All You Need to Know About Renewable Energy Certificates (RECs)
Climate Change is arguably the most pressing challenge the planet faces today – which is why governments are prioritising sustainable development alongside energy transition. The leading cause for it, not surprisingly is the burning of fossil fuels like coal, oil, and natural gas which release greenhouse gases into the atmosphere, that in turn trap heat and cause temperatures to increase and catastrophes to occur.
Energy transition is a pivotal tool for Climate Action because solar, wind, and hydro-electricity do not directly emit greenhouse gases. They are a clean and sustainable way to generate energy to fuel industries and the transport sectors. One of the many tools in producing, purchasing and off-setting carbon emissions is an REC or Renewable Energy Certificate.
What are Renewable Energy Certificates?
Renewable Energy Certificate are market-based tools to incentivise production of clean energy from renewable sources. Under this mechanism, a developer can generate electricity through renewable resources in any part of the country – For the electricity part, the developer receives the cost equivalent to that from any conventional source while the environment attribute is sold through the exchanges at a market determined price. Any entity looking to green its footprint can purchase these RECs to meet its RPO compliance. Moreover it also serves as a tracking mechanism for the quantum of wind
and other RE flowing into the grid.
In unit terms – one REC (Renewable Energy Certificate) represents 1 MWh of energy generated from renewable sources.
How do Renewable Energy Certificates Work?
RECs are tradeable, intangible energy commodities – and in India they are traded in both power exchanges, the India Energy Exchange IEX and Power Exchange of India.
- Every time the operator of a certified renewable energy source like a solar plant or wind farm inputs one MWh of electricity to the power grid – that producer is awarded an REC.
- Bulk consumers like commercial, industrial, institutional businesses or Discoms can in-turn purchase a certain proportion of RECs to meet their RPO (Renewable Purchase Obligation) compliance.
The price of RECs is determined by market demand and contained between the ‘floor price’ or minimum and ‘forbearance price’ or maximum, specified by the Central Electricity Regulatory Commission (CERC).
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How are RECs beneficial for Renewable Energy developers and Consumers?
- They are efficient tools to incentivise and develop the country’s RE marketplace
- Aid businesses who have stringent Net-Zero goals but not enough access to traditional wind and solar power purchase
- For purchase of RECs, businesses will not need to alter existing power contracts
- RECs are not limited by any transmission constraints or geographical boundaries
RECs can be a great option for companies looking to maximise their renewables consumption. Apart from being attractive to companies that have space constraints for on-site projects or are in regions where State policy support for open access is lacking; RECs can also be useful for firms that already rely on onsite and offsite RE sources but want to enhance their consumption of green energy.