Demand for RECs expected to rocket by 2016

Despite only 5 of India's solar Renewable Energy Certificates (RECs) being traded when the solar offsetting mechanism started this May, consulting firm Bridge to India has predicted some 480 million RECs will be changing hands by 2016.

Under the country's Jawaharlal Nehru National Solar Mission, certain energy users – obligated entities such as power distribution companies – must fulfill Renewable Purchase Obligations (RPOs) relating to the amount of their energy generated from renewables.

In addition to generating their own renewable energy and buying power from renewable providers, companies can also offset some of the RPO requirement with the purchase of RECs from renewable providers, who receive 1 REC for every MWh of renewable energy generated.

With India's Central Electrical Regulatory Commission (CERC) attempting to allay fears that companies will be allowed to wriggle out of their RPO obligations, Bridge to India has studied the expected solar capacity figure in India annually from 2012 to 2016 and calculated the total solar RPO requirement annually.

Working on the assumption that obligated entities will fulfill around 75% of their RPO by buying renewable energy from solar providers, the consultancy has calculated 480 million RECs will be traded by 2016.

At present, entities such as power distribution companies wait until the financial year-end to discover how rigidly RPOs are enforced, state by state, and then rush to fulfill their obligations with REC purchases, but the CERC is seeking to address the unpredictability of the REC market by enforcing RPO compliance on a quarterly, rather than annual, basis.

Bridge to India's report also attempts to address the unpredictability in REC prices after 2017 – a possible hindrance to solar energy providers after the current guaranteed REC floor price of €155 expires.

The consultancy predicted the levelized cost of electricity (LCOE) and the lowest average power purchase cost (APPC) across the states of India, and subtracted the latter from the former to predict a floor price, post 2017. Using this figure, Bridge to India predicts RECs will trade at somewhere between €34 and €62 after 2017.

Source: Business Week