Apart from the lack of RPO
enforcement leading to a poor demand for RECs and the falling forbearance and
floor prices, the REC mechanism is facing a new and even greater challenge. The
entire premise of the REC (of separating the power and green attribute) was to
overcome the renewable energy resource mismatch across states and allow for RPO
compliance without the actual trade of renewable power across states.
However, with the emphasis on solar
parks and large wind projects connected to the ISTS, it is now feasible to
actually transmit renewable power across states, unlike the situation some
years back. Competitive bidding has ensured very low generation prices in such
large wind and solar PV projects. The waiver of ISTS transmission charges by the
MoP and the CERC has further incentivized trade across states. Hence it is
likely that renewable energy resource poor states may prefer buying such
interstate renewable power than procure RECs in the future.
Secondly, the IEX has petitioned the
CERC for the introduction of a green instrument Green Day Ahead Market (G-DAM)
on the power exchange which will allow renewable energy specific trade of
power. It would enable merchant capacity to be sold on the exchange. This would
allow obligated entities to procure short term renewable power through
exchanges to meet their RPO, thus further depressing the REC mechanism. One
potential positive sign for the REC mechanism is the surplus capacity situation
in many states and such states may possibly prefer buying RECs for RPO
compliance than procure further power and exacerbate the surplus situation.
Given these stark realities of the
changes and upcoming challenges in the sector, the whole basis for the REC
mechanism needs to be seen in this light and re-examined afresh. Unless the REC
prices are truly reflective of the market prices, obligated entities are more
likely to seek compliance through other means such as Open Access, Captive,
Group Captive, Power Exchanges and rooftop solar net metering. Future investments
in the REC mechanism will also dry up if there is a stark difference in REC and
market pricing. The MNRE, MoP and FoR should initiate a discussion on the
possible fundamental policy and regulatory changes needed to keep the REC
framework relevant and effective if needed in the future.