding
  • rupees ten lakhs contravention and in case of continuing failure with an additional
  1. penalty which may extend to ten thousand rupees for every day during which the
  2. failure continues after contravention of the first such direction.”

These strict penalty clauses will further enhance the state commission effort to implement the obligation. The state commission has also changed their outlook. They are also insisting the utilities to fulfil their RPO’s without any failure. JERC (Procurement of renewable energy) has stated that:

“if the obligated entity does not fulfill the renewable purchase obligation as provided in these regulations during any year and also does not purchase the certificates, the Commission may direct the obligated entity to deposit into a separate fund, to be created and maintained by State Agency, such amount as the Commission may determine on the

basis of the shortfall in units of RPO and the forbearance price. It shall also be liable for penalty as may be provided by the Commission under Section 142 of Electricity Act, 2003″

The JERC in its order dated 12th Nov 2014 has showed strictness asking them to submit the annual report about the RPO compliance.

This trend has increased thereafter, asking the utilities and discom to fulfil their obligation. The APTEL as well as the high court and Supreme Court are also seen favouring the commission proposal of RPO compliance. The Rajasthan high court judgement in Oct ’12 has asked the concerned authority to purchase the RPO as per the Open Access consumer. The judgement of Gujarat high court against Lloyd’s metal and energy ltd. states that the RPO should be fulfilled for the co-generation power. The same ruling comes out for Karnataka against captive users in Aug ‘15 asking them to fulfil the RPO.

APTEL gave its judgement in a petition filed by various associations asking the APTEL to give directions to the SERC’s to comply with RPO regulations. As per the observation of APTEL, order states that

“While we accept that a number of State Commissions have been monitoring the compliance of the RPO Regulations by the obligated entities as per their Regulations, in some States it is not being done regularly. We find that some State Commissions do not have compliance status even for FY 2012-13. Some State Commissions have not responded to the notice and have not filed any response. It is also borne out by submissions made by Ministry of New and Renewable Energy and the Central Commission that many obligated entities have not been fulfilling their RPOs and are also not resorting to purchase of REC which has been provided for in the Regulations as a valid instrument for fulfilling the RPO. Some of the State Commissions have been allowing carry forward of the RPO even though RECs are available, in violation of their own Regulations.”


These are current happenings in the REC market. The future of the REC market is looking as lightness after a long dark tunnel. The same compliance order have seen regulatory action in several states like Orissa, Kerala, UP, MP , Maharashtra and many others is to follow. So, the next thinking towards the REC market should be a total YES!!!

The market shows the clear sign of recovery- with the push in the government initiatives. The government in the recent JNNSM has proposed the concept of bundling and purchasing the REC’s through NVVN. The floor and forbearance price of solar too has been decreased to the low of Rs. 3500 and Rs.5800 per REC respectively. These will lead to more demand of the REC’s. To reap the benefit of this market in the future we should look into the brighter side and should start investing at the current moment.

With due credit to
Saurabh Pandey
Junior Manager
Manikaran Power Ltd.



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2 Responses

  1. Hemansu says:

    Appreciate all hardwork done for this article, it contains very clear scenario with facts and figures

    Keep up the good work.

    • Saurabh Pandey says:

      Thank U sir. Comments like this motivates and boost me. Hope my post can help some one.

      Thanks and regards:-
      Saurabh Pandey

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