Renewable Purchase Obligation (RPO) & Renewable Energy Certificate (REC)

RPO
The Electricity Act 2003, National Electricity Policy, Tariff Policy has placed upon the State Electricity Regulatory Commissions the responsibility as well as authority to promote cogeneration and generation of electricity from renewable energy sources within the respective states, by providing suitable measures including specification for purchase of electricity from such sources, a percentage of the total consumption of electricity. In the National Action Plan for Climate Change dated 30th June 2008, it was advised that the national standard for renewable energy may be set at 5% of total GRIDs purchase and to increase the same by 1% each year for 10 years, however, SERCs may set higher percentages over this minimum limit. Pursuant to this provisions and advices the State Commissions have come up with RPO Regulation time to time, even as early as in 2005 when Andhra Pradesh and Gujarat introduced their RPO Regulation. Gradually further 12 states participated in that rally. However, in implementation of State Level RPO following obstacles being perceived:1) Mismatch between availability of Renewable Energy and the requirement under RPO obligation within a state. 2) i) The states where the Renewable Sources are scarce did not bring about any such RPO Regulation or has kept the obligation at bare minimum level. ii) Whereas, the states rich in renewable energy did not get any reason to promote generation in excess of what is required to meet obligation of the state, as renewable energy costs higher than the conventional energy. 3) Lack of harmony among the regulations of different states. 4) Transmission loss when the obligated entity is remote from the Renewable Energy Generator. 5) Weaker Enforcement Methodology. With a view to address the above difficulties the Forum of Regulators (FOR) is established and REC mechanism is introduced by way of CERC REC Regulation, 2010.

Following this central regulation the states have also introduced more or less harmonized RPO Regulations. When the regulations of different states are principally more or less identical, significant variations in the percentage of obligation is noticed. State-wise statement of obligation percentage is attached herewith as Annexure-I. Those RPO Regulations have mainly prescribed the following 1) Who will be obligated under RPO? - Distribution License - Consumer of electricity from CPP - Procurer of electricity through open access. 2) Quantum of obligation under different type of renewable energy sources. 3) Means of meeting the obligation - By physical purchase of electricity from the specified sources; or - By purchase of REC through energy exchange. 4) Effect of default. Now the Industries which are the major consumers of electricity are feeling the maximum heat of these emerging regulations. Power consumption at a rate of 1 Mw will result in obligation of Rs.7.2 Lac to 17.5 Lac per year (when RPO is 5%: 0.1% Solar and 4.9% NonSolar). * Rate of per unit of REC is provided in the last page of the note. When the consumption is met through the distribution licensee, the distribution licensee will meet the obligation, whereas, while it is consumption from Captive Power Plant and especially when it is co-generation / generation based on renewable energy then the question arises whether those type of consumers will also come under the purview of State RPO Obligations. The Appellate Tribunal of Electricity (APTEL) has given a clear judgment in the case of M/s. Century Rayon of Maharashtra (Appeal No.57 of 2009; order dated 26.04.2010) that Century Rayon being a consumer of electricity from its Captive Co-generation Plant shall not be treated as obligated entity under RPO Regulation, even if the co-generation is from fossil fuel. The judgment has been passed are primarily on the following ground:(I) The plain reading of Section 86(1)(e) does not show that the expression cogeneration means cogeneration from renewable sources alone. The meaning of the term co- generation has to be understood as defined in definition Section 2 (12) of the Act.

(II)

As per Section 86(1)(e), there are two categories of `generators namely (1) cogenerators (2) Generators of electricity through renewable sources of energy. It is clear from this Section that both these categories must be promoted by the State Commission by directing the distribution licensees to purchase electricity from both of these categories.

(III) The fastening of the obligation on the co-generator to procure electricity from renewable energy procures would defeat the object of Section 86 (1)(e). (IV) The clear meaning of the words contained in Section 86(1)(e) is that both are different and both are required to be promoted and as such the fastening of liability on one in preference to the other is totally contrary to the legislative interest. (V) Under the scheme of the Act, both renewable source of energy and cogeneration power plant, are equally entitled to be promoted by State Commission through the suitable methods and suitable directions, in view of the fact that cogeneration plants, who provide many number of benefits to environment as well as to the public at large, are to be entitled to be treated at par with the other renewable energy sources. (VI) The intention of the legislature is to clearly promote cogeneration in this industry generally irrespective of the nature of the fuel used for such cogeneration and not cogeneration or generation from renewable energy sources alone.

