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Renewable Energy Certificate to promote development of Green Power, Shri R V Shahi, Former Secretary, Ministry of Power

Indian Energy Exchange organized a one day Workshop on "Renewable Energy Certificate" at Ahmedabad on July 16, 2010. I had the opportunity to address the participants during the inaugural session. Chairman and Member of Gujarat Electricity Regulatory Commission and the Director of the Gujarat Energy Development Agency also addressed the participants in the inaugural event. The important points made are outlined below:

  • Power generation in India is highly weighted in favour of fossil fuels. Though at around 15,000 MW, electricity generation capacity from new and renewable energy sources constitutes about 10% of total installed capacity, it is less than 3% in terms of power generation.

  • I have always held the view that there is no reason why the entire capacity of the hydroelectric projects should not be treated as renewable. The present distinction of branding hydro power plants of 25 MW and below as renewable, leaving the larger plants outside, does not stand any logic. If we consider all the hydro projects, which constitute about 25% of the total installed capacity, the power generation under renewable category would constitute larger proportion - about 3% from the new and renewable category and additional 15% from the large hydro power plants. For the purpose of the discussions on Renewable Energy Certificate (REC), however, let us not include the large hydro projects.

  • As mentioned earlier, India's power generation profile is so skewed that it would continue to be under global pressure on account of climate change concerns to develop strategy on energy and power development which mitigates the green house gas emission concerns. India's position that per capita emission of CO2 is much less than the global average is, no doubt, a strong argument. Yet, if we look at the projections for next 20 years, as brought out in the Integrated Energy Policy, the dominance of fossil fuels for power generation continues. As a result, the per capita emission is bound to increase. While, we will continue to carry conviction, and rightly so, that for pursuing our development path, inevitability of dominance of fossil fuel would be a reality, our commitments towards green energy would be equally strong and sincere. We need to explore and work on all possibilities to substantially enhance power generation through new technologies which are renewable in nature.

  • Under the Electricity Act (2003), National Electricity Policy (2005), Electricity Tariff Policy (2006), there are specific provisions to encourage power generation through renewable sources. Regulatory Commissions at the State level have been obligated to prescribe a proportion of power, which should gradually be increased, which the distribution companies must procure from generation sources in renewable category. Under the Electricity Tariff Policy, Regulatory Commissions have been advised to formulate and notify special tariffs for such power. It is gratifying that in most States it has been done. In the last couple of years, CERC as well as State Regulatory Commissions have demonstrated definite commitments towards promoting renewable energy.

  • While the process to develop these projects has received momentum, considering the huge untapped potentials, there is a need to further accelerate this process. There are States which have significantly larger potentials for different categories of renewable power. For example, hill States could house a large number of micro and mini hydel projects, States of Gujarat, Rajasthan, Maharashtra, Karnataka and Tamil Nadu have significantly high potentials for wind power, States like Gujarat and Rajasthan have much larger potential for solar power. Also, there are many States which have considerably very low potential for most of the renewable systems.

  • We need participation of all States in the process of expanding renewable energy generation capacities. We need to avoid a situation that if a State has reached its prescribed responsibility in terms of purchase obligation under the renewable category does not become disinterested or indifferent to further promote its expansion. Similarly, we also need to avoid a situation under which a State, which has no potential left to facilitate generation of such power, comes out with a plea that it is helpless and can do pretty little to promote renewable energy generation. The instrument of Renewable Energy Certificate is a solid and substantial answer to both the above problems. In spite of reaching the limits of purchase obligation, a State can still be enthused to further facilitate expansion because the REC it purchases can be sold through Trading of REC. Similarly, States which are not in a position to meet their purchase obligations fully can buy such Renewable Energy Certificates. The players in various States, in this regard, would be the Distribution Licensees, Captive Power Producers, Open Access Consumers and Power Generators.

  • This process is not only going to catalyse speedy development of renewable energy, but can contribute significantly towards bringing down the price of power through such technologies. One of the reasons for the high price of power through new technologies has been the lack of economy of scale. The expansion of wind power has demonstrated that within a period of 10 years the prices have come within the range of acceptability, even if it does not compete fully with conventional power. Similar situation may get created if we allow large scale expansion of power generation through bio-mass. Perhaps solar would reach a similar stage in next 10 to 15 years. Indian electricity market, which is going to see a growth rate of 8 to 10% in next 25 years, is capable to provide a very strong base for substantial expansion, at rates higher than the average mentioned above, for the renewable power. And, it is this phenomenal growth which can drive down the price in all categories of renewable power.

  • Regulators have a very important role to play. Regulators have to appreciate the need to continuously increase the ratio of purchase obligation for distribution companies, captive consumers and open access consumers. It is this increasing proportion which will create continuously expanding market for renewable energy. This strategy and resultant policy, coupled with the instrument of Renewable Energy Certificate, will lead to meeting the prescribed targets of generation and supply of renewable power.

  • Power Exchanges will have a major role in facilitating sale and purchase of REC's. In initial years, since the obligations placed on concerned utilities and other players may be difficult to meet to purchase such power, the prices of REC's are bound to be high. It is this phenomenon which will lead to investments for development of such generation systems. Shortages lead to investments till the time the demand and supply start getting balanced and the prices start getting stabilized, in the larger interest of consumers. This is a situation which every Regulatory Institution will like to have eventually. But, to reach such a stage, the Regulators have to cause things to happen, script the road map and ensure implementation.

  • In Gujarat several important developments have happened in recent years and are happening now to promote renewable power. It has more than 1,800 MW of wind power. During the year 2010-11, most likely it would add about 620 MW of wind power. The Regulatory Commission has prescribed a purchase obligation of 5%, which will increase at a rate of 1% every year. This is indeed laudable considering the fact that overall renewable power constitutes not more than 3% of the total in the country. The Regulatory Commission has also revised, during the last six months, tariffs for all the renewable power categories. It was the first State which notified tariff for solar power. Gujarat has been promoting solar power in a significant way. It has already signed Power Purchase Agreement for more than 350 MW of solar power. What is more remarkable is that the Gujarat Electricity Regulatory Commission has already notified the Regulation on Renewable Energy Certificate. Example of Gujarat should serve as a benchmark for various States.

Power Exchanges have to prepare, so that purchase and sale of REC's becomes a smooth process. The concept has to be disseminated among various stakeholders viz. Distribution Licensees, Captive Consumers and Open Access Consumers who are obligated to purchase REC's. Similarly, the renewable energy generators other than those who have signed the Power Purchase Agreements and all those who are interested in the overall development of power sector in general and renewable power in particular need to know the developments, in order that they make positive contributions in this regard.