Renewable Energy Compliance Soars as REC Prices Plummet

The recent nosedive in renewable energy certificate (REC) prices, hitting an unprecedented low of Rs 300 per certificate in the last trading session on March 13, has ignited a surge in compliance among power distribution companies (discoms) towards meeting their renewable purchase obligations (RPOs) for the ongoing fiscal year.

This significant drop from the previous floor price of Rs 1,000 per certificate has facilitated a remarkable improvement in discoms’ adherence to RPOs, with compliance soaring to 90% in the last fiscal year compared to a historical average of around 60%. Market analysts anticipate that the current year’s compliance figures are poised to mirror the previous fiscal’s achievements, attributing the deviation from full compliance to a decline in hydro power generation. Despite this setback, industry experts emphasise the immense opportunity presented by the prevailing competitive band of REC prices, enabling obligated entities, particularly state discoms, to fulfil their RPO mandates at optimal costs before the fiscal year’s closure on March 31, 2024. The surplus availability of REC certificates in the market, coupled with regulatory adjustments eliminating the concept of floor and forbearance prices, has driven down REC prices and bolstered their trading volume on power exchanges. REC inventory as of March has surpassed 30 million, with approximately 85% of REC trades occurring on power exchanges, underlining the growing preference for these platforms owing to their competitiveness, transparency, and liquidity depth.

However, despite the positive momentum, certain states including Uttar Pradesh, Chhattisgarh, Punjab, Maharashtra, and West Bengal are yet to fully comply with their respective RPOs, as indicated by tariff and true-up orders. The current REC price decline presents a strategic opportunity for these states to expedite their renewable energy targets at minimal expenses, further reinforcing the imperative to align with state and central mandates for renewable energy consumption. This concerted effort not only advances renewable energy growth but also contributes towards grid integration, bolstering India’s pursuit of achieving a net-zero emissions target by 2070. As the country navigates its transition towards sustainable energy sources, the recalibration of REC prices underscores a pivotal milestone in driving renewable energy adoption and meeting ambitious sustainability goals.