In contrast, in the Statement of Objects and reasons of CERC REC Regulation, 2010 dated 27.09.2010, the CERC has expressed some different intention which is reproduced below:Treatment of self-consumption by CPP based on renewable: Comments of Stakeholders The following comments have been received from the stakeholders: a. REC should not be issued for energy which goes into meeting their own Renewable Purchase Obligation (RPO) obligations. (Gujarat Urja Vikas Nigam Ltd, GETCO) b. CPP should be eligible for REC for whole generation and retain the number of RECs required for fulfilment of his own RPO. (IWPA, Karnataka Council)

Findings of the Commission The Commission would like to clarify that subject to the eligibility for participation under REC mechanism, REC would be issued on the electricity generated (including clearly identifiable self consumption) and injected into the grid, whereas RPO would be applicable on consumption of electricity. As such, the entire generation from a CPP based on renewable (including generation used for self consumption) would be eligible for REC. The consumption of CPP (which could include consumption of electricity generated from its own plant and/or the electricity supplied by the DISCOM) would be accounted for separately and RPO would be applicable as % of the energy equivalent to self consumption. The CPP can meet its RPO (part or full) out of the REC issued to it on account of the electricity generated from its plant. The commission is in agreement with the suggestion of IWPA that the CPP should be eligible for REC for whole generation and retain the number of REC,s required for fulfilment of his own RPO. Thus from the above it could be felt that the intent of the CERC is to demarcate the Generation Part and Consumption Part of a Captive user, with a view to bring the consumption under the purview of Renewable Energy Purchase Obligation and in the other side give the Generation Part the status of eligible entity subject to the provision of the regulation. However, till the APTELs order is in force, the co-generators shall not be treated as obligated entity, which is quite justifiable considering the provisions of the Electricity Act, 2003 and National Electricity Policy.

** In this context it is worthy to mention that Orissa is the only state where an obligation for purchase of co-generation power has been placed on the obligated entity, in 2011-12 the obligation is 3.7%, which is being gradually increased to 4.70% in 2015-16. The term Obligated Entity has been defined in Odisha RPO Regulation in order to keep the non-conventional captive power plants out of the purview of the obligation. Whereas, the APTEL in the case of Century Rayon has treated the co-generation plants as nonconventional power plant.

REC
REC is a mechanism, which is implemented by introduction of CERC REC Regulation, 2010, with the intent to address the mismatch between availability of RE resources in a state and the requirement of the obligated entities within the state to meet their renewable purchase obligation. This mechanism facilitates transaction of Environmental Attributes component of Renewable Energy generation for meeting obligation under RPO Regulation without physical transmission of energy.

One REC refers to Environmental Attributes of 1 Mwh power generated from Renewable Energy Sources. Electricity generation from Renewable Energy Sources

Electricity Component

Environmental Attributes Component i.e. REC

Distribution Company / Third Party Sale Or Captive Consumption

Sale to obligated entity through Energy Exchange

Thus the RPOs of various State Commissions are provided to establish obligation on the Distribution Licensees / Consumers of respective states; whereas, the REC Regulation is providing a nation-wide common platform for meeting the renewable purchase obligation. Thereby the eligible entities can sale REC through exchange beyond the state boundary, which feature will largely promote new investments in renewable energy sector. The basic features of CERC REC Regulation, 2010 is given below:Consumers of Electricity are the obligated entity Generators of Electricity from renewable sources are the eligible entity to get REC issued, and to sale those through energy exchange. As per the regulation there are two types of certificates

 

Solar Certificates

: For generation of electricity based on solar source

Non Solar Certificates : For generation of electricity based on renewable energy sources other than solar * Note: Co-generation (fossil fuel based) is not considered as eligible for REC issue.

Registration of Renewal Energy Projects, issue of REC is vested with the Central Agency. The REC certificates shall be traded through nation-wide trading window Energy Exchange. The state agencies have a subsidiary role to accredit the Renewal Energy projects for registration, maintaining records of energy generation, energy injection to Grid network etc.

Under REC Mechanism price bands for certificates have been specified, within which the price of certificates can more according to demand and supply of REC. The price bands of certificates are given below:Rs. per unit of REC Max. Min. Solar REC Non-Solar 1,2000 1,500 17,000 3,